Tag Archives: VC

How To Become A Venture Capitalist in 2014

How to Become a Venture Capitalist from The Startup Garage

How To Become A Venture Capitalist in 2014

So you’ve watched the show “Shark Tank” and think you have what it takes to be the next Kevin O’Leary, AKA Mr. Wonderful?

On TV, the career of a venture capitalist appears to be easily obtainable and positively thrilling. Power, prestige, and autonomy are ready and waiting for those bold enough to step forward. In reality, the aspiring venture capitalist (VC) has a better chance of becoming a professional athlete as he or she does becoming a VC professional.

The Startup Garage offers 3 key insights below to help those ambitious enough, enter this exclusive and highly competitive career.

Personality Traits

Please note the lists below are generalizations. Although these tend to be the norm, variations have been known to occur.

A) VCs have a business mind and are entrepreneurs to the soul. They have a raw intelligence for business opportunities, and an unwavering desire to make them come to fruition.

B) VCs are adrenaline junkies. They live for the thrill, whether jumping out of planes or financing a million dollar startup. The VCs life and business are founded on high risks and high rewards.

C) VCs are cyber prophets. They have keen insight on cutting edge technology trends, and know how to use all the latest gadgets.

D) VCs have stellar interpersonal skills. They’re social butterflies that thrive on interacting and communicating with others. Networking is 2nd nature to VCs, who are always on the prowl for the next business partnership.

Curious to dive deeper into the personality of a VC, and see if you fit the mold?

Technology evangelist, Guy Kawasaki developed an online test “The Venture Capital Aptitude Test” specifically for that purpose.

Take the free test here: electricpulp.com/vcat

Education

A) A VC has an undergraduate degree in business, finance, computer science, accounting, or engineering from a top university.

B) VCs typically have an MBA (Master of Business Administration) from a top business school; think Harvard, Stanford, Duke, Georgetown and Columbia.

C) Not only does a VC hold degrees from the above schools, more than likely they ranked at the top of their class.

Work/Life Experiences

A) VCs tend to be serial entrepreneurs, with real life experiences in working and/or launching high growth startups. They know the feeling of a successful startup, as well hardships of a failed startup.

B) VCs circle of influence includes entrepreneurs, tech savvy individuals, and business advisors.

C) VCs might have experience in working in and/or with large banks or credit unions.

D) A VC may have had their start as an angel investor, dipping into their own saving and investing in small businesses. Prior experience as an angel investor, allows for the deep understanding of responsibility that comes with investing other peoples money.

E) A VC may have done product development for large firms or has been a consultant for small businesses.

F) A VC may have been a CEO, one that demonstrated exceptional decision making skills.

G) A VC may have entered a Venture Capital Firm and worked their way up the ranks, from analyst to partner.

H) Success leaves clues. Remember to do your homework, research and mirror the success secrets of top investors. A great starting point is Forbes Magazine’s Midas List, The Top Ten in Venture Capital Today. The list includes top investors like Jim Breyer of Accel Partners, Marc Andreessen of Andreessen Horowitz, Peter Thiel of Founders Fund, Reid Hoffman of Greylock Partners, and David Sze of Greylock.

Finally, the last piece of advise we’d like to give is to be pro-Active, innovation and optimistic in your approach. The industry’s small size of 6,125 potential openings, can be daunting, don’t let figures dissuade you; it only takes 1 position to fulfill your VC legacy.

Best of luck!


 

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!

Mistakes to Avoid When Pitching to a VC

Venture Capital Mistakes to Avoid from The Startup Garage

Mistakes to Avoid When Pitching to a VC

Avoid the “How Embarrassing!” Moment

No one wants to look dumb — especially while requesting a significant amount of money. As a growing business, it is important to have a firm grasp on the capital raising process — especially if your goal is expansion. The number one concept to understand about Venture Capital is that it is for businesses with established revenue looking to scale up.

If you are not to this point yet, seek angel investment or look into crowdfunding.

Regardless, the tips here of what to avoid will help you plan for the road ahead.

Not Enough Focus on the Financials

A VC firm will make the decision of whether or not to invest in your business primarily based on the numbers. There is an expectation of risk, but the assumptions and projections — as well as past revenue — will need to suggest a healthy return in order to be considered.

[pl_blockquote pull=”right” cite=”From ‘Pitching A VC Why Financials Matter’ by David Hornik”]
“It is almost assuredly the case that an early stage company’s projections are wrong. In the last decade I have only seen one company actually hit the numbers they pitched me on. The rest of the companies have missed by varying degrees of big time. But the real question when listening to a pitch isn’t whether the company will actually hit the numbers they are projecting, but rather what those projections say about the entrepreneur and the business? Is the entrepreneur focusing on the right things? Do the financials make reasonable assumptions? If the assumptions are anywhere close to right, is there a big interesting business to be built? Smart investors will dig into your financials to get a better sense of how you are thinking about your business.”
[/pl_blockquote]

 

Insufficient Market Validation

You will be expected to have accumulated some sort of customer base. Merely providing hopeful statistics on the market will not help prove the target’s willingness to adopt the product, or that there is even a viable business in discussion.

 

Requesting an NDA

Don’t ask an investor to sign a Non-Disclosure Agreement, even if it is just to protect your grandmother’s secret sauce recipe. An investor won’t sign an NDA… ever. And you will look like an idiot for asking.

 

Unconvincing Exit Strategy

What you’re selling the VC firm is a stake in your company over a given growth period. Their reason for buying in is to receive a large sum once the business has reached its growth goals. In order to be attractive, present a clearly defined exit strategy. Sell them on the opportunity.

 

Replacing Conventional Introductions with Digital Advances

With what has been said on the importance of the numbers, note that a VC firm is not investing in a product or even the business per se. They are investing in you, the founder. Maintaining a professional level of communication is extremely important. Introductions should first be made in person. If you’re not sure how to go about meeting these people, start networking. Local events and groups are a good way to start. Resourcefulness and the ability to network are traits an investor at any level would be interested to see.

Always remember your audience.

 


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!

What to Know about Venture Capital

What to Know about Venture Capital from The Startup Garage

What to Know about Venture Capital

What to Know about Venture Capital

Venture Capital (VC) firms collect money from a collection of wealthy individuals, insurance companies, educational endowments and pension funds.1 These assets are allocated over a portfolio of stocks, bonds, real estate, etc. Typically between 5% — 10% are assigned to “Alternative Investments.”

The alternative investments are the high-risk/high-reward class of assets and are what is available to fund startups.

VC firms are typically set up as limited partnerships with two types; limited and general partners. Limited partners provide the funding in the form of a Capital Commitment, or obligation to pay when called upon. It is the responsibility of the general partners to put together deals that are attractive to their counterpart, in exchange for a percentage of profit.

VC firms knowingly make high-risk investments. The funding they provide is in exchange for equity in the company, and like all things when dealing in risk — the higher the risk, the more expensive it is. Your risk as a startup will be determined by the information and confidence you present. Ownership required by the VC firm can range between 15% — 25%.

The funds raised in a VC round for a tech startup serve one major purpose — scaling.

VC firms evaluate businesses that have a proven track record and product. Candidates must be able to present evidence to the market and sales potential and are interested in either growing up or out (geographically or for enterprise). This limits who this applies to primarily, but not exclusively, to tech businesses.

In order to be accepted by a firm, the numbers must work. VC firms work in the millions and billions, and will expect a model that has the capacity provide a large exit. While most VC recipients do not reach the numbers required for acceptance, confidence in the company’s potential is expected.

Of the millions of companies created every year, just a few thousand get VC funding. Nearly every tech company you recognize has been funded by VCs, including: Apple, Amazon, Google, Facebook, eBay and PayPal.


1 The Nuts and Bolts of Business Plans – MIT Course 15.S21. By Joe Hadzima (nutsandbolts.mit.edu)
 

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!

How Does the VC Funding Process Work?

How Does The Venture Capital Process Work from The Startup Garage

How Does the VC Funding Process Work?

Venture capital is ideal for early-stage tech companies that have already acquired some seed capital, but are too small for a public offering. By the time you approach venture capitalists, you will have a working product and business model, a user base and market validation, all of your patents and legal requirements in place, as well as past revenue, if not profit. The goal at this level of funding is scalability.

A venture capital firm is comprised of investors, analysts and industry experts with the purpose of operating on behalf of many individual investors. While each situation is different, the general pattern for approaching VCs is as follows:

 

The Introduction

An introduction is always the first step. This can happen in a variety of ways: by phone, email or in person. This depends on where and how you make contact with the VC.

 

The Pre-Meeting Workup

Once you have a meeting scheduled, you should send the VC firm your pitch deck, an executive summary or one-page business plan. You will be expected to show evidence of a model ready for rapid scaling. It’s not necessary to send your full business plan at this point.

 

What to Expect at the First Meeting

This will most likely take place with several representatives from the firm. The firm is responsible for the collective capital of all of its investors. The recipients of your pitch will be far more critical of your business model and past operations than at any of the rounds up to this point.

 

The Partners

Following your presentation, the VC firm will have a partners’ meeting. The firm’s board will meet to review new companies up for consideration.

 

Additional Information

If your project goes further than the first partner meeting, more detailed information will be requested. If you have not done so yet, this is the opportunity to send your full business plan and supporting financial information. You will want to demonstrate your competency, so keep it tidy and professional.

 

The Face to Face

Once the firm reviews your project, the other partners will want to meet you to feel comfortable about the investment. There are numerous factors in evaluation, however it will come down to your potential to provide them a profitable exit. Know the numbers they expect and demonstrate your confidence in achieving them.

 

Additional Firm Meetings and Validation

The partners of the VC firm will want to hold a closed meeting again to decide on how they want to proceed with your project. The VC firm will look seriously into your company, investigate your data and study the technology. At this point they may draw up a term sheet with their general guidelines.

 

Term Sheet

It’s in your best interest to have an attorney to look over your legal documents. Understand all of your obligations — VC is not only expensive in terms of equity. These negotiations may make or break your deal. Stay flexible, and be wary of dealings that don’t feel right. VCs end up owning about 15% — 20% of each portfolio company.1 So, make sure your buying the right new boss for your business.

 

Signing the Deal

While this IS an accomplishment, your work has only begun.

 

Bottom Line

These are very busy people, handling lots of money. Be as prepared and concise in your dealings as possible and try not to get down if your business is not chosen. Learn as much as possible in the process.

 


1 AVC.com
 

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!

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!

Top Cities for Venture Capital Activity

Top Cities for Venture Capital Activity

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!

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!

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!