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 Katie Perratore on Tuesday, April 15, 2014
On Wikipedia, I found the word "angel" defined as "a supernatural being or spirit, often depicted in humanoid form with feathered wings on their backs and halos around their heads."
Written by Dave Lavinsky on Thursday, April 10, 2014
I find it amazing how many entrepreneurs and business owners get burned by thinking about things incorrectly.
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 Dave Lavinsky on Sunday, March 30, 2014
In my Crowdfunding Formula program, I teach the 14 steps you must follow to successfully raise money from Crowdfunding.
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 Dave Lavinsky on Tuesday, March 25, 2014
The right story can grow your business into an amazing success. That being said, consider this great story:
Recently, these men returned to their college for their 25th reunion.
They were still very much alike. Both were happily married. Both had three children. And both, it turned out, had gone to work for the same Midwestern manufacturing company after graduation, and were still there.
But there was a difference. One of the men was manager of a small department of that company. The other was its president.
Have you ever wondered, as I have, what makes this kind of difference in people’s lives? It isn’t a native intelligence or talent or dedication. It isn’t that one person wants success and the other doesn’t.
The difference lies in what each person knows and how he or she makes use of that knowledge.
And that is why I am writing to you and to people like you about The Wall Street Journal. For that is the whole purpose of The Journal: to give its readers knowledge - knowledge that they can use in business.
Lynn is a friend of mine who knows good products. One day he called excited about a pair of sunglasses he owns. “It’s so incredible!” he said. “When you first look through a pair you won’t believe it.” What will I see? I asked. What could be so incredible?
Lynn continued. “When you put on these glasses your vision improves, objects appear sharper, more defined. Everything takes on an enhanced 3D effect and it’s not my imagination. I just want you to see for yourself.”
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 firstname.lastname@example.org, 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.
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