Monthly Archives: July 2013

Questions You Can Expect From Investors

Questions to Expect from Investors from The Startup Garage

Questions You Can Expect From Investors

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The Most Common Questions Asked by Investors

Statics show that investor receive thousands of plans a year and will only proceed to the next round with 10% of those at best.  Regardless of the type of investor you are targeting (sophisticated individuals, angel groups or VC firms), it is important to be fully prepared to answer every question that they may come up with.  Some of the most common questions that you can expect to hear are the following:

  • Why should I/we invest in you?
  • What are your competitive advantages?
  • What is your current market traction?
  • Is this business scalable?
  • At what point do you break-even?
  • What is your exit strategy?
  • What are some comparable exits of other companies in your industry?
  • Do you have intellectual property such as a patent?
  • What is your valuation and how did you derive it?

Time and time again unseasoned entrepreneurs’ presentations fall flat when they are not prepared to answer these types of questions.  Take the time to make sure that your business planning is complete, that your business plan is dialed in and that you are prepared to answer these and related questions.

Whether you have a question about Investor Presentations or you’d like to discuss our business plan writing services, feel free to contact us for a free consultation!

How Startup Valuation Works

How Startup Valuation Works from The Startup Garage

How Startup Valuation Works

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A valuation is simply an estimated value of a company and is often based on assumptions surrounding the company’s current and future potential. There are several factors to consider when valuing a company including the startup stage that the company is in, prior successes, how much money is needed and for what purposes, the type of investor that is being targeted, how similar companies are valued, the management team of the company and the exit strategy…just to name a few.
 

How Startup Valuation Works

The following infographic by Founders and Founders details how startups are valued:

A valuation is simply an estimated value of a company and is often based on assumptions surrounding the company's current and future potential. The Startup Garage

 

Whether you have a question about Startup Valuation or you’d like to discuss our business plan writing services, feel free to contact us for a free consultation!

Top Cities for Venture Capital Activity

Top Cities for Venture Capital Activity

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Entrepreneurial Density and Venture Capital

The chart below looks at the total amount of dollars spent by venture capital firms as well as the total number of deals on a per-capita basis.  As we can see, Boulder came in third behind San Jose-Sunnyvale-Santa Clara (AKA Silicon Valley) and San Francisco-Oakland-Fremont.

Cities for Venture Capital from The Startup Garage

The map below provides a visual depiction of the chart above:

Map of VC Deals from The Start Up Garage

Maps and statistics provided by TheAtlanticCities.

 

Only the Partial Story

While San Francisco appears to be beaten out by Silicon Valley in terms of venture capital activity, we have to keep in mind how population is affecting this number.  In terms of total dollars invested, San Francisco attracted some $7B in VC funding, compared to the $4B in Silicon Valley.

 

Whether you have a question about Venture Capital or you’d like to discuss our business plan writing services, feel free to contact us for a free consultation!

The Importance of an All-Star Management Team

Importance of an All Star Team from The Startup Garage

The Importance of an All-Star Management Team

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The most cited answer among investors – and perhaps the most underrated factor among first time entrepreneurs – is the startup team.  There may be a need for your product or service, the market may be enormous, your business model may be attractive, there may be few competitors in the space, and you may even have some bonafide intellectual property, BUT if you don’t have the management team with the skills, experience and track record to execute on your business plan then you likely will not attract investors.

Why Do Investors Care So Much About the Management Team?

The reason is simple: something will go wrong, and only great teams can effectively respond to competitors, markets, funding environments, staff departures, PR disaster, etc.  Furthermore, success breeds success.  Investors want to put their money in the hands of people who have a proven track record with launching companies and providing a solid return to investors.

How To Build the Management Team

You likely will not have the capital to hire a full suite of C-level gurus when launching your company (you wouldn’t be fundraising if you did).  But, you can still have a team of gurus acting as your board of advisers.  By simply having the knowledge and resources that these advisers bring to the table at the tips of your fingers will go a long way in easing the concerns of investors.  Furthermore, you’ll want to make it clear in your business plan that 1) you are aware of the C-level positions and the expertise gaps with your current team, and 2) this is exactly what you will be spending their capital on (among other important startup costs).  Lastly, you current management team will likely not have all of the skills and experience to effectively run all components of the business, but it is imperative that your team has enough to be effective at the companies core competencies…even if that means bringing on a partner before approaching investors.
 

Whether you have a question about your management team or you’d like to discuss our business plan writing services, feel free to contact us for a free consultation!

Ban Overturned on Publicly Advertising You Are Raising Capital

Ban Overturned with SEC from The Startup Garage

Ban Overturned on Publicly Advertising You Are Raising Capital

Raising Capital? Shout It From the Rooftops!

The Securities and Exchange Commission (SEC) voted to overturn the ban on “general solicitation” or publicly advertising that your company is raising money.  As a result, the SEC has deemed it legal for private companies to tell anyone that they are raising money, which was previously illegal.

How This Effects Startups

The lifting of the ban is expected to have a huge effect on entrepreneurs and startups by allowing them to reach a much broader audience.  Previously, an entrepreneur could not tell a newspaper that it was seeking funding.  They had to quietly and privately deal with a very small group of investors who had free rein over deal flow.

By allowing entrepreneurs to publicly advertise that they are fundraising will open the private market to a significantly broader pool of investors.  One of the more substantial sources of capital that this regulation will affect comes from crowdfunding.  Companies are legally allowed to sell equity in their company to accredited investors (and in some cases un-accredited investors) which will drastically increase entrepreneurs access to capital.  For more information regarding the amendments to the private offering rules from SEC visit this link.

With the solicitation ban lifted, more investors will know about startups they can invest in.  While there is certainly a lot of benefit for entrepreneurs and startups, many are calling for the need to add regulation to reduce the risk of fraud and other undesirable outcomes.

 

Whether you have a question about Publicly Advertising or you’d like to discuss our business plan writing services, feel free to contact us for a free consultation!

Understanding Barriers to Entry

Barriers to Entry from The Startup Garage

Understanding Barriers to Entry

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Entry into any market by a startup business is in some way possible, though it is often constrained by some sort of economic, procedural, regulatory or technical obstacle.  Such obstacles are often referred to as ‘barriers to entry.’  Some examples of barriers to entry include high startup costs, strict laws and regulations, inability to access resources, economies of scale, high tariffs, high switching costs, zoning, distributor/supplier/vendor agreements and customer loyalty.

Creating Barriers to Entry

Industry leading competitors often put a lot of focus on establishing barriers to entry to keep new entrants out of the market.  The more a competitor can achieve customer loyalty, benefit from economics of scale and limit new entrants access to resources, for example, the more difficult it will be for a new entrant to compete.  The most effective way to establish barriers to entry is through developing sustainable competitive advantages that are difficult for competitors to replicate.  Some sustainable competitive advantages that many companies turn to include

  • Intellectual property – patents, trademarks, domain names, copyrights and trade secrets that provide competitive protection)
  • Dynamic product lines that allow companies to establish multiple revenue streams and follow-on product variations
  • Cost advantages – economies of scale, vendor relations, or some other factor that allows you to offer a significantly lower cost than your competitors
  • Brand loyalty – keeping your customers happy can be the most effective way of keeping them from turning to your competitors.

When you are in the business planning process and writing your business plan, be sure to think about sustainable competitive advantages and barriers to entry that you can establish to make it difficult for new entrants to cut into your successes.

 

Whether you have a question about sustainable competitive advantages or you’d like to discuss our business plan writing services, feel free to contact us for a free consultation!

Investment in Mobile App Development Industry is Soaring

Mobile App Development Trends from The Startup Garage

Investment in Mobile App Development Industry is Soaring

VC Funding in Mobile App Development Still Hot

Since 2012, mobile app development companies have taken $262M in VC funding across 36 deals, which accounts for 59% of the $446M to the mobile app development space overall.  Some of the largest acquisitions included Kony Solutions at $18.3M in a Series D round from Telestra Ventures as well as Mobiquity at $12M in a Series B round from NewSpring Capital and Sigma Partners.  On a broader note, VC funding to the developer tools category as a whole reached $646, a 77% increase from the previous year.

M&As Are Also Hot

Investors bullish outlook on the market has been spurred by the increasing number of enterprises utilizing mobile apps as well as numerous M&As in the space.  Some of the large M&As include Facebook’s acquisition of Parse for $85M and IBM’s acquisition of Worlight for $70M (highlighted in the chart below).
VC Mobile App Development from CB Insights

Graph and data thanks to CB Insights.

With growth projections for the mobile industry as a whole in the double digits, mobile app development companies will likely continue to see an increase in VC funding in the years to come.

 

Whether you have a question about Mobile App Development or you’d like to discuss our business plan writing services, feel free to contact us for a free consultation!

Sustainable Competitive Advantages

Sustainable Competitive Advantage from The Startup Garage

Sustainable Competitive Advantages

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A competitive advantage is some aspect of the company and/or its product or service that gives it an edge over its competitors and allows it to generate greater values for the firm (in sales and/or profit margins) for the firm and its shareholders.  Two primary examples of competitive advantages include: 1) comparative cost advantage – a firms ability to sell a good or service at a lower cost than its competitors as a result of lower production costs; and 2) differential advantage – a firm’s ability to product products or services that are seen as better than its competitors’.

Sustainable Competitive Advantages

Simply put, the more sustainable the competitive advantage, the more difficult it is for competitors to adopt the advantage.  Sustainable competitive advantages are not easily copied and generally stem from one or more of the following: vendor relations, product sourcing advantages, prime location, unique products/services; customer loyalty, customer service reputation, or distribution channel advantages.  When developing a business plan and business model, it is important to look beyond the product/service/competitive advantages and try to establish advantages that are truly sustainable.  The following are some tips to help you with this process:

  • Intellectual Property

While all I.P. has its shortcomings, patents are probably the best sustainable competitive advantage on offer as they provide 20 years of competitive protection.  Beyond patents, it is important to consider trademarks, copyrights,  domain names, long-term contracts and trade secrets.

  • Dynamic Product Line

A one-of-a-kind, differentiated product line may have several competitive advantages.  But for how long?  Don’t be the one-hit-wonder of the entrepreneurial world by coming out with one great song but failing to back it up with a great album and future albums.  Discover how your innovative technology can incorporate with add-on products that bolster your revenue sources as well as follow-on products that keep you ahead of the competition.

  • Dramatic Cost Advantage

In order for a cost advantage to be a sustainable competitive advantage you will need some dramatic breakthrough in the technology, manufacturing or revenue model of the product.  A breakthrough that is not easily copied by your competitors and that is ideally protected via patents or tightly held trade secrets.

  • Seasoned Management Team with Key Relationships

One of the greatest competitive advantages is a great management team.  A great management team with proven success in the past is most likely to continue their track record, lending to a real sustainable competitive advantage.  One of the main reasons for their past and continued success will come from the key relationships they have developed over the years with vendors, manufacturers, suppliers, distribution channels, industry influencers, major contractors, etc.

  • Brand Loyalty

By building strong relationships with your customers and keeping them happy, you will benefit from repeat businesses even if you do not offer the cheapest or most effective product.

 

Whether you have a question about Sustainable Competitive Advantages or you’d like to discuss our business plan writing services, feel free to contact us for a free consultation!

Venture Capital Seed Investment and Re-Investment

Venture Capital Investment and Reinvestment from The Startup Garage

Venture Capital Seed Investment and Re-Investment

Seed Investment Rates

Two international firms, 500 Startups and SV Angel, top the list for most active seed investment in 2010-2011. Below is a list of the 30 most active seed VC investors over the two-year time frame ranked based on number of deals they participated (graph thanks you CB Insights):

Two international firms, 500 Startups and SV Angel, top the list for most active seed investment in 2010-2011. TSG Enterprise. The Startup Garage.

Re-Investment Rates

While 500 Startups and SV Angel top the list of the 10 most active VC seed investors in 2010-2011, they fail to even make the list of the top 10 re-investment VC investors in seeded companies.  This list is lead by German early-stage firm High Tech Grunderfonds and London-based VC firm Atomico, which ranked 14th and 28 respectively in top seed investors.  The following graph demonstrates the firms with the highest rate of re-investment in seeded companies.

The leading VC seed investors did not make the list of the highest re-investment VC investors. TSG Enterprise. The Startup Garage

 

Whether you have a question about Venture Capital Investments or you’d like to discuss our business plan writing services, feel free to contact us for a free consultation!

The Importance of Differentiation

Standout Competitive Advantage from The Startup Garage

The Importance of Differentiation

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When asked about their product or service, most entrepreneurs could go on and on with the various features and advantages.  However, once you ask them, “what makes your product or service desirably different?” their pitch begins to flounder.  They begin to fall back on their key features or advantages over their competition.  But, the question remains, while your product may have an advantage over the competition, is that enough to make it desirably differentiated?  When determining how you can differentiate your product or service, consider the following:

Core Competencies

Too many entrepreneurs and startups get caught trying to be everything to everyone.  Identify a problem that is not be solved and determine how you can best apply your core competencies to solve that problem.  It doesn’t take endless features and nuances to solve a problem well.

Know Your Customer

Know the fears of your customer.  Determine the reasons that they either avoid a purchase or run towards it.  Continue to narrow your target market until you can identify the crux of the problem for a segment of the population.  The better you know this segments pain points, the better able you will be to create a product that solves a unique problem in the market.

Write a Positioning Statement

A positioning statement is a one or two sentence statement that articulates your product or service’s unique value to your customers in relation to your direct competition.  It explains why your customers should purchase your product or service over that of your competitors.

 

A Note On Intellectual Property

If your product or service truly is well-differentiated and one-of-a-kind you may be able to acquire some intellectual property to help secure your idea from competitor theft.  Discuss your product, service, processes, etc with a startup lawyer to determine if you can obtain any trademarks, patents or copyrights. 

 

Whether you have a question about Differentiation, or you’d like to discuss our business plan writing services, feel free to contact us for a free consultation!