30 days from working for the “man” to VC-funded web startup – day 1 of 30
August 5th, 2008Internet, Investing, Startups, Web Development, Webdesign/SEOHave a great idea for a web application or service? Want to learn how to have your own software/webware startup? So do I. I don’t have all the answers right now – its only Day 1 of 30. Only desires, innovative ideas and dreams. Check back daily though - if the stars align and I put in an honest effort, 30 days from now I will have my own little startup and maybe you’ll learn a thing or two 
On Day 0 I setup some ideas you should think about before you incubate your own little startup including some of the personal introspection you might want to do like figuring out what makes you tick, and understanding that a VC wants to make money based on a calculated risk/reward scenario. Risk vs Reward are the lingua franca of VC language that you must understand (read more here, here, and here). I was hoping to post daily, but today’s post references so much reading material it took me a few days to put it together.
Today’s Goals
- Learn, learn, learn. Get involved in online conversations, blogs, social networks.
- Begin to understand what VC’s look for in an Entrepreneur.
Assumptions I’m making about you
Not everyone has the same experiences, skills, knowledge or background as I do. And I certainly can’t write these posts to fit everyone needs, so I’m making some the assumption about you, the reader (namely that you’re just like me):
- You don’t have all the initial seed capital for getting your idea off the ground
- Your idea is web-based and/or
desktop/server software (edit: if salesforce.com can be saas, so can you) - You have done some research and understand the industry or market sector you intend to target
- You can quantify and identify your target market to some degree
- You see an opportunity and un-filled need for your product/software/service
- Your idea will make money (Don’t worry yet if it doesn’t. I will provide some guidance on a future post about profit, pricing, so-forth)
- You know almost nothing about VC funding, pitching ideas, etc.
Your diligence is due now
No VC is going to give you a second glance if you haven’t done your homework. We aren’t ready quite yet to start talking about writing your ideas and what your pitching package should look like. Today, I am going to postpone talking about business plans, presentations, your idea, revenue models, etc. First, you need to get some education on VC, startups, entrepreneurship and more. Take the time to go through the links below and maybe even read a few of the books recommended.
Web links
This list isn’t an exhaustive list of everything you should read but its a start. For more links and reading material, see www.venturebeat.com.
- 5 tips to score venture capital funding - http://money.cnn.com/2007/09/10/smbusiness/vc_funding/
- 3 ingredients of a great deal - http://www.vcdave.com/2008/04/16/three-ingredients-of-a-great-deal/. This is a great must-read. Love the bit about zero-cost user acquisition being one of the high watermarks of achievement.
- Perfecting your pitch - http://www.vcdave.com/2008/07/08/perfecting-your-pitch/. Notice how the company snapshot and team are the first parts of the slide deck? Thats a good indicator VC’s invest in the team as much as the idea.
- Why Startups fail - http://www.vcdave.com/2008/05/22/why-startups-fail/. Great insight into burn rates (how quickly money is spent), spending on sales vs product development, and the art of balancing speed to market vs market speed (eg: iphone apps vs a new search engine is akin to a very fast race vs a slow to build, well-timed launch)
- Why SAAS is interesting - http://www.vcdave.com/2008/02/25/why-software-as-service-businesses-are-so-interesting/. The discussion of churn rate (customers that leave) vs new customer acquisition rate got me thinking that product/service pricing needs to take this into account. Assuming you aspire to the Google-like philosophy of “do no evil”, your pricing model should allow easy entry/exit. You can’t have that unless the product sells itself which then means you actually need to build more than just vaporware/uselessware. Your idea needs to have a sound basis and revenue model.
- Art of the Pitch: Avoiding common mistakes - http://reality.org/2006/12/11/art-of-the-pitch-avoiding-common-presentation-mistakes/. At end of the day, you are pitching to real people with real money. Keep the presentation light, flexible and to the point.
- Are Investors killing your vision or idea? - http://www.thisisgoingtobebig.com/2008/08/are-prospective.html. I especially like the idea of looking for “quick-wins” or low hanging fruit revenue ideas. It’s very possible your ambitions are too grand and won’t get funded. Balance high value and low cost ideas that can get you to first base.
- The Death of Stealth mode - http://redeye.firstround.com/2008/06/the-death-of-st.html. Stealth mode - in the context of a startup - is when all early activity is private and un-disclosed right up until the first full or public launch or press release. Josh mentioned an SEC requirement digital paparazzi can use called Regulation D which makes early investment information available for public consumption. Next year, stealth mode becomes even harder to achieve – that same data becomes interactive and searchable.
VC and startup specific sites and blogs
I’m sure there is more, but here is a good start.
- http://www.ventureblog.com/ – I only spent a little time here so far, but its a great resource for more about the VC world. Checkout the blogroll (links to other sites for you non-bloggers =P )
- http://www.vcdave.com – VC David Feinleib.
- http://www.startup-review.com – offers in-depth startup oriented reviews of some notable startups of past like myspace, craigslist, youtube, etc. Worth reading for more in-depth analysis you may want to replicate in your pitch.
- http://www.reality.org – OMG, she wants to work with the Gates foundation just like me! I wonder if she’s married.
- http://www.pehub.com/ – an interactive forum for the private equity community, which includes venture capitalists, buyouts professionals, attorneys, bankers, entrepreneurs, MBA candidates studying PE, and assorted hangers-on. Its mission is simple: To help you do your job better, by feeding your head with news and views from/about your peers
Web Videos
- The Right Way to Raise money from a VC - http://www.allbusiness.com/finance/equity-funding-private-equity-venture-capital/4353602-1.html?sort=sortablePublishDate&sortdirection=true. This is a great example of what’s coming up in a future post: VC’s invest in the person/team as much as the idea.
- Difference between VC’s and Angels - http://link.brightcove.com/services/link/bcpid1620628787/bctid1078616554.
Books
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I’m on page 70 right now. It’s not necessarily focused on startups, but Tim does touch on the idea of leveraging time with outsourcing (a model I have put into practice in my consulting business). Outsourcing to local or far away staff and employees are a skill you will need to acquire. Success in anything you do is exponentially proportional to the number of people that become successful with/because of you. |
Events and Conferences
- Startup Launchpad - http://gdconf.com/startuplaunchpad/. Good for startups in the gaming community
Social Networking
Not all VC’s will be part of social networks, and not all social networks are where VC’s hang out. Start conversations with your network either publicly or in private at Facebook, LinkedIn, and Meetup. There are also some social networking sites dedicated to startups like YouNoodle and others listed below. Create an account and get involved in all of them if you can.
WARNING: For readers that are working for the “man” right now, use common sense before making your intentions fully public (like holding off on that wall post). Since I’m writing these posts, I am accepting some inherent risk that my employer will stumble on these posts but that’s a risk I am willing to take.
- Facebook – at minimum, scour your local city populous and see if any VC’s or recently launched startups are in your city.
- LinkedIn – just like on Facebook, do some research and get to know what you have or don’t have in your local linked network.
- Meetup – I have been a part of meetup.com for some time now, and it gives me a good sense of what’s going on in Vancouver (assuming its the most popular place to find event networks). Some cities have more activity then others. If you don’t see any meetup groups of interest, start one yourself (Too bad they charge for creating groups now. It’s silly that they can’t figure out how to make money other ways with web advertising still in its infancy).
What a VC looks for in an Entrepreneur
The list below is a braindump of knowledge gained up to this point. I am sure it will get expanded, then refined and reduced from this unstructured watery mass into a thick tasty gravy of key points later on (yes, its a food metaphor – I’m hungry ok!). Subscribe to my blog to keep up.
- Leadership qualities
- Quotes from David Feinleib at vcwave.com web link above
- [not] “a technologist in any traditional sense, but someone with true vision”
- “Extra-ordinary market insight”
- “They see big waves ahead of others and capitalize on them”
- “They simplify”
- “Entrepreneurs who do a lot with a little”
- “Not afraid to test out his product”
- “An Entrepreneur as opposed to his lower-case counterpart is a product picker and a market visionary”
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