Written by Jay Turo on Wednesday, April 16, 2014
Last week my post on Silicon Valley - where I posed that the Valley as an investment hub had become overbought, and that the best opportunities were trending elsewhere - elicited some great responses.
Perhaps my favorite was from a Midwest VC, in reference to one of his portfolios companies in the data center space..."Here is an excellent company which is part of our VC portfolio that is…in the midst of the cold Midwest in Rochester, Minnesota, a location where few Silicon Valley folks are brave enough to consider for investment."
Another came from a well-known super angel from Dallas, “very much admire the wealth and innovation coming from SV, but it is time for investors to step out and see all of the great technology companies starting and growing outside of California.”
I appreciate these sentiments very much, and they got me thinking as to what are the common threads amongst those that love, work and invest in the startup and small business sector.
It starts with a set of beliefs. First and foremost, a clear and passionate recognition that the blessings of our way of life depend on our thriving free enterprise system.
And a deep and abiding respect for those that create wealth via their own hard work, creativity, and opportunistic sense of risk and reward.
For the entrepreneurs, the owner-operators, “the risk takers, the doers, the makers of things.”
Those brave souls that embody Picasso's famous credo of "work being the ultimate seduction.”
From whom business is far more than simply a way to make a living.
AND as they do it, they make money.
A lot of it.
In fact, the vast majority of startups and small companies earn a far higher return on invested capital than their larger publicly-traded brethren.
In fact, companies on the Inc. 5000 - a list of the country’s fastest-growing privately-held companies - average annual revenue growth of over 70%.
And a good number of these companies take in outside investment to accelerate their growth.
Some from professional investors - private equity and venture capital firms - and some from individual, “angel” investors.
And when the better among them do, those that love and are passionate about entrepreneurship, about technology, and about making money, want to participate.
1. High Rate of Expected Return. Angel investing is by far the highest expected rate of return form of investing, 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."
2. Home Run Potential. Smaller operating companies are the only form of investment that offer true "home run" potential.
Almost all great fortunes have been made via positions in small companies that became big. The list is legion, and runs from Standard Oil, DuPont, and Ford, through IBM, Hewlett-Packard, Wal-mart, Microsoft, and Oracle, to modern day supernovae like Amazon, Google, LinkedIN, Facebook, and Twitter.
And yes, Whats App and Occulus, too - companies still early in their business life but having already created fortunes for their early investors.
3. Connectedness. Perhaps my favorite, investing in smaller, private companies offers a connectedness, realness, and "human scale" interaction best compared to philanthropy.
It is the spiritual opposite of index, derivative, and Federal Reserve tea leave gazing that so unfortunately is what the media now considers “finance.”
Quite simply, early-stage investing is one of the last, pure forms of doing good while doing well…
…making a high personal expected, economic return decision while contributing to the entrepreneurial force of the world and providing fuel for innovations of all types that make it a better place.
What is better than that?
Written by Jay Turo on Wednesday, April 9, 2014
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.
Written by Jay Turo on Wednesday, April 2, 2014
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.
Written by Jay Turo on Thursday, March 27, 2014
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).
More entrepreneurs and businesses having access to outside capital than ever before and...
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.
Written by Luke Brown on Monday, March 24, 2014
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.
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.
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.
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.
Written by Jay Turo on Wednesday, March 19, 2014
An endearing, but dangerous quality of entrepreneurs and small business owners is their propensity to go all-in -- not only pouring all of their lives, hearts and souls into their business, but all of their money too.
Of course, many entrepreneurs simply need every penny they have and more to fund their businesses and there just isn't any money left to invest in anything else.
But once an entrepreneur gets beyond the survival stage, they need to think about how and where money is working for them in their own business, and where it could do better.
Oftentimes, a lot better.
The first challenge: Entrepreneurs live, breath, and too often suffer their own businesses so much that when it comes to investing, they can’t think straight.
I encounter a lot of entrepreneurs who have this massive built-in bias toward ongoing, disproportionate investment in their own businesses are correspondingly are often just blasé, disinterested, and even, dare I say lazy when it comes to thinking about money and investments outside of their “baby.”
So they take one of two approaches. The first is the passive one -- outsourcing money and investment decisions outside of one’s business to a wealth “manager.” While there are compelling financial planning reasons to do this -- i.e. "we need to save and invest this much and earn this rate of return by this date to comfortably retire" -- the expectation for actual investment returns via this approach should be kept pretty low.
In fact, the S&P Indices Versus Active Funds Scorecard (SPIVA) shows that average "managed money" returns trail the index averages by almost the exact percentages of the fees charged for managing the money.
The second approach is more scatter shot - whereby investments in “one-off” real estate, startups, oil and gas, and collectables opportunities, among others, are presented to the entrepreneur by a varying lot of well-meaning and potentially pilfering parties.
And entrepreneurs, as they are wired fundamentally as optimists, find these opportunities naturally appealing.
So they invest – sometimes to good and lucky effect, but often disastrously so.
Is there a better way?
Can the hard-working entrepreneur have his or her money earn a good rate of return? While managing risk?
And dare we dream – adoing so in a way that is in alignment with their entrepreneurial values and leverages their entrepreneurial skill sets, experiences, and industry knowledge?
Of course there is!
An approach built on diversification and one that leverages traditional managed money vehicles like public market stocks, bonds, and mutual funds, but also offers the opportunity for above average, and with a little good fortune, potentially excellent investment returns.
It looks, quite simply, like this: Invest in what you know.
Or, in other words, a restaurateur could invest in other people’s restaurants and food service businesses.
Healthcare entrepreneurs could evaluate investment opportunities in healthcare.
Those owning distribution or light manufacturing businesses, look at other people’s distribution and light manufacturing businesses.
Now, of course there are caveats to this approach.
The first is to be cautious and conscious as to industry risk – factors such as an uncertain regulatory environment or perilously fast changing technological change that create risks beyond the control of any one or several companies in an industry.
Secondly, to undertake this form of investment, especially when owning minority positions in private companies, transactional and deal term sophistication is a must.
So if you don't understand aspects of private equity investing like valuation, capital structure, control and anti-dilution provisions, it is probably better to either avoid this form of investing, or do so through a managed or private equity fund vehicle approach.
You may be asking: Why go through all the trouble?
Well, when done right, a properly executed and diversified "angel" investment approach like this can earn a very high investment return.
Research from the Kauffman Foundation Angel Returns Study and the Nesta Angel Investing Study, compiled by Dr. Rober 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."
Returns like this will not be found via traditional managed money approaches, and rarely -- especially when accounting for the huge opportunity costs of running a company -- in one’s own business.
So for those entrepreneurs with the stomach and the work ethic for it, an "Other People’s Business" investment strategy like this is one well-worth considering.
To Your Success,
P.S. To listen to a replay of my Thursday webinar, What's Up with WhatsApp?, where I explored some of the key lessons learned from Sequoia Capital's $58 million investment - and subsequent $3 billion windfall - upon Facebook's purchase of the messaging app last month, click here.
A version of this article originally appeared in Entrepreneur Magazine and can be seen here.
Written by Jay Turo on Thursday, March 13, 2014
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,
Written by Jay Turo on Thursday, January 30, 2014
Almost completely shrouded in the drumbeat of negativity that passes as business reporting these days has been the bursting growth in U.S. service exports – increasingly from U.S. startups and small businesses.
Protectionist types of course interpret this to mean that “our wages will get pushed down to “their” levels – or more viscerally, “if this keeps up we’ll all soon be making $2 dollars per hour.”
Why? Because on a dollar-for-dollar (or better yet, zioty-to-zioty) basis, it was a better value for them to import services like these from the U.S. The world is changing, isn’t it?
Even our current favorite whipping boy industry – financial services – continues to bring us world-bettering innovations like venture philanthropy (i.e. applying market principles to solve the world’s most pressing humanitarian challenges), super angel funds (overcoming the “outlier” or “Black Swan” conundrum of startup investing) and of course crowdfunding (democratizing fund-raising and investing in ways never before even dreamed possible.)
Written by Jay Turo on Wednesday, January 15, 2014
As has always been the case, most commercial and neighborhood banks only lend against quickly “liquidatable” assets or at a small multiple of historical cash flow.
And Equity-Based Crowdfunding, approved by Congress in April 2012, is very close to being through SEC rule-making.
While investor appetite will take time to develop, as it does the available pool of investable angel and venture capital (currently approximately $50 billion annually) will expand dramatically, and in turn closing the gap between the tens of thousands of companies seeking capital and the investors interested in providing it.
Written by Jay Turo on Monday, December 30, 2013
This time of year offers many blessings - one of them being the pageantry of New Year’s Day college football.
I am excited to be rising before the sun on Wednesday and traveling to Pasadena with my six and seven-year old sons to their 1st Rose Bowl parade.
In the spirit of the day and of the year soon to be left in our care, here are a few of my favorite sports quotes that apply so well to the challenges and opportunities of life and business.
"Great moments are born from great opportunity…You were born to be hockey players -- every one of you. And you were meant to be here tonight. This is YOUR time.
- Coach Herb Brooks, 1980 U.S. Olympic Hockey Team Soviet Pre-Game Speech
My comment: this is the time and age of Entrepreneurs! Go for it!
"Funerals End Today”
- Marshall Coach Jack Lengyel, addressing the remaining members of his football team not long after 75 people, including most of the team and coaching staff - died in a 1970 plane crash.
My comment: Lengyel reminds us that the best to way to honor those that have passed is to live, to strive, to win.
"Leaders aren't born, they are made. And they are made just like anything else, through hard work. And that's the price we'll have to pay to achieve that goal, or any goal."
- Vince Lombardi
My comment: Hard work is the given, the base. It is a high value in itself and accomplishments of greatness and meaning are impossible without it.
"Don't measure yourself by what you have accomplished, but by what you should have accomplished with your ability.”
- John Wooden
My comment: To those to whom much is given, much is rightfully expected. We live in a global, golden age of opportunity. Think, dream, and do BIG!
Happy New Year, and may 2014 be the best year of all of our lives!
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