Posts Tagged ‘Venture Phenome Project’

Innovation is the backbone of our economy.

Without it, we simply won’t have the game-changing economic growth needed to end the global financial crisis.

Even with nearly six million new businesses started every year, the process for creating American innovation remains remarkably inefficient.* The time, effort, and capital wasted on genetically-flawed businesses represents the loss of tens of billions of hard investment dollars and millions of jobs, with only small fraction of companies actually surviving the gestation process.

With so much as stake, creating successful new ventures simply cannot be a congressional afterthought, or a hobby for the wealthy. To accelerate economic growth, the time is now to focus on creating sustainable new ventures faster and with more efficiency than ever before.


Borrowing from the scientific principles that led to the mapping of the human genome, the Venture Phenome Project is building a Phenotype map of the genetic and environmental factors that ultimately influence the success or failure of a new venture. By tracking and measuring these factors over time, this collaborative research effort is able to “crack the code” on early stage investing.

What Does This Mean To You?

For entrepreneurs, this represents an opportunity to get rare visibility into what a strong venture investment looks like through the eyes of an actual investor. After all, if you’re an entrepreneur and aren’t building your business around the actual criteria you’re being evaluated on, who does that benefit?

For investors, the Venture Phenome Project is a platform for learning from and sharing wisdom with both seasoned investors and forward-thinking entrepreneurs. No one benefits by spending time focused on a venture that has bad DNA. This is your chance to improve your venture evaluation process. By shedding light on the critical factors that influence successful investments, you can make more informed investment decisions.


If you’re interested in becoming a more efficient investor or entrepreneur, here’s the good news; the results from this interactive research project are open to the public. The information gathered on this site is yours to consume. To make the process more impactful, the best insights will be aggregated into a bi-annual publication to provide a concise and clear blueprint of the venture Phenotypes and their significance in the creation of value.

At the end of the day, all of us (investors and entrepreneurs) are seeking the same result; a significant return on both invested time and capital.

We’re in a state of crisis. The time to optimize entrepreneurship is now.

Check it out, and leave your thoughts…


* SBA’s Office of Advocacy, 2006 County Business Patterns

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One of the most powerful forces for managing people, and determining the direction of a business is compensation. That which can be measured and that upon which people will be paid, are both core drivers of a business. The goal of this element is to seek a healthy balance between keeping the entrepreneur focused and driven vs. comfortable and overly satisfied. Is the Management Team paying themselves an excessive amount of money? Do they have a clear bonus structure or is their comp plan way off base?


Ideally, we’d like to see a compensation structure that keeps the entrepreneur and his team committed, focused and driven to succeed. There should be strong long-term and short-term equity incentives for all employees as well as below market salaries with detailed strategic bonus structure in place.


The boys (and girls) on Wall Street have been getting into huge trouble these days because of their absurdly high compensation packages despite taking on TARP funds. In many ways this is analogous to the way we look at new ventures. If the company is making no money, or losing it for that matter, than is it fair that employee salaries be above market value?

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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The purpose of this Phenotype element is to determine what if any debt the business may have at the time of the financing, and more importantly if that debt will be serviced immediately upon closure of the round. What one isn’t looking to do is to fund a company only to have all the cash go out the door to service old debt, leaving the company with no cash to operate. Ideally there is no debt, or debt that converts to equity at the time of the financing. If there is debt after the financing, the terms should be examined to determine what impact it will have on cash flow. There should also be provisions that give the current investors some protections in the event of a wind up. In addition, keep an eye out for and examine any investment banking agreements that may impact the cash position upon closure of the round.


The definition of debt here is broad and includes trade financing, outstanding credit (even personal credit card balances if known), informal borrowing from friends and family, bank lending, private loans, convertible securities or other forms of debt, formal and informal.  Will such debt need to be serviced immediately upon closing this round of financing?  Are there any existing agreements (e.g. with investment bankers) that may impact cash or equity upon closure of the round, such as warrants or convertible securities? How can existing debt hamstring a new venture?

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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The purpose of this element is to uncover what can be one common way to rapidly expand and grow a business: the second serving. One of the easiest ways to grow revenue is to sell the consumer a second offering after completing the first transaction. What to look for here are types of secondary offerings, some are automatic (subscription) and some are IP based (printer cartridges) and others are more associative (chips and dip). And others might include product upgrades or add-on services.  The more likely and the frequent follow-on transactions occur, the faster and more profitable the business can grow as a result of lower overall customer acquisition costs and increased customer lifetime value.


Some questions we ask when looking at a new venture: Is the business a one-off transaction or is it the holy grail of razors handles and razor blades? Sometimes the desire to “lock up” the consumer into a proprietary world can scare them off. Handcuffs can either be scary or they can be fun, it’s all about context.


Are you selling razors and razorblades? Go to www.venturephenomeproject.com and share your experiences with investors and entrepreneurs.

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marketing-101The purpose of this element is to determine whether or not the business has a strong marketing plan in place, and if that plan is something that can be executed with the capital available. There are two key components to a great marketing plan:

1. Brand strategy – Without a clear and compelling brand, a new venture is just another fish in a school of sardines. A unified brand provides a powerful springboard for all sales and marketing initiatives.

2. Messaging – Communicating one’s story or business solution to the target market in a positive and effective way, whether through viral marketing, strategic partnering or traditional PR and advertising, is business 101, but not always easily executable.

Marketing, after all, is any business’s strategy for reaching and communicating with its target consumer. There is, of course, a great deal of research that must be done in order to target the exact demographic most likely to buy your product. As a startup, a misstep here can likely be fatal; direction your brand’s message to the wrong people will waste valuable resources.


Super Bowl ads, for example, are great fun and make entertaining water cooler talk on Mondays, but they’re not probably not the most strategic and most affordable tactic for start ups. Is the proposed marketing plan is reasonable and solid strategies can be executed with the resources on hand? How important is the marketing plan to the success of the venture?

What’s your marketing strategy? Go to www.venturephenomeproject.com and share your experiences with investors and entrepreneurs.

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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?


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?


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?


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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