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Posts Tagged ‘north venture partners’

This  element is designed to look for a key trait in the management team of nearly all successful new ventures: speed. While some people can drive a car comfortably at 100 MPH, others start to panic and constantly ride the brakes. Key entrepreneurial instincts and the ability to move quickly (combination of confidence, analysis, and risk) are core to moving nearly all business ventures forward. Can the team keep up with the aggressive pace a start up demands? Or are they a group of “over-thinkers” who have a tough time making decisions? What questions do you ask to find out if the management team has what it takes to accelerate?

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There is certainly a balance we look for in this category.  Swiftness of execution is an essential component for any startup, but there is a good deal that needs to be sorted out before the plan is followed through.  A great analogy here is to think of painting: preparation is 80% of the work. Obviously, figuring out how to turn the crank and make money with your business as quickly as possible is the goal, but putting all your resources into a plan you suspect is the right one before actually knowing for sure is a recipe for disaster.  In other words: you must first do the planning before you can start executing at full speed.  You don’t want to be sprinting down a dead end, do you?

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How fast are you going? Go to www.venturephenomeproject.com and share your experiences with investors and entrepreneurs.

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261728814_887d305c1dWhen evaluating a venture, one of the key areas to look at is the company’s projected time to break even. In economic terms the equation looks like this: (Break Even = Fixed Cost / (Unit Price – Variable Unit Cost)), but in reality the break even point is a huge day for a new business.

The purpose of this element is to determine how far the business is from that magic point where revenue can eclipse costs. Does a venture require more than 24 months to break even or has it used a skeleton staffing model to crack the code in under 6 months? And if the economic model is fundamentally broken, breaking even is probably nothing more than a fantasy. The break even point is critical, and any venture that can’t reach this point quickly will face mounting pressure as capital consumption starts to create a moving brick wall coming towards the company. How patient should investors be for reaching the break even point? How long is too long?

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Remember, sales forecasts for new products are notoriously inaccurate, and giving yourself less than a 10% margin for error seems risky. When looking at new ventures, we immediately throw the projected financials into excel and put them through a stress test, making sure that the management team has left themselves some wiggle room. Most investors are usually not willing to wait more than 18 months to see a profit, so some flexibility with the pricing structure is a good thing.

Have you left yourself some wiggle room? Go to www.venturephenomeproject.com and share your experiences with investors and entrepreneurs.

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Did McDonalds take Starbucks seriously? Think they do now?

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A crucial undertaking of any new venture analysis is doing a thorough assessment of the Competition.  All new products are judged by consumers relative to existing products in the market. If there’s not a clear understanding of what’s already available (inside and outside of category), a business will have a heck of a time carving out a clear product position in the minds of potential customers. By reviewing competition in and outside of category, it allows one to be conscious of whom likely market entrants will be and enables one to view these other participants as either

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strategic partners or even emerging competitors. To the contrary, not all competition is bad. A rapidly growing competitor could indicate the emergence of a new category of product or service. Competitive advantages come in many forms and this Phenotype is designed to see that the business has

established some form of lead in the market. At the same time, we look to see if there are entrenched competitors or behaviors that would create limits to growth or expansion.

Have you done your homework on your competition?  Go to www.venturephenomeproject.com and share your experiences with investors and entrepreneurs.

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elastigirl_full_length3This  element looks at “the type” of manager that is leading the charge. There are legendary stories about leaders who no matter what changes take place, stick to the original plan. While sticking to the game plan is a good thing, if it means heading in the wrong direction for several years, it is a very very bad thing. It’s essential for managers to be be open and accepting of the many different challenges that they will likely face launching and growing a start up venture. What are some questions you ask to find out if the CEO is control freak? Or if they have good ears and are willing to use them? Are management teams that are open to shifts in their businesses and quick on their feet more likely to succeed? How important is flexibility?

Flexibility is, in my opinion, hands down the most important trait of successful entrepreneurs. I was involved with a startup not too long ago that is slowly dying because the CEO refuses to budge from the current business strategy.  I saw five employees (including myself) walk out on him simply because he’s been unwilling to adapt to new information with regards to the market and viability and of the product. In order to be successful, especially today, entrepreneurs must be able to make decisions quickly even if that means steering the ship in a new direction.

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I was suprised when I read this article, entitled “25 Common Characteristics of Successful Entrepreneur,”that flexibility was not called out specifically.  It inspired me to write…

Share your thoughts and experiences with what it takes to be a sucessfull entrepreneur at www.venturephenomeproject.com

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The purpose here is to determine whether or not the business is valued at an amount that is not appropriate (most likely too high) for where the business is in its development. For this element one should look to see that the NPV of cash flow, market estimates, prior investment, and assets under control all can be synergized into a valuation that makes sense to the investors and is in line with the market rate for similar investments. How crucial is valuation to the success of a venture? More accurately how important is valuation to the success of an investment?

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Paul Graham just published an insightful essay on Angel Investing, found here. There is a piece on valuations that I have included in this post because I think it’s a great description of how valuations of young companies are determined:

3197409634_86fb6a5f9e_o“There is no rational way to value an early stage startup. The valuation reflects nothing more than the strength of the company’s bargaining position. If they really want you, either because they desperately need money, or you’re someone who can help them a lot, they’ll let you invest at a low valuation. If they don’t need you, it will be higher. So guess. The startup may not have any more idea what the number should be than you do.”

How are you valuing companies? Go to www.venturephenomeproject.com and share your experiences with investors and entrepreneurs.

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While success is the favorable outcome for a new venture, it’s the return on investment that comes with that success that must inspect closely. In order to understand the potential return it’s important that one looks at the risk and potential upside that the business may have. The key to a strong overall investment opportunity is the ability for an investment to generate strong returns for the investors with minimized risk for downside. (Call it value investing if you want, but the key to profit is buying into a venture at the right price.) The profitability of a venture investment is influenced by; total funding requirements, the corporate structure, the existing shareholders, debt, valuation, type of financing instrument, liquidation preferences, partners, shareholder voting rights, legal issues, existing company assets, balance sheet protection, and the type and structure of board controls. This may be only one of 8 categories we look at in terms of identifying a solid opportunity, but it is by far the most important.

If this is what you see when you thinl LP, then you've got some work to do.

If this is what you see when you think LP, then you've got some work to do.

The purpose of this first element on this topic is to make sure that the company is formed as a legal entity and is in good standing with state and federal agencies. Some of this data will turn up in a simple background check, but this is more of a “pass or fail” element with some exceptions (i.e. acknowledgement of corporate structure issues and a very clear and rapid plan to fix the problem).

If you are unfamiliar with the basics of structuring a new business then your next stop should be at Michael Spadaccini’s article at Entrepreneur entitled “The Basics of Business Structure.” It’s a great resource that provide the pros and cons to each type of business structure and is a good place to start if you’re thinking about launching a new venture.

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This is just one of the key criteria forward-thinking investors use when evaluating the strength of entrepreneurs and their new ventures. How do you measure up? Go to www.venturephenomeproject.com to read all 80 criteria and swap knowledge with other entrepreneurs & investors.

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FOCUS

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The purpose of this element is to determine whether or not the company has clear focus. Often new ventures, in an effort to build up multi-billion dollar financials, expand their offering to many different products/services. Does the venture have a clear path for the business, not just offer a mixed bag of various products/services and revenue models? While the attraction to offer the target consumer more than one product/service may seem great on paper, more often this causes dilution in the efforts and stalls all areas of growth. Should investors be excited or afraid of a venture that has 12 different revenue streams?

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With a lot of today’s web companies a focused intention turns fuzzy as the management team wrestles with how they will monetize their site. Although there are many great ideas out there, only a small percentage actually build a revenue strategy into their new venture. Instead, they built a “cool” site and try to tack on a monetization strategy after they launch. Thus, a site built around a single idea begins adding features in an effort to become profitable. More features are not always a good thing, as the team will likely lose focus on their original goal. Key point: making money should not be a fuzzy afterthought, but rather should be a central focus.


This is just one of the key criteria forward-thinking investors use when evaluating the strength of entrepreneurs and their new ventures. How do you measure up? Go to www.venturephenomeproject.com to read all 80 criteria and swap knowledge with other entrepreneurs & investors.

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