Most entrepreneurs fail to raise
venture capital because they
make a really BIG mistake when
approaching investors. And on
the other hand, the entrepreneurs
who get funding all have one thing
in common. What makes the difference?
Many entrepreneurs and investors have been capitalizing on developing internet capabilities and the increased usage of social networks around the world by creating a new wave of social networks and Web 2.0 websites. Over the last few years, the Web 2.0 sector has seen a number of acquisitions for companies including Bebo, Blogger, Cork’d, Del.icio.us, Flickr, Jaiku, Last.fm, Picasa, Rojo, Skype, Sphere, StumbleUpon, and Webshots. Entrepreneurs have been encouraged by large scale transactions including YouTube selling for $1.7 billion, Facebook’s valuation at $15 billion based on Microsoft’s recent investment, and MySpace’s sale for $580 million.
A great Web 2.0 website can be built on a shoestring budget with a few smart developers and an innovative concept driving the growth of the business. Web 2.0 companies have the potential to experience overnight notoriety through a few press mentions and can grow exponentially thereafter. Thus, venture capital firms do expect to see a great deal of traction in the marketplace before seriously considering funding your social network. Due to market conditions, VCs today are seeking to fund companies that are already well on their way to success, rather than higher risk and earlier stage deals that they might have previously considered. As a social network, the right time to contact a VC is when your site has a solid user base and viral growth through an innovative guerilla marketing strategy, not at the idea stage. For example, just today Glubble BV (www.glubble.com), a niche Amsterdam based social networking website for families with children under the age of 12, announced that they raised $1 million in Series B funding. Glubble was launched in 2007 and counts 300,000 family pages on its service to-date.
Due to the large number of social networking sites that were funded in the last three years, VCs are getting increasingly skeptical of these concepts. Kleiner Perkins, one of the largest VCs, has publicly stated that they are no longer investing or even looking at Web 2.0 companies. I’m not suggesting that you get discouraged by this or that the opportunities for new web 2.0 or social networks have passed, but realize that the competition is great and you must differentiate yourself both in your market and when pitching to venture capital firms. Stand out by targeting niche users, such as senior citizens, travelers, specific cultures, or countries. Find a niche that has not been already conquered, but that has enormous value, and do not promote your business as the next MySpace or Facebook. These networks have generated enormous and loyal user bases and it will be extremely challenging if not impossible to replace them.
Growthink has worked with nearly 100 web 2.0 businesses over the last few years and has developed strong expertise in the sector. We can help you to strategically think through your business model and create a compelling business plan that will help your Web 2.0 company stand out among the throngs of competitors. We can also advise you on how to improve your viral marketing strategy to optimize your valuation before bringing your company to a VC firm.
If you are an existing website, we can also help provide you with strategic recommendations based on a complimentary website audit. Please follow this link for more information:
Recently, I had the great fortune of interviewing Mark DiPaola, an extremely accomplished entrepreneur.
As the founder of Vantage Media Corp., Mark raised a $70 million Series A financing, which is still on record as one of the largest Series A raises in history. And in 2007, his company generated $68 million in revenues.
As president of D3 Ventures, Mark also functions as an investor.
As a person with such success on both sides of the table - investing in growing businesses, and actually founding and growing businesses himself, I couldn't wait to interview him about entrepreneurship and raising capital.
During the interview, Mark went into great detail as he recounted his own experiences on raising capital for Vantage Media. One thing he emphasized was how important it is to know your business inside and out, and how this knowledge impacts not only your ability to grow your business, but also to achieve sales breakthroughs and get the attention of investors.
Mark revealed one website for job postings which helped him assemble a 35 -person team that brought in $40 million/year in revenue -- and it's not the website you might think! We discussed hiring strategies, the number one factor to look for in job candidates, and when it's time to bring in a highly-experienced management team.
Regarding his role as an angel investor, Mark shared the qualities he looks for in a company before making an angel investment, and why it's important that entrepreneurs are referred to investors.
Growthink University members can listen to the interview here:
Yesterday I had the opportunity to interview Brad Feld, who is considered among the elite investors in privately held companies.
For those of you who are not familiar with Brad, his background includes starting and selling his own software company, investing as an angel in 40 to 50 companies, and founding or co-founding three venture capital firms: Intensity Ventures, Mobius Venture Capital and Foundry Group, where he currently serves as Managing Director.
While there were several invaluable points for entrepreneurs seeking capital in the interview, I found the following to be most interesting:
1. Your VC firm is your partner.
Many first-time entrepreneurs view VCs simply as providers of capital. In actuality, VCs are partners. They exert control over your company. They have experience in product development or scaling companies, or both, and can provide significant value beyond the money they infuse in companies.
Because VCs are partners that exert control, you need to assess them much like you would other partners. Mainly, you need to make sure that there is a really good fit.
2. Angel investors are the friend of the first-time entrepreneur.
First time entrepreneurs should strongly consider angel investments prior to venture capital. Angel investors often have financing experience which can help entrepreneurs navigate the VC waters when they are ready (there are a ton of terms and issues involved with venture capital that most first-time entrepreneurs don't know about).
Angel investors also tend to have relationships with VCs. Also, angels often have the operational experience to help grow the entrepreneur's company. And finally, the angels' funding can help the company grow to a point where it is more suitable for venture capital.
However, when structuring angel deals, it is imperative to keep the pricing/valuation fair and the deal terms as simple as possible. If not, raising subsequent venture capital rounds becomes more challenging.
3. Don't look for investors who are not a good fit
Brad mentioned the 80/20 or even the 99/1 rule. Essentially, entrepreneurs should spend a ton of time on the 1% of investors who are a great fit. And not waste their effort on the other investors.
Two key aspects that Brad mentioned for ensuring a good fit are 1) geography (many VCs will only invest in certain geographic regions) and 2) sector (Foundry Group simply doesn't invest in Clean Tech; no matter how exciting the company looks). I would also add "stage" to this list as many VCs focus on companies at specific stages (e.g., some only want post-revenue companies, etc.)
You can listen to the full 30-minute interview by clicking the blue triangle on the audio player below:
While you probably have heard about the Stimulus Package and President Barack Obama’s push toward increased usage of renewable energies, you may not be aware of how this initiative can help your business and where the money is in fact going. The following information will explore the specific allocations of the Energy Stimulus and how you, as a business or as a consumer, can take advantage of this unique opportunity.
One of the most significant components of the $787.2 billion stimulus package signed into effect by President Obama in February 2009 is the initiative to spur development of “Clean, Efficient, American Energy”. Of the total sum, more than $30 billion will be allocated to transforming the nation’s energy transmission, distribution, and production systems by improving grid design and investing in renewable energy and another $5 billion will be spent on home weatherization. The energy component of the initiative is aimed at reducing the country’s dependence on fossil fuels, spurring innovation, and creating jobs nationwide.
The following outlines the specific initiatives the energy stimulus money will be dispersed to:
Improvement of Electricity Grid Design - $11 billion to build new power lines and deliver renewable energy
Grants for Local Governments - $6.3 billion to state and local governments to reduce carbon emissions in their localities
Renewable Energy Loans - $6 billion for funding renewable energy projects
Home Weatherization – Weatherization is the process of protecting a structure’s interior from the exterior elements and improving interior energy consumption efficiency through highly effective insulation. The government has allotted $5 billion to lower income housing
Eco-Friendly Government Buildings - $4.5 billion to make government buildings more energy efficient
Fossil Energy Cleanup - $3.4 billion for carbon capture technology development
Green Research – $2.5 billion in grants for universities, companies, and national laboratories that will demonstrate advancements in technology to foster energy independence
Advanced Battery Grants - $2 billion to spur development of advanced vehicle and other battery systems
Green Job Training - $500 million to train workers in the green energy sector
Electric Transportation - $400 million in grants to develop electric vehicles
Smart Appliances - $300 million in customer rebates for the purchase of energy efficient appliances
Federal Vehicles - $300 million to replace or retrofit government vehicles to use renewable energies
Department of Defense - $300 million to develop more energy efficient military equipment and bases
Local Transportation - $300 million to local governments to purchase buses and trucks that use alternative fuels, and $300 million to replace or retrofit vehicles that use diesel fuels
Energy Efficient Housing - $250 million to increase energy efficiency in homes, particularly low-income housing
Historically, companies have been reluctant to invest in renewable and clean energy technologies, because they require tremendous economies of scale to be profitable. Since these systems require large capital outlays upfront, it takes a long time to see return on investment. The Stimulus Package aims to combat these hesitations toward switching to renewable energy systems. The initiative will benefit various members of the energy sector from large utility companies upgrading energy grids to small businesses installing solar panels. It also benefits end consumers striving to make their homes more energy efficient through tax breaks and government subsidies.
Federal Involvement will Spur Investment, Growth, and Job Creation
The influence of government grants, loans, and tax breaks, will help encourage progress for both the supply and demand side of this sector. On the supply side, the government will provide research grants and funds for investing in promising existing and new technologies. On the demand side, the Stimulus Package will help companies and homeowners purchase new green energy systems by making them more affordable. The Stimulus Package will also create thousands of new jobs across the nation fulfilling these initiatives, helping to fuel unemployment and the overall status of the economy. According to Nancy Pelosi, investment in the green sector will create close to 500,000 jobs in 2009, 67,000 of which will be in the solar and wind power installation sector. Ultimately, the energy portion of the stimulus package will reduce American reliance on foreign nations for fossil fuels, generate domestic jobs, and promote innovation and adoption of new renewable energy technologies nationwide.
Access to the Allotted Funds
Whereas other areas of the stimulus package will be distributed through company applications and competitions to receive the funds, the money attributed to the energy sector will be primarily dispersed through tax credits and purchase incentives. For example, within solar and wind energy, the government is now offering a 30% tax credit to offset the cost of installing a solar energy system or wind farm, whereas previously the tax credits had a cap of $2,000 and $4,000, respectively. Some additional credits include up to $7,500 for buying a plug-in hybrid electric car or a 50% tax credit for gas stations or other businesses that install alternative fueling pumps. For more information on the specific types of grants or tax credits offered, please find more information at the following website: http://www.greentechmedia.com/articles/obama-signs-stimulus-package-5736.html.
So What Does This Mean for You?
If you are involved in the clean energy sector, Growthink recommends additional research into the specific provisions of the stimulus to see if your business will qualify for federal subsidies or research grants. Additionally, Growthink suggests putting together a strong marketing campaign that highlights government support and tax credits for purchasing your products. This will educate the many unaware businesses and consumers that believe switching to alternative energies is outside of their affordability. Additionally, it is a wonderful way to draw positive publicity for your business. Growthink is happy to provide you with complimentary feedback on your current marketing program. We can also assist you by utilizing our expert group of marketing professionals to work with you on creating a Marketing Plan to target your customers in the most effective way possible.
Contracting, Construction, Eco-Friendly Transportation, and Electrical Infrastructure Companies
If you own a contracting, construction, eco-friendly transportation, or electrical infrastructure company, Growthink recommends seeking additional information on how you may bid for funds allocated to electricity grid design, weatherization, environmentally friendly transportation development, energy efficient housing, and building renovations. Growthink can help you with conducting this research and help articulate how your business is the most suited to perform the specified work or receive a government grant.
As a consumer, you can reap the benefits of the energy sector stimulus by utilizing the tax incentives to switch to renewable energy systems, such as installation of a solar or wind energy system in your home. The government is also offering customer rebates for those who purchase energy efficient appliances for their homes.
The Obama Stimulus Plan is an unprecedented program that has created unique opportunities for tremendous innovation and growth within energy efficiency. Please contact Growthink for more information on how we can help you position your company to benefit from the billions of dollars allocated to this sector and within your reach.
The sky is falling. The sky is falling. While that's the news the media is telling us everyday, it's not necessarily all true.
While the economy is clearly not doing so well, there is still tons of money available to organizations via loans, investments and grants.
In fact, with regards to grants, last year more than 75,000 U.S. foundations gave $45.6 billion to organizations and individuals, according to Foundation Growth and Giving Estimates: Current Outlook (2009 Edition). That's $45.6 BILLION!
Do you want a piece of that money? Well, if you do, there is one site that you MUST visit: FoundationCenter.org. Right on FoundationCenter.org's homepage you can start searching thousands of foundations that provide grants. You can even search by factors such as your zip code and market sector to zero in on the most appropriate grants for you.
But, before you rush to give FoundationCenter.org a try, you need to know the one key fact about private grants that no one seems to tell you. Foundation grants are only for non-profit organizations.
So, if you are a non-profit organization, you should definitely stop what you're doing and go to FoundationCenter.org to see what grants might be available to you.
I know what you may be thinking right now...How does this help me? I'm running or starting a for-profit business.
I gotcha. And fortunately, there are also billions of grant dollars available for you too. However, getting these dollars is a bit more tricky. Your business needs to be in certain sectors. You need to know where to look. You need to know how to apply and the secrets to making sure your application succeeds.
To answer these questions and make winning grants for your business a whole lot easier, my team and I just completed Growthink's "Step-by-Step Guide to Raising Capital for Your Business from Grants."
The guide is focused on teaching for-profit businesses how to raise capital via grants. Growthink University members have already been sent their copy of this special report. Others can learn more and download it today by clicking here.
This is the first article in our “Bottom Line” series focused on the $787 billion plan, where we analyze the spending bill's significance as a stimulus for U.S. entrepreneurs and emerging businesses.
The figures are mind boggling. A few billion dollars there, $50 billion there. And how about the $165 million from the Troubled Asset Relief Program (TARP) that made its way to the executives of bailed-out AIG in the form of bonuses? The unprecedented amount of public funds being spent to save and spur the economy through recent programs certainly includes a bunch of life vests for those failed companies that are “too big to fail,” but what about for the Entrepreneurial Economy?
The American Entrepreneurial Economy includes 550,000 new businesses started every month. It includes the emerging market: the 2.2 million firms in the US with between 5 and 100 employees. These are almost all private companies and most are less than 15 years old. According to the US Small Business Administration (SBA), small businesses (those with fewer than 500 employees) make up 99.7% of all US businesses, account for 50 percent of the gross national product and create between 60 and 80% of the net new jobs each year. Entrepreneurs are confident – often stubborn – risk takers who take on personal debt so they can follow their dreams of launching new businesses. They collectively make up the American business engine that largely drives innovation, invents new products, and creates new jobs.
We at Growthink work with these companies and business owners everyday and have assisted almost 2,000 in the past 10 years. Due to their impact on the US economy, we sure expect to see incentives for entrepreneurial companies in the stimulus plan, in addition to the $200 billion doled out to some of the largest financial institutions in the US. As a country, we don’t need to “bail out” emerging businesses in the sectors that will drive the economy – young firms that are working to improve healthcare, producing energy efficient products and developing environmentally-friendly pesticides – we need to spur them on.
We are following the distribution of stimulus funding closely. This means we’ve had to spend countless hours trying to figure out what’s in the plan and who’s getting what – the plan is about eight inches thick and leaves most of the funding details to the various governmental agencies that oversee specific sectors. It’s been no easy task. Just because the federal government is giving away an unprecedented amount of money in a record amount of time to save the economy doesn’t mean that it’s not being given away by the same bureaucratic system that existed before the stimulus plan.
In our “Bottom Line” series on the stimulus plan, we’ll focus on just that: What’s the plan's bottom line for the Entrepreneurial Economy? During the Series, we’ll provide concise descriptions of the business opportunities in various sectors and provide insight into how to receive funding. We’ll also provide honest feedback on the results of the program from the perspective of the entrepreneurial community.
So far, we’ve come across reasons to be optimistic. The plan includes programs for entrepreneurial sectors and includes promising opportunities for innovative, growth-oriented firms, such as:
More than $60 billion dollars in funding, grants and tax credits to promote energy efficient and renewable energy programs and products;
$7 billion to extend broadband services to underserved communities;
A focus on alternative sources of energy;
Almost $20 billion for healthcare technology;
$1 billion for a “Health & Wellness” Fund;
More than $15 billion for research and upgrading research facilities focused on key areas of innovation, such as climate change, biofuels, disease control and prevention, and technology innovation; and:
Enhanced and streamlined programs through the SBA.
We’ve also seen some early outcomes that give us cause for concern. Of course, there were those AIG bonuses, luxurious private jets flown by executives from failing automakers to beg Congress for bail-out money, and the hundreds of billions of dollars given to the firms that helped get us in this mess in the first place. And hucksters, of course, have recently populated email spam folders with promises of stimulus funding in return for credit card information.
But we’ve also seen frustration on the front lines when we’ve spoken and worked directly with leaders of promising businesses in those targeted sectors. How do I apply for the funding? Am I eligible? Where do I even find the information?
Of course, part of the confusion and a lack of clear information are inevitable – current systems to notify businesses of the methods to access these funds are inadequate for such a surge in new programs. But the confusion is largely due to the same complaints that start-ups and small businesses have expressed about government “support” programs for decades: It’s difficult to even figure out what’s available and how to apply for the resources, and continues to be in the age of the Internet.
During the next two weeks, we will provide those answers on a sector by sector basis. No fluff, no platitudes, just the Bottom Line for your business.
The next article in our Bottom Line Series will focus on stimulus funds available for entrepreneurial companies in the healthcare sector.
A few months back, a unique conference called "AngelConf" took place in Silicon Valley. The conference was organized for angel investors and its goal was to educate angel investors on how to invest in startups.
Key questions that the event addressed were:
How much are you supposed to invest?
What legal agreements do you need?
Where do you find startups to invest in?
How do you pick winners?
It was this last question that conference organizer Paul Graham from YCombinator agreed was the most important.
Graham's first point on this topic is that angel investors should pick startups that "make things that people want." Seems simple enough. However, Graham went on to say that angels should not invest in things that are already wildly popular. "By then it's too late for angels. VCs will already be onto them. As an angel, you have to pick startups before they've got a hit-either because they've made something great but users don't realize it yet, like Google early on, or because they're still an iteration or two away from the big hit, like Paypal when they were making software for transferring money between PDAs."
As such, angel investors need to be able to predict future market sizes (not just identify markets that are already doing well).
Graham's second point on this topic is that angel investors need to pick founders who are winners. On this point, he said the following:
"What makes a good founder? If there were a word that meant the opposite of hapless, that would be the one. Bad founders seem hapless. They may be smart, or not, but somehow events overwhelm them and they get discouraged and give up. Good founders make things happen the way they want. Which is not to say they force things to happen in a predefined way. Good founders have a healthy respect for reality. But they are relentlessly resourceful. That's the closest I can get to the opposite of hapless. You want to fund people who are relentlessly resourceful."
Now, what this means to you as the entrepreneur is that this is how you will be judged by many angel investors. They will judge the future potential of your business concept and they will judge the potential of you and/or your management team.
With regards to the quality of you, the founder, and/or your management team, you need to show the investor, via past performance and ALL current interaction between you and the investor that you are a winner. You need to show them that you make things happen. Here are some examples of how can you accomplish this:
Tell them a current business objective and come back to them two weeks later and show them you have achieved it.
Find some way you can help them (e.g., introducing them to a business contact of yours that could help them) and execute on it right away.
Ask them about questions they have about your opportunity and/or market and come back to them within 24 hours with great research and answers to their questions.
These smaller, short-term accomplishments which show investors that you can execute and that you are clearly not 'hapless' will massively improve your chances of getting them to invest in you.