Monthly Archives: September 2013

VCs Bet on Mobile App Development

Venture Capital Bet on Mobile App from The Startup Garage

VCs Bet on Mobile App Development

Mobile is the Rage & VCs are Taking Note

Corporations from banks to fast food to software firms are turning to mobile app developers to build mobile app devices for their customers.  Given the popularity of mobile devices and the apps that make them great, venture capital investors are chomping at the bit to get a piece of the pie.  Since the beginning of 2012, mobile app development startups have raised $262M across 36 deals.  This represents 59% of the $446M that mobile app development firms have raised overall!

M&A Spurring Growth

In addition to the increasing popularity of mobile apps and enterprises deploying mobile apps as a result, M&A activity has helped to make investors bullish in the sector.  Notable recent exits that have caught the interest from strategic investors include:

  • Facebook’s $85M acquisition of Parse; and
  • IBM’s $70M acquisition of Worklight

On a broader note, VC funding to the developer tools category as a while hit $646M in the last year, an increase of 77% over the previous year.  The following chart outlines VC funding to the mobile app development since 2011:

VC Funding To Mobile App Development from The Startup Garage

All data and graphs thanks to CB Insights.

 

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

Seed and Series A Technology Funding Report

Capital Raising Trend Report from The Startup Garage

Seed and Series A Technology Funding Report

Tech Seed and Series A Medians and Averages Show Little Change

Despite some notable early-stage Juiced and Jumbo Series A round investments in tech firms such as GitHub and Clinkle, the average and median Seed and Series A transactions are showing little change.

Juiced Series A deals typically range between $8M and $15M.  Companies raising this type of capital typically have substantial market traction and boast teams of 20+ professionals.  These deals resemble traditional Series B investments.

Jumbo Series A deals typically range between $15M and $60M.  Companies raising this type of capital typically have been bootstrapped for quite some time, boasting revenues of $10M+ and looking for institutional capital to grow fast with goal of reaching a not too long term IPO.

Average and Media Seed and Series A Deals

The average tech Seed deal has stayed consisted at $800K with the media at $50K as outlined in the graph below:

Average and Median Tech Seed Deal Size from The Startup Garage

 

The average tech Series A deal reaches $5.1M with the median at $3.35M as outlined in the graph below:

Average and median tech Series A deal size from The Startup Garage

 

 

Looking at these early-stage deals by sector we see that Internet Seed deal averages declined to $770K while medians increased slightly to $530K.  Meanwhile, mobile Seed deal averages grew to $830K with medians also increasing to $520K.

Average and median Internet Seen deal size from The Startup Garage

Average and median mobile Seed deal size from The Startup Garage

Within Series A, median deal sizes in the mobile sector are also growing faster than the internet sector:

Average and median Internet Series A deal size from The Startup Garage

Average and median mobile Series A deal size from The Startup Garage

All data and graphs thanks to CB Insights.

 

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

7 Critical Steps for Attracting Venture Funding

7 Steps to Attracting Venture Capital from The Startup Garage

7 Critical Steps for Attracting Venture Funding

First and foremost, venture capital firms want to see an entrepreneur with passion and vision.  Unfortunately, this usually isn’t enough to get them opening their pocket books.  Some venture capital firms will have narrow criteria for the types of companies that they invest in while other will adopt a more broad portfolio and invest across many sectors.

In any case, nearly every venture capital firm is looking to see if you’ve made signification traction for each of the following critical steps.

 

1. Team

Investors may think that you have a great idea and that the market poses a significant opportunity, but if they have confidence in your team’s ability to seize the opportunity you will be dead in your tracks.  Your team is perhaps the single biggest factor that investors consider when they are evaluating the attractiveness of the investment.   Your management team does not have to be fully built out, but the founders must possess the credibility to launch the company and built a world-class team.
 

2. Stellar Idea

Every entrepreneur gets attached to their idea.  However, the reality is that very few start-ups present an idea that is actually unique.  What makes an idea compelling to an investor is 2 fold: 1) does the idea offer a solution to a big problem or opportunity, and 2) is the idea protected via intellectual property or some other barrier to entry.
 

3. Technology

Technology is similar to the stellar idea.  Your technology needs to be broad enough to to solve a problem for a large group of people but focused enough to solve a problem that is not currently being solved.  Similarly, good technology needs to be protected.  Patents alone are not enough; you need talent to assure investors that you will stay ahead of the game.
 

4. Market Opportunity

A good market opportunity is more than just a large market size.  It is a market that is not over crowded with competition.  It is a market with an opportunity that has yet to be exploited.  It’s a market that has a lot of potential for you to continually create value down the road.  Truly innovative companies discover ways to create big markets.
 

5. (Sustainable) Competitive Advantage

Most entrepreneurs understand the need to have strategic advantages (both product/service advantages as well as business strategy advantages), but what many fail to understand is that venture capitalists want to know just how sustainable that advantage is.  If your competitor can reverse engineer your idea, hire new personnel, implement a new sales/marketing strategy or lower their costs to match your price point then your competitive advantage is not very sustainable.  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.
 

6. Credible Financial Projections

Every investor knows that your financial projections are dependent on assumptions and that those assumptions will undoubtedly change.  But, financial projections are extremely valuable in explaining the business to the investor – they show what drives your growth, how profitable you can be, and where the company can go over the next 3 to 5 years.  They also show your ability to turn a business concept into a realistic, attractive business model.

 

7. Proof of Concept

Lastly, we have proof of concept, or market validation.  Behind the management team, this is one of the other more influencing factors.  Venture capitalists want to know, are people buying this?  Have businesses signed letters of intent?  Is there evidence that your solution will be adopted by the masses?  The more credibility and market traction that you have, the more attractive your startup will be to venture capitalists.

 

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

Top 8 Faux Pas Claims by Entrepreneurs Raising Capital

Capital Raising Faux Pas from The Startup Garage

Top 8 Faux Pas Claims by Entrepreneurs Raising Capital

What Not to Say to Potential Investors

Yes, you need to impress an investor if he/she is going to break out the checkbook.  However, there are some common claims made by first-time and seasoned entrepreneurs alike that do not resonate well with investors.  Some of these claims are infamous buzz words that can be explained in other terminology, other are just outright lies.  In any case, try to avoid these claims in your investor pitch.

1. “Our projections are conservative.”

This may or may not be true.  In any case, investors are less interested in whether your projections are conservative or optimistic and care more about whether they are realistic and how well you can defend your assumptions.  Every investor knows that projections are based on assumptions that will change as the business develops.  Yes, investors are looking at potential returns when looking at financial projections.  But, they are also looking at your ability to turn a business concept into a realistic business model.

2. “We have no competition; no one else is doing what we do.”

Avoid this claim at all costs!  The vast majority of the time this statement is complete false — every good opportunity has direct and indirect competition.  For the rare occasions when this statement is true, it is still a slight exaggeration.  While no one else may be doing exactly what you are doing, there is someone providing a similar product or service that solves the problem that they are facing.  If you truly are a first-mover, make sure you are prepared to address investors concerns about trail blazers making mistakes and costing lots of money.  Lastly, these statement just frustrate investors.

3. “My competition is too slow to be a threat.”

Your competition may be too slow to be a threat, right now.  But, your competition can quickly improve and catch up once you enter the market.  Your competitors most likely benefit from vastly superior market traction and capitalization.  Rather than showing naivete, take some time to prepare sustainable competitive advantages or barriers to entry that you can put in place to ensure that your competition cannot catch up quite as fast.

4. “All we have to do is get 1% of the market.”

There is so much that is off-putting to investors with this statement.  First, it shows that you probably don’t understand your target market.  If your target market is so broad that only 1% adoption will make for a successful business, then your target market definition is likely way too broad.  Second, if you doubt your product/service/brand so much that you only think you can attract 1% of the market then why would an investor get excited?  Third, percentages can be deceiving and it’s an easy route for disappointment.  Rather, look at how many people you need to sell your product to.

5. “Patents make our business defensible”

It is very rare that a patent makes a business defensible against competitors offering similar products.  First, you patent is most likely only a provision patent (not yet granted) and second, it only protects a very specific application.  Learn more about patents and their limitations here.

 6. “We have a few huge contracts being signed next week!”

Whether this statement is false or not, many investors will certainly be considering its validity.  If they happen to believe you – and if they are smart – then they make a commitment to investing next week when the contract is signed and or cash received.  If you truly have contracts signing next week, then hold off on raising capital until those contract are signed (you will be much more attractive and worth much more at that point).

7. “Key employees will join us as soon as we get funded.”

While you may have the capital to attract key employees, money doesn’t mean you will have a successful business.  Building a successful business takes a lot more than just a pile of cash.  Key employees know this and will be attracted to your company before the funding comes if they truly believe in the opportunity.  Additionally, if you don’t have the revenue to pay for key hires that are necessary for the business’ current success then you likely are not attractive to investors.  Investors want to see proof of concept and nothing shows that more than a strong customer base.  furthermore, strong revenues will improve your valuation and reduce financial pressures.

8. “Several firms are doing due diligence.”

This statement can seriously backfire.  Nobody likes the feeling of being hassled by a car salesman, including investors.  If the statement is true, great — you are in a perfect negotiation position should both firms decide to make an offer.  If the statement is not true, you are running the risk of alienating a firm that may genuinely be interested in you.

 

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