Many were of the genre that “…Yes these companies you describe sound amazing - awesome technologies, exciting markets, management with knock-your-socks off resumes, but when it comes to actually investing them….”
…How do I even have a chance of separating the wheat from the chaff?
The superstars from the also-rans?
Or, more to the point, the ones that will make money from the ones that won't.
This is the ultimate question, isn’t it?
First of all, we are certainly not referring to “stock picking” to beat the markets. Everyone knows that this is not possible. (And if you have even a sliver of remaining doubt on this point, read this article).
And we're not talking about high profile, private companies that have already raised tens (and sometimes hundreds) of millions of dollars and are deep in the investment news cycle.
For these companies and hundreds of others backed by venture capital firms, by the time the public knows about them, almost always the best opportunity to invest in them has long past.
And, for the most part, we are also not talking about businesses or projects competing in mature and well-covered like Real Estate.
For sure, there are lots of solid real estate investment opportunities, but as it is such an efficient and well-covered market – with tens of thousands of investors seeking projects and deals of all sizes that the likelihood of finding those that offer returns even slightly above average is pretty low.
And let’s also cut out investing in “things” like art, collectibles, and commodities. While in places interesting for sure, statistics over a long period of time show that their average investment returns is significantly less than that of an S&P index fund.
So what investors seeking alpha are left with almost exclusively is that most special segment: startups and emerging companies.
Companies almost always with these characteristics:
They are Small. As in less then $10 million in in revenues and less than 30 employees. Not hard and fast rule, but holds true 95%+ of the tie.
They have an Ambitious Leader. At the beating heart of these companies is almost always a charismatic individual that leads big and manages small.
A leader with an articulate “point of view” on where a market and an industry are heading.
And who can then translate this vision to the day-to-day small business discipline required to turn dreams and visions into objective reality and results.
They Compete in Big Markets. This one is easier than ever before. Why?
Well, with a 7 billion person strong, $84 trillion global economy, almost every business – even those in the smallest of niches - has a large global opportunity.
Of course, to profit from them opportunities requires great leadership and management (see above) but the opportunities are everywhere.
Companies with Thoughtful Revenue Models. This is where the ability of a company's leader to think and act both “big” and “small” are so critical.
Quite simply, companies that build asset and equity value for their shareholders are vigilant in ensuring that their monetization strategies are built around long-term customer retention and satisfaction, and NOT short-term gain.
Companies that are Lucky. The new and eternal mantra of our age is luck. Books like the Black Swan, Fooled by Randomness, and the Age of the Unthinkable profess on it.
Aspiring entrepreneurs who seek their name in lights pray to it.
And the average man unwilling to step outside of his box gets none of it.
Yes, as it has been true since Roman times in our booming deal economy for investors and entrepreneurs like Fortune does Truly Favor the Bold.
The question, of course, is will it favor you?
Remember the bull markets of the 1980s and 1990s, when everybody was making money in the stock market?
Bad News: Those days are GONE… and they’re not coming back
Click below to discover mine and Growthink’s exclusive report on WHY today’s stock market is broken -- and what you can do about it:
http://www.growthink.com/stock-market-dead <-- Click here
It’s almost hard to imagine how strong stock market returns used to be…
Just look at the average annual returns of the Dow Jones Industrial Average from 1982 to 1989:
• 1982: 19.61%
• 1983: 20.27%
• 1984: -3.74%
• 1985: 27.66%
• 1986: 25.58%
• 1987: 2.26%
• 1988: 11.85%
• 1989: 26.96%
The good times continued in the 1990s. On January 1, 1990, the Dow Jones was at 2,810. By December 31, 1999, it had exploded to 11,497 -- an increase of 409% in just 10 years.
But today’s stock market is BROKEN.
From 2000 to TODAY, the Dow Jones has only moved from 11,078 to 16,700 (only 40%). And INFLATION has reduced purchasing power by 37%... which means the net returns of the Dow Jones have been close to ZERO.
Download this report and discover why the stock market is broken – and what you can do about it.
With 41% of all U.S. venture capital investing activity, Silicon Valley is the nation’s unrivaled tech early technology investing epicenter.
As the innovations and wealth that have flowed from Valley Tech companies - from Apple to Cisco to Ebay to Facebook to Google to HP to Netflix to Pixar to Oracle to Yahoo and thousands more - have enriched the world beyond measure.
And since the start of this year, almost impossible to believe stories of fortunes being made there have inspired us all (and provoked more than a little jealousy, too!).
I profiled a pair of these stories - Jim Goetz of Sequoia Capital parlaying a $58M investment into WhatsApp into a $3B fortune when in February Facebook purchased the messaging app
And Super Angels Peter Thiel and Sean Parker, who through their Founder’s Fund invested $16 million into virtual reality headset maker Occulus VR, which returned more than $740 million when Facebook bought the business last month.
Great for them.
But it does beg the question: Has Silicon Valley become so dominant - has it so separated itself - that the best opportunities can only be found there?
Of course not.
In fact, the argument can be made that the worst place to invest right now is in Silicon Valley.
As the stories above illustrate, deal prices there are high, and there is more money than ever (including $7 billion in fresh capital raised last quarter) chasing fewer and fewer deals.
So smart money is starting to look elsewhere.
Like in Los Angeles.
Long renowned as a digital media and entertainment hub, LA Tech investing activity has never been greater, with both funding and deal activity at a five year high.
Smart investors are making a lot of bets on young LA companies, with 70% of all area investing activity happening at the Seed and Series A stages.
Like in the Valley, Internet and Mobile-related businesses dominate - with close to 80% of all venture activity being concentrated in these areas.
These investments are paying off, with 59 recent venture-backed Tech Exits, including Demand Media (IPO), Cornerstone on Demand (IPO) Riot Games (Purchased by Tencent), Edgecast (Purchased by Verizon), Servicemesh (purchased by CSC), LiveOffice (purchased by Symantec) and Integrien (purchased by VMware).
And many, many investing “win” stories like these can be found in Tech Centers like New York, Boston, Chicago, Austin and more.
Yes, the Valley is great but it is far from the only game in town.
And there is a strong case that its best investing days may be behind it.
The word to the wise here is to look elsewhere.
To Your Success,
P.S. Click here for a recording of my private equity investing webinar: What Peter Thiel and Sean Parker Know about Investing and What You Should Too.
My company's strategic advisory board met this past week.
All I can say is wow – I benefited from it in ways that I barely could have imagined when first organized.
Here is what I got out of it:
That Often It is Better to Receive than to Give: While advisory board members, unlike a formal board, do not have liability nor fiduciary responsibility, their time and energy requirements to participate are significant.
And for most smaller companies, the financial incentives it can offer advisory board members are relatively little compared to the value of board members’ time.
A good if imperfect analogy is that for many senior executives their involvement with a smaller company advisory board is almost a philanthropic endeavor – where they give of themselves without expectation of direct reward – financial or otherwise.
Correspondingly, the owners and managers of the small company must approach the sage advice and good energy offered by their advisory board fully in “receiving” mode.
For businesspeople of the mindset of always trading value for value and reciprocal obligation, this is hard. But only by clearing this space can the board’s counsel be best received.
And somewhat counter-intuitively, often only by management fully accepting the “gifts” of its advisors will the board member’s experience be richest.
Begin with the End in Mind: For companies beyond the startup phase, its operating executives are naturally pulled to the shorter-term challenges and realities - this quarter’s revenue and profits, this month’s sales, the challenges and angst of a difficult employee decision, etc.
An advisory board discussion, however, by both its nature and by the kinds of folks attracted to serve on it, naturally pulls to the longer view - to the big questions that all businesses should be regularly asking themselves always but rarely do.
These questions fall into the big categories of “why” and “which.”
The "why" questions are hopefully embodied in the Company’s mission and its values, and need the regular attention of strategic planning sessions like advisory board meetings to keep them from existing only in “hot air.”
The “which” questions are in many ways the harder ones that an advisory board dynamic can specifically help address.
You see - ambitious entrepreneurs and executives, especially after they have a little success, are naturally drawn to expanding their sense of their market opportunity, and correspondingly their list of product and service offerings.
This naturally leads to a diffusion of focus, of trying to be all things to all people. A thoughtful advisory board will challenge management to more clearly define where they are aiming to be 1 year, 3 years hence and beyond, and from this vision where resources and attention should be focused today.
Speak Little, Listen Much: Managers and owners of emerging companies are often also the lead salespeople, the lead “evangelists” for their companies.
As a result, their default mode is to always be selling, always be pied-pipering their incredibly bright futures.
This is natural and good, but in a strategic planning session it is of equal importance that the challenges, the obstacles, the concerning risk factors be sat and grappled with long and hard.
Even if, especially if, so doing is buzz-killing and / or depressing.
Why? Because it is often only in the “low negative” energy state that a certain kind of reflective creativity can flourish, and completely new approaches to solving vexing problems can be discovered.
Brevity is Next to Godliness: Strategic planning sessions in a modern business context should be tightly scheduled to last not more than 2 hours. After this length of time, diminishing returns starts setting in fast.
A tight frame also requires all participants to come to the meeting prepared. And, in turn, that the meeting organizers select the right meeting homework and then plan and moderate the agenda with the proper balance of structure and free-flowing dialogue.
Doing all of the above requires work – a good guide is that for every hour of strategic meeting time there should be 5 hours of planning time by the meeting organizer and at least 2 hours of preparation time by each participant.
Conclusion: Given that the only way to increase the value of a business is to either a) increase its bottom line financials and/or b) to improve its strategic positioning and growth probability, creative planning sessions like advisory board meetings should be a FIRST priority of any responsible manager of a company with ambition.
They are classic Steven Covey, “non-urgent, extremely important” activities.
Ignore them at your peril, and benefit from them in ways, like I did and will, well beyond reasonable expectation.
To your success,
Don’t you just love these booming markets? Well, if you don’t, try on these IPO, M&A, and financing stats from 1st Quarter 2014:
Initial Public Offerings: 72 companies went public in the U.S. in the 1st quarter - the largest number of new issuers since 2000 -raising a total of 11.1 billion. And, as of Monday 54 of the 72 of them were trading above their IPO price.
Mergers & Acquisitions: Global mergers & acquisition activity totaled $710 billion (Thomson Reuters), up 54% from last year.
Private Equity. Private equity firms did 850 deals, representing investments of greater than $152 billion (Pitchbook), up 11%.
Venture Capital. 1,348 companies raised more than $15 billion from venture capitalists, up 36%.
They also raised $10.3 billion for 578 funds in the 1st Quarter, up 51% from last year.
After many years of ongoing economic and investment dreariness, isn’t this so refreshing?
And aren’t we heartened that the doomsayers have been proven so fundamentally wrong?
Wrong about the U.S. economy.
And wrong about what is so clearly the dominant leadership position of this country in all of the great technologies growth industries of the 21st Century - software, biotechnology, energy, digital media, and more.
And beyond the numbers, there are some great stories.
Of new industries being built, of fortunes being made. Here is one of my favorites:
Last week, Facebook acquired virtual reality headset maker Occulus VR for approximately $2.24 billion.
Among the investors were Peter Thiel and Sean Parker, of PayPal and Napster fame, who through their VC The Founder’s Fund last year invested $16 million into Occulus.
Upon Facebook’s purchase of the company and correspondingly of their shares, their position is now worth more than $740 million, or a return of close to 50X on their invested capital.
How did they do this?
What selection strategies did they utilize to identify companies with this kind of return potential?
Well, attend my webinar Thursday - What Peter Thiel and Sean Parker Know about Investing and What You Should Too - to find out.
On it, I will share:
- Why the majority of investors presented the opportunity to invest in Occulus declined to do so
- How Thiel and Parker and their fund partners diligenced the deal and decided to invest in Occulus instead of in the dozens of virtual reality technologies then and now in the marketplace
- How Big Data and Black Swan portfolio theory and modeling were critical to their valuation analysis on the deal
- How today’s booming IPO and deal market, discussed above, is affecting (positively and negatively) the technology deal marketplace
Register now via the below link:
To Your Success,
P.S. Interested in the topic but can’t make the webinar time? Well, do register and will make sure that you get a recording of the presentation.
Global Technology Mergers & Acquisitions Activity is now at its highest year-to-date level since 2000 (in terms of both dollar volume and deal number).
Overall there has been $65.2 billion of M&A activity announced year-to-date (Thomson Reuters).
And then layer in the the crowdfunding boom (both donations and investment-based) and the exploding growth of peer-to-peer lending sites like Lending Club and Prosper.com, and never before have there been so many and so good “digital” places for those seeking and those providing capital to connect and transact.
More entrepreneurs and businesses having access to outside capital than ever before and...
…for the first time investors having the ability to efficiently build diversified portfolios of private equity and debt investments with strong, positive expected value.
Now compare all of this freshness and innovation against the ongoing dreariness of the “public” markets.
From 2000 to today, the Dow Jones has risen from 11,078 to approximately 16,268 (as of 03/26), or approximately 42%.
During that same time inflation has reduced the dollar’s purchasing power by almost exactly that same amount (38%).
So basically 15 years and ZERO real investment return.
Now what do these two fast diverging worlds, the increasingly innovative and transparent one of private investing on the one hand, and the flat and more opaque than ever one of the traditional public market returns on the other, mean for the entrepreneur and for the smaller investor?
Quite simply, it is all good.
For investors, it means access to higher returns.
Research from the Kauffman Foundation Angel Returns Study and the Nesta Angel Investing study, compiled by Robert Wiltbank, have demonstrated that the "...average angel investor (across the U.S. and UK) produced a gross multiple of 2.5 times their investment, in a mean time of about four years.
And for the entrepreneur, it means more, quicker, and cheaper access to capital, especially in smaller amounts.
Which leaves more time and energy for what entrepreneurs want to do and what we all need them to do…
…starting and growing profitable and innovative companies that make the world a better place.
Amen to that.
To Your Success,
P.S. To listen to a replay of my Thursday webinar, where I explored some of the key lessons learned from Sequoia Capital's $58 million investment into WhatsApp - and subsequent $3 billion windfall - upon Facebook's purchase of the messaging app last month, click here.
A version of this article originally appearedin Entrepreneur Magazine and can be seen here.
From businesses come needs – like raising capital. Raising capital usually means pitching investors.
So which businesses are most likely to be among the approximately 5% who raise funds from professional investors? The chart below tells the brutal truth quickly and easily.
A great business which gives a great presentation is most likely getting funded.
A lousy business with a lousy presentation isn’t getting funded.
But what about a good business with a lousy presentation? Is it more or less likely to get funding compared to a good business with a great presentation? The answer probably won't surprise you.
After speaking with over 110 angel investors, VCs, entrepreneurs and educators, the consensus was solidly in favor of the good business with a great presentation. The deciding factor came down to the team, the single factor which most influences investors.
A person and a team who made a great presentation took the time to practice. Investors like to see the results of preparation and hard work. A great team willing to practice may simply need some advice and be willing to pivot, changing a good business into a great business.
A good business which gives a lousy presentation says to investors, “We didn’t care enough to put in our best effort.” The lack of preparation and the condescending attitude toward investors will derail just about any business seeking capital.
At the very least, it says the team is not ready, not mature enough, and probably not coachable. With plenty of investing opportunities from which to choose, investors quickly move on.
Want to improve your chances when pitching to investors? Follow the eight recommendations below to maximize your chance of raising capital.
PRACTICE your pitch
If you didn’t practice 25-50 times before presenting, it will show in your lack of confidence, poor pacing, and use of filler words like “uh”, “um” and “like”. Then you’ll likely resort to the boring reading-slides-to-your-audience-with-your-back-turned method of pitching. Buy the coffin. You’re dead.
GENERATE some enthusiasm!
No one expects you to have over-the-top local sportscaster enthusiasm. But don’t pitch with a sleep-inducing monotone, either. If you don’t have passion for your business, neither will an investor.
PREPARE for contingencies
Fertilizer happens. Prepare for it.
* Know every slide in your pitch deck by heart
* Have two thumb drives with your pitch deck saved in PowerPoint / Keynote and PDF
* Bring your own laptop, projector, clicker, batteries, microphone, cables and cords
* Inspect the room beforehand, if possible. Know the lighting and sound conditions
BREVITY is king
Got 10 minutes to pitch? Finish in 9:45. Almost nobody finishes with a strong close in the allotted time. Investors love someone who can manage time effectively. It sends the message that you can manage other areas of business effectively, too. Keep your pitch deck to 10-12 slides maximum.
NAIL the opening and closing
Tell a brief story; do something unexpected; focus on emotion. Those are great concepts to open a pitch. Close powerfully with your call to action. Now think about how most people open speeches – and don’t do that.
Sprinkle in stories to drive home a point, to magnify emotions, and to keep your audience engaged. Generally, a single story should take no longer than about 7% of your total pitch time. For a 10 minute pitch, a story is most effective when 45 seconds or less.
Use storyboarding, a technique invented by Walt Disney in the 1930s, to create your overall theme. Do this before designing your pitch deck.
VISUALS, not text
Your pitch deck should be primarily visual. You’re the focus, not your pitch deck. If your slides are full of text, your investor audience is reading the slides and not listening to you. Your audience can read faster than you can speak. When they finish and you’re still talking, they’ll disconnect. After that, they’re almost impossible to re-engage. Great visuals enhance your story because vision is the most dominant sense in people.
WIIFI: What’s In It For Investors?
Why you? Why now? Why should an investor care? When your pitch answers those questions in a concise yet detailed manner, your chance of funding improves.
Knowing your investor audience is essential. Pitching friends and family is somewhat causal, pitch angel investors is more serious and pitching institutional investors is sophisticated. Tailor your pitch accordingly.
Successfully raising investor funding is often a long, frustrating and complex process. Getting turned down dozens or hundreds of times will test an entrepreneur’s patience. Persistence doesn’t guarantee success but quitting guarantees failure. Investors use the process to find the most resilient entrepreneurs worthy of funding. Getting investor funding will often change your life and your world for the better. The guidelines above will make your process faster and easier.
P.S. The author Luke Brown is an Engagement Partner with Growthink. If you would like to discuss how Growthink could help in creating your presentation for you, do reach out to Luke directly at [email protected], and / or at 310-846-5047.
This Saturday, I took my sons to Toys"R"Us to buy them baseball gloves. A great American tradition to be sure, and with opening day just 2 weeks away, both spring and the national pastime were in the air.
I looked for the American baseball glove names of my youth - Rawlings, Wilson, Easton, Spalding, Cooper.
My boys happily tried on gloves (most much too large for their little hands) to find the perfect fit.
For whatever reason my eye was caught by the fine-print label on one glove and its none too surprising "Made in China" imprint.
My curiousity piqued and my young sons' attention of course being diverted by all of the amazing toys in the store, we started wandering about.
Tonka. Backloaders, dump trucks, bulldozers, and more. Made in China.
Chutes and Ladders. Gnip Gnop. Battleship. Twister. Yahtzee. Risk. Connect Four. Made in China.
The erector sets have evolved impressively from the clunky sets I remembered. Made in China.
Hundreds of Hot Wheel model race cars - beautifully modeled Camaros, Jeeps, Corvettes, and more. Made in China.
On to the figurines and action figures. Dale Earnhardt Jr., Tom Brady, Lebron James, Albert Pujols. Staring out lifelike from their boxes and Made in China.
Blond-haired blue-eyed Barbie and Ken. Made in China. GI Joe. Defending our freedoms and Made in China.
Notes To Self
Call me old-fashioned, call me protectionist but it just didn't feel right to buy my sons Chinese - manufactured baseball gloves.
Then thinking practically as a striving parent does, first order of business was to go home and get my boys immediately enrolled in intensive Chinese language instruction because by golly if this is how the world is now then where is it going?
And on this thought I caught myself. I realized I had fallen for the classic mercantilist trap and confused "Made In" with "Value Added."
What's the difference? Well, for you parents reading out there put it this way - none of you I would surmise want their sons and daughters to grow up and work in a factory (though, of course, it is like all work noble and deserving of praise).
But a LOT of you would be VERY happy if your son or daughter went to work as a product designer for Lego.
In marketing or public relations for Mattel.
In corporate finance at Rawlings.
At the NFL league office.
In post-production on the movie Avatar.
As eco-friendly packaging and shipping designers for Toys"R"Us itself.
These Are the Good Old Days
While it is hard for many to accept, it is beyond clear that America is MUCH wealthier today than it was in the so-called good old days when the U.S.A. was the manufacturing capital of the world.
What's The Point?
Very simply, wealth and power in the modern world is NOT about making things. It is about reconceptualizing them.
Apple. Google. Microsoft. In Apple's famous (and grammatically incorrect) advertising campaign, none of these great American companies actually make anything in the strict sense of the term. But they invest lots and lots of time and money in thinking different about them.
To put it another way, modern wealth and power are NOT in the things themselves. They are in their recipes - the instructions of HOW to make them.
And in making new and better recipes, American entrepreneurs lead the way by miles and miles.
And assuming government stays out of their way, they will continue to do so.
To when my little boys enter the workforce and beyond.
Last week, I shared how between 2011 and 2013, Sequoia Capital invested approximately $60 million in WhatsApp – the instant messaging subscription service bought last month by Facebook for $19 billion.
And how Sequoia’s return on that $60 million was close to $3 billion, or more than 50 times its original investment.
I then offered to share some of our research findings as to the selection strategies that early-stage technology investors like Sequoia now utilize to identify companies with this kind of return potential.
Not surprisingly, the response was overwhelming.
So much so that only a very of those who wanted to learn more were able to get in before registration sold out.
So to accommodate all of the requests I have agreed to re-present our findings and will do so via web conference tomorrow at 7 pm ET / 4 pm PT.
To register, click here: https://www2.gotomeeting.com/register/647747626
On it, I will share:
• Why the majority of investors presented the opportunity to invest in WhatsApp declined to do so
• How Sequoia partner Jim Goetz diligence the deal and decided to invest in WhatsApp instead of the literally hundreds of comparable messaging applications then and now in the marketplace
• How Big Data and Black Swan portfolio theory and modeling were critical to Sequoia’s valuation analysis on the deal
• How today’s booming IPO market, with through March 1st more than 42 IPOs raising $8.2 billion – the highest YTD activity since 2007 – is affecting (positively and negatively) the technology deal marketplace
• And much, much more
Register now via the below link:
To Your Success,