North was recently quoted dropping some knowledge in the article, 5 Lifelines For You Startup on Entrepreneur.com.
Here’s an excerpt:
Posted in Entrepreneurial Insights, Investor Insights, Uncategorized, What's Happening At North?, tagged Entrepreneur, funding, raising capital, startup, Support, Venture Analysis on June 19, 2009| 1 Comment »
North was recently quoted dropping some knowledge in the article, 5 Lifelines For You Startup on Entrepreneur.com.
Here’s an excerpt:
Solida, founder of Cerevellum, which sells digital rearview mirrors for bicycles, had posted his business plan on several websites promising to connect him with investors in exchange for a few hundred dollars.
Posted in Entrepreneurial Insights, Investor Insights, tagged Angel investing, efactor, Entrepreneur, funding, fundingpost, fundinguniverse, gobignetwork, raising money, startup, Support on March 27, 2009| Leave a Comment »
The scarcity of capital for early stage companies in recent years has lead to the creation of literally thousands of businesses focused on helping entrepreneurs raise money for their start-ups. At North, this subject is close to our hearts, as we’ve made it our mission to make the entire process for fostering, filtering, and funding entrepreneurial innovation more efficient.
While some individuals and companies are taking strides to optimize entrepreneurship and inspire innovation, others unfortunately seem to be falling into the all too familiar trap of playing “follower,” when today’s economy desperately needs leaders. While there’s certainly value to extract from a few of these businesses, many unfortunately are coming up short of industry expectations, launching the exact same set of features and functionality as those that came before them.
“They have taken their cue from the Gold Rush when the truly crafty business-people made money not from prospecting but by selling shovels to the prospectors. Likewise, today’s money-raising services have found a low risk means to separate the cash-starved entrepreneur from any money he or she may have left.” – Antiventurecapital.com
In this section, we highlight a few of the emerging ideas, ventures, and individual brand names that either have or are in the midst of trying to bring much-needed efficiency to the early stage venture market. Are any the long-awaited silver bullet that is going to help accelerate economic growth when now we need to create innovation faster than ever before?
You be the judge. Let’s take a closer look at the Pitch Farms.
We’ve already spoken at length about the recent proliferation of the “Pitch Farms,” those online destinations that promise to connect start-ups with the investor community. If you’re an entrepreneur, you’re probably very familiar with the usual suspects that offer up their virtual cork board for some type of fee (usually a recurring monthly one): FundingPost, FundingUniverse, EFactor, and GoBigNetwork to name just a few.
David Rose, Founder and CEO of Angelsoft, considered one of the “smarter” pitch farms, outlines both the opportunity and the shortcomings of these destinations when he said, “…there are many, many web sites out there which purport to connect, or ‘match’, entrepreneurs seeking funding with potential investors. By our own count, there are probably three or four dozen, and that’s without looking very hard. The reason there are so many is that it’s like shooting fish in a barrel: how many starving entrepreneurs wouldn’t want to come to a web site that promises them cash?!”
Mr. Rose originally launched Angelsoft to Angel groups software that enabled submissions, file management, and group communication tools. It was a lot of the infrastructure that traditional Angels needed to scale and to update their current submission processes and makes them more “new economy ready.” However, Angelsoft has since morphed into another massive deal farm for the start-up community. Perhaps pleasing their engineers on staff, they now offer up a dizzying array of features and software updates. So many in fact, it makes an average Angel investor feel as though they’re playing around on their kid’s Facebook page.
Even with the questionable, confusing, and clearly off-target features, it’s not hard to tell that Mr. Rose has his sights on consolidating the entire early stage venture market. With 442 Angel groups, over 14,000 investors, and a staggering 2,000 new venture applications per month, they now have an Open Deal pitch for $250 a pop that allows an entrepreneur to get their plan in front of all 14,000 investors with the click of a mouse (if those investors were actually logged on and could even find their way to the Open Deal room…).
“The sad reality, however, is that while it is extremely easy to get hungry entrepreneurs to list their plans, it is well-nigh IMPOSSIBLE to get investors to show up on the other side of the curtain…for the simple reason that (a) the ratio of investors to entrepreneurs is about 1:1000, and (b) investors are so deluged with opportunities that they simply don’t go out LOOKING for plans; plans come to them!” says Mr. Rose who in his own words admits he’s got an efficiency problem on his hands.
Recently Angelsoft started to actually push deals onto the unsuspecting investors of all the third party Angel groups that use their software. This pushy intrusion comes in the form of a bi-weekly unsolicited email filled with recent venture submissions. Angel groups that signed up for Angelsoft to help manage their Angel group now find themselves competing for their own investor members attention with the unrequested (and often unwanted) deal flow being shoveled onto their members by an Angelsoft email server that seems to have its dial stuck on “spam.”
“With Angelsoft, all of the personal aspects of Angel investing seem to be removed from the equation. My materials are submitted through Angelsoft forms, and then disappear into some system that encourages a group of busy angels to evaluate the opportunity in a black box. Do they like it? Do they hate it? Do they even read it? I have no idea, since I have never heard anything!” comments a disappointed entrepreneur.
For all the aggressive email action and striking numbers on this site, one has to wonder, is it really delivering on quality deal flow or just polluting the Internet with more “not ready for prime time” quantity? As of this writing, Angelsoft reports that just 1.32 percent of start-ups on their site have been funded, and that the average number of “views” for each submission is only 5.3 (Which means an average submission is viewed by only 1 of every 3,000 investors that Angelsoft claims to represent). For entrepreneurs and investors, the verdict is still out on whether this site is more “soft” than true “Angel.”
The following excerpt is taken from Breaking Through The Broken: The Transparent Guide To Overcoming The Inefficiencies In Early Stage Venture Capital.
There’s no question that success comes through hard work and persistence. If that’s the case, why does the media focus only on those stories of achievement? Flip through the pages of Inc and Entrepreneur, or watch Donny Deutsch on the Big Idea and you’d think wild and immediate success is the norm for an entrepreneur. Well, the fact is, the majority of new businesses fail, but the learnings from these failures can be invaluable if an entrepreneur uses the setback as a chance to dig in and come back stronger.
In order for innovation to take flight on a grand scale two things need to happen. First, we need to provide entrepreneurs with more honest and candid feedback on what it takes to succeed. Currently, it seems that most investors still aren’t willing to roll up their sleeves to help nurture and cultivate new entrepreneurial talent. Read any entrepreneur blog these days and you get the feeling that investors are out to make entrepreneurs feel unworthy of their money. While it’s not true, the best way to stunt innovation is to offer no constructive feedback at all (positive or negative).
The second necessary ingredient for innovation to expand is for entrepreneurs to make the personal investment it takes to be a success. In Malcolm Gladwell’s latest book Outliers, there is a chapter about what it takes to become a world-class talent. Gladwell quotes neurologist Daniel Levitin, “The emerging picture from such studies is that ten thousand hours of practice is required to achieve the level of mastery associated with being a world class expert – in everything. In study after study, of composers, basketball players, fiction writers, ice skaters, concert pianists, chess players, master criminals, and what have you, this number comes up again and again.”
Entrepreneurs pay attention; success in business or sports isn’t based on luck or talent, but hard work. When asked to sacrifice their time, salary, or personal savings to make a business fly, far too many entrepreneurs walk off the practice field, refuse to hire the high priced coach, or simply cut corners. The insight here is that there is no easy path to greatness; to make it you have to pay your dues and commit completely. Could you imagine an amateur athlete telling the New York Yankees that “after” they pay him millions of dollars, “then” he’ll go hire a batting coach and spend 10,000 hours to learn how to hit a 95 mph fast ball?
“The odds aren’t that much different for start-ups. You are going to be embarrassed, ashamed, labeled as an idiot, shunned, ridiculed, and occasionally driven from the village with pitchforks. On average, YOU ARE GOING TO FAIL. MULTIPLE TIMES, in NEW & INTERESTING ways. GET USED TO IT. In fact, the more you are used to failing — and failing fast, with data on how you fail — the better off you will be.” – start-up advisor Dave McClure.
Remember, most investors are completely buried in business plans and simply can’t dive deep into each one on a personal coaching level. So, just because an individual is not willing to fully commit to funding your venture does not mean your idea is a bad one. Perhaps it’s just not “investor ready” and what you really need is a nudge in the right direction. Even if it means no money (yet), an investor’s comments and suggestions may prove to be the pivotal moment in the path to success for a young company. Insight; don’t just make it your mission to get in front of people that will listen, but people that will also dole out generous portions of perspective.
Let’s not forget that entrepreneurs, and the investors that support them, need all the help they can get to turn their ideas into world-changing realities, and contrary to popular belief, more money is not the only answer.
The central issue is not with the quantity of ideas or number of willing investors, but rather in properly pairing the two. There are plenty of investors willing to provide the capital needed by the entrepreneurs working to change the world, but there is often a communication breakdown between the two parties. On one side there are the mysterious “deal makers” who might seem easy to reach with the click of a mouse, but in reality are incredibly difficult to engage with meaningful dialogue. On the flip side, there are the passionate entrepreneurs who are eager to find out what an experienced investor thinks of their “big idea,” but usually hear back nothing at all after submitting their materials for consideration.
So what’s the rub?
Well, there are a number of problems that are holding us back. For one thing, the process for raising venture capital is shrouded in secrecy. Isn’t it strange that in an industry hell-bent on building new companies and “inspiring innovation”, most investors aren’t even willing to take the time to give entrepreneurs some valuable feedback; specifically telling what they’re looking for, and guiding entrepreneurs to focus on certain areas of a business if they want a legitimate shot at raising investment capital? Don’t you think if entrepreneurs built their businesses around the actual criteria they were being evaluated on, they’d have a much better shot at connecting with investors? Of course both parties have to be judicious with time and energy, but the complete lack of communication is beneficial to no one.
What is so frustrating is that both parties really need each other; the future of the world (seriously people) can be very positively affected if this communication gap is bridged. Bottom line, while investment capital injected into a handful of new ventures is great, most early stage companies need much more than money. The benefits of transparency, guidance, and mentoring that an experienced investor can provide can ultimately prove to be the difference between success and failure. If an investor has wisdom to share, they should be generous with it, not hold it so close to their vest. As Ronald Reagan might say, “Tear down this black box and start to educate entrepreneurs and other investors about what works and what doesn’t.” After all, neither investors nor entrepreneurs (or our economic recovery) are well served by spending weeks or months to move a venture forward if it’s fundamentally flawed in its infancy.
With the number of new small businesses expected to rise in 2009 (with job losses high and traditional employment options limited), many will take the opportunity to test their entrepreneurial chops. Start-ups are now cheaper to launch than ever before, as $500K has become the new $5 million. Primarily because basic software that was once absurdly expensive is now free (open source), and astonishingly good hardware (or virtual processing power) is now very affordable. But before an entrepreneur will be able to transform an innovative idea into a real operating company, they’ll most likely need to seek a credible outside source of capital (and counseling). While the choices are abundant, the routes for depositing a round of funding in your bank account still remain challenging to navigate. The benefits of secrecy are far too one sided. To change our future we need to re-think the past. Moving forward into an era of collaboration and transparency isn’t just a nice idea; right now it’s an imperative.
Excerpt taken from Breaking Through The Broken: The Transparent Guide To Overcoming The Inefficiencies In Early Stage Venture Capital. In the coming weeks, we’ll be posting even more insightful nuggets from this paper. However, if you’d like to read & download all 33 pages of constructive prose right this moment, it’s sitting on our website: www.dontgosouth.com.