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Friday, August 29, 2008

I am an entrepreneur, I have a great idea but no money ?

I am an entrepreneur, I have a great idea but no investors, what can I do?

Answered by Richard Hall from http://www.growthbusiness.co.uk/

This is one of the most common questions that entrepreneurs face. More than 95 per cent of start-up ideas are funded through friends and family. Here’s why.
All of us have everyday random ideas that we believe could make an interesting start-up but we rarely act on them. The reality is that most ideas do not have the potential to generate a significant enterprise value to make a professional investor happy. So you turn to cousin James who knows that you will not run away with his money.
Even in the rare cases when ideas can generate value, the effort, resources, and uncertainty attached with commercialising them is beyond most individuals.
Let us assume that a person comes to us with an idea. How do you evaluate it? Most investors would immediately turn to the background of the inventor or entrepreneur. If the inventor has prior industry or functional experience that will be valuable in commercialising the concept, then investors are more likely to receive the idea favourably.
This does not mean that people with no experience will not get good ideas, only that they will have a harder time raising the resources. How would one overcome this? The most viable solution is to team up with or hire someone with specific, credible, and relevant industry experience and the social relationships that can help access investor networks. Not only does this investors greater confidence in your idea but also reassures you that you can count on someone to help you make the right moves in setting up the company and in developing and selling your product.
The simple truth is this – investing in a start-up is about confidence in the individual entrepreneur. People are likely to invest in an idea if they know who you are and believe you can make it work. If you can’t prove this right away, create a team that can.



Monday, August 18, 2008

Making the first Move with an investor

I found an interesting article from the "Ask the VC blog". This can be a problem for the first time entrepreneur, as they do not know the ropes and have had no prior experience or network, these few tips posted by Paul Graham from Y combinator, his company is a new kind of venture firm specializing in funding early stage startups. They help startups through what is for many the hardest step, from idea to company, there niche is software and web service.

Q: Everyone tells me the way to approach a venture capitalist I don’t know is through a friendly introduction from someone who already knows that VC. But what happens if I don’t have the connections to get that introduction? Am I screwed?

A: Every entrepreneur who has raised venture capital has heard it a thousand times—the best way to approach a venture capitalist is via a warm introduction. Venture capitalists invest in people as much as they do in technology or business ideas, and having some connection (even if it’s indirect) is immensely helpful to the VC in determining if that entrepreneur is someone he wants to invest in. The logic also continues that VCs are generally bombarded by requests for meetings, so a warm introduction helps an entrepreneur’s request float to the top of the list.
Unfortunately, as you’ve pointed out, sometime you don’t have the luxury of relying only on warm introductions. That doesn’t mean you can’t or won’t be successful in approaching a VC on your own, but I think there are ways to improve your chance of success.
Here’s my advice to entrepreneurs on what to do and what not to do when approaching a venture capitalist cold.

Do… Research the VC, his/her firm and their investments. If you’re asking a venture capitalist to take the time to read your business plan or take have a call with you, then you owe it to him to take the time to understand who he is and what kinds of investments his firm makes. It’s a waste of everyone’s time if you cold call a VC for funding for, say, an artificial heart valve startup when that venture firm’s web site makes it clear they only invest in software companies. By researching investments that the venture firm has made that are relevant to your opportunity (and by mentioning that research when appropriate), you show the VC that you’re serious, thoughtful and have done your homework. Successful fundraising usually isn’t a game of large numbers (i.e. the number of VCs you send your executive summary to); it’s about being smart about who you reach out to, understanding and articulating why you’re reaching out to them in particular, and having the appropriate follow through.
Do… Reach out to the VC in a way that makes it easy for a VC to respond to your approach. Out of the three primary options—USPS mail, phone and email—I think email is by far the best way to make the initial approach. VCs are notorious for their hectic travel schedules, packed calendars and odd working hours. The cold email approach saves you time and makes it easy for the VC to quickly assess whether your opportunity is one that merits pursuing. Regardless of how you decide to approach VCs, make sure they provide all of your contact info (including email and phone number) so they can re-connect with you in whatever way is best for them. Believe it or not, I have actually received business plans (via USPS) where the only contact information provided was a postal address. I can tell you firsthand that the more options you give a VC for reaching back to you, the more likely you are to actually hear back from him.
Do… Be specific in your approach about why you’re approaching that VC and what you’d like to accomplish. I think it sets the interaction off on the wrong foot when I get an email or a phone call from someone and I have to prompt them during the dialogue to get to the heart of why they reached out to me. Conversely, I really respect it when someone cuts straight to the chase and tells me what they’re looking for and why they think I’m the right person for them to reach out to. It not only tells me the entrepreneur knows what he wants and is confident enough to just ask for it, but it also gives me a sense of where that entrepreneur is coming from, whether he’s done his homework and whether his interpretation of the situation matches my interpretation.
Do… Provide the VC with enough information during the initial approach to allow him to qualify that you and your opportunity are interesting. While “dark and mysterious” may work in the dating world, being coy or secretive in the initial approach to a VC usually backfires on the entrepreneur. I’ve been on the receiving end of emails and voicemails that say nothing more than “I have a really exciting idea for a company and would like to arrange a meeting with you at your office next Tuesday.” While I think most VCs like to be accessible and will generally try to return all credible messages they receive, in most cases an attempt on the entrepreneur’s part to create a sense of intrigue will backfire and cost him or her credibility. If you do leave a message or send an email, give the VC enough information for him to determine whether it’s of interest to him.
Do… Recognize that successful fundraising is usually a series of small steps rather than one large step. Most entrepreneurs wouldn’t expect a venture capitalist to read a business plan and immediately write a check to the entrepreneur. Similarly, it’s unlikely to expect that you can pick up the phone, cold call a VC and immediately have that VC spend a couple hours on the phone going through your entire presentation. Nor should you expect that you can cold email a VC and get him to have lunch with you without his having pre-qualified that your opportunity is interesting. Your primary goal when you first cold approach a VC is simply to determine whether he has any interest in your opportunity. That’s your only ask during the initial approach: “Does this sound like something that might be of interest to you or one of your partners?” And all you have to do is provide just enough information for the VC to be able to respond. Assuming there’s an expression of interest, you can proceed with the dance called fundraising.
Do… Follow through when you make your outreach and be gently persistent. I’m amazed at the number of letters and emails I get in which the entrepreneur concludes by saying “I’ll call you next week to follow up and see if you have any questions” and where I never actually get that call. If I get a credible email or letter, I generally will close the loop regardless of whether the entrepreneur calls me, but if the initial contact promises follow through, then not doing so costs the entrepreneur credibility. Likewise, I don’t think most VCs consciously try to test entrepreneurs’ persistence, but our travel schedules, busy calendars, and existing portfolio demands sometimes create a backlog. Gentle persistence in following up can be what keeps you at the top of their minds.
Don’t… Try to make idle chitchat as a prelude to your “ask”. We’ve all had those telesales calls where an anonymous sales person tries to engage you in pleasantries about the weather, how your weekend was, or whether you think can make it all the way to the Super Bowl, etc. I don’t know of many people that enjoy it. If you don’t already have some sort of a personal connection to the VC you’re calling, the first cold call isn’t the time or place to try to force that connection. If you assume that you will only get a finite amount of time from a VC in your initial approach (it’s a safe assumption), spend that time wisely on making your case why your opportunity is a great fit for that VC, not on trying to make witty banter.
Don’t… Name drop, try to create a false sense of urgency, or raise a lot of hype unless you can back it up. Venture capitalists exchange emails, have phone calls, and meet with lots and lots of people. Most can smell when you’re trying to bull-shit them, and the only thing this does is make them more wary.

Have Fun



Monday, August 11, 2008

A Fundraising Survival Guide by Paul Graham

I found this essay by Paul Graham, Paul is an essayist, programmer, and programming language designer. In 1995 he developed with Robert Morris the first web-based application, Viaweb, which was acquired by Yahoo in 1998. In 2002 he described a simple statistical spam filter that inspired most current filters. He's currently working on a new programming language called Arc, a new book on startups, and is one of the partners in Y Combinator.Paul is the author of On Lisp (Prentice Hall, 1993), ANSI Common Lisp (Prentice Hall, 1995), and Hackers & Painters (O'Reilly, 2004). He has an AB from Cornell and a PhD in Computer Science from Harvard, and studied painting at RISD and the Accademia di Belle Arti in Florence.

Web Page: Paulgraham.com

He produced an excellent article on how to survive fund raising, this is a must read for anyone who is starting, process of raising funding, or thinking about it, for there early stage company, it has been a help/ refresher to me as I am looking at a variety of long term choices for my career, at present working on a major Photovoltaic project, which looks like it will have legs, but who knows in these days. There is also my feel the pulse, check out my future vision for my life and family phase of the year, and an alignment to my own Christian belief's long term. I find it is always refreshing to look at how others experience of how they have achieved there own goals and vision in life.

follow this link to the article:

Zero to $1million by Ryan P. Allis

Also for a interesting book to muse on the long flights, delays, trains,taxis, overnights in the hotel bar that you may experience have a look at this book by young entrepreneur Ryan P. Allis, to build a sales line of $1,000,000, in a short time, and continue to $10,000,000 at that age is an achievement but more so in the VC funded online comms and marketing field . Paul goes through is methodology of how he achieved his success and shares it with you using various techniques in the book. I suggest you give it to the new S &M executive you hire and ask him to read it and come back to you with a plan to do it better, if he does you have a winner and a keeper. You can contact Paul's PR folk at Jane Wesman PR, jane@wesmanpr.com



Thursday, August 07, 2008

The Wood for the Trees

A follow up to yesterdays post on Patents, here is another post on IP and how to protect and secure future licences. I see this as being a big part of the future as manufacturing is declining in the UK in preference of low cost countries.

The UK Intellectual Property Office (UK-IPO) has launched a new guide to help small businesses exploit their IP.
The booklet, entitled ‘How Licensing Intellectual Property Can Help Your Business’ provides information on IP licensing and to how clinch a licensing deal.
The UK-IPO said licensing intellectual property was important to all types of businesses and could be a key factor in achieving success, particular for manufacturers, designers or those that invent products.
Ian Fletcher, chief executive of UK-IPO, said:
“The 'Innovation Nation' White Paper published earlier this year, sets out the government's goal to make the UK the best place in the world to run a creative, innovative business. We live in a world where open innovation - the exchange of ideas, knowledge and intellectual property - is becoming the way in which businesses develop and build new products.”
Fletcher said licensing was the fundamental mechanism within the intellectual property system that allowed for open innovation.
He added: “We want businesses to gain the most value they can from their intellectual property and also to accelerate innovative development by working in collaboration with other businesses in using IP.”
The booklet can be downloaded at http://www.ipo.gov.uk/

Wednesday, August 06, 2008

Protecting your idea is not cheap.

Illustration: Harry Campbell
The truth about patents

The Poor Man's Patent

By Kirk Teska

Patent attorneys charge between £3500 and £8000 to prepare and file a ­patent application. If only there were a cheaper way, a kind of poor man’s patent. But it just doesn’t exist.
Some people think they can protect their ­invention by writing a ­patentlike description of it and ­mailing the ­document to ­themselves, but this is no substitute for patent ­pending. At best, the letter shows that you ­conceived an ­invention by a certain date, but you’ll ­probably be able to prove that with ­engineering notebooks, e‑mails, dated PowerPoint presentations, and the like. Moreover, ­evidence of an ­invention’s conception date is ­useful only in a limited set of ­circumstances, most of which involve actually ­filing for a patent at some point in time. So save yourself the paper and the postage stamp.
There used to be a so‑called disclosure ­document you could file with the U.S. Patent and Trademark Office for $10, but early last year the USPTO eliminated the option because it not only provided no real ­benefit to inventors but also ­misled them into thinking they had achieved patent-­pending status.
Undoubtedly more useful is the provisional patent application. Once this application is filed, an invention can be disclosed or sold without fear of losing patent rights, so long as a full “utility” patent application is filed within a year of the provisional. The problem is that if you draft a provisional improperly, it can limit the scope of possible protection and might even be thrown out by a court, invalidating the utility patent you file later. Worthwhile provisionals may end up costing nearly as much as a real patent application, so they don’t really count as a poor man’s patent.
Unscrupulous operators regularly prey on naive inventors by touting inexpensive patent-pending status. The Federal Trade Commission and the Patent Office are onto such scams and have established programs to shut them down. In one notable case, a patent attorney working for an invention promotion firm saved money by filing only design patents for his clients. Design patents, which, generally speaking, protect the way an article looks, have limited usefulness for most inventions. The attorney was disbarred.
Nor can you save the cost of a patent by ­simply ­relying on copyright or trade secret protection. Copyright ­protection may prevent someone from ­photocopying your write‑up of your ­invention, but by law it ­cannot stop anyone from implementing the ideas or functionality of your ­invention in a competing product. As for trade secret laws, they have a hard time protecting ideas or ­functionality, because they can’t stop someone from reverse engineering your invention.
Suppose you invent a light saber toy (à la Star Wars) and document all its circuitry in schematics. A ­competitor buys your ­product, gains an understanding of its ­overall functionality, tears into it in order to reverse ­engineer the circuitry involved, and begins selling ­competing light sabers. There has been no copyright ­infringement, because your schematics were not copied, and there is no trade secret ­violation, because the ­minute the ­product was sold, its ­status as a secret ended. You say that you mailed the ­schematics to yourself? That does not give you grounds to sue ­anyone for anything. You have a design patent? That would be easy to get around. You have a ­provisional ­patent ­application? I hope it discloses all the relevant circuitry and is not just a bare-bones description of a mechanism producing a blade of contained energy. No version of a poor man’s patent could possibly help you here.
Patents are expensive, no doubt about it, and the requirements are fairly strict. But as my grandmother used to say, you get what you pay for.
BTW follow the link to find a good patent man http://www.cipa.org.uk/pages/home

Monday, August 04, 2008

An Insite to what the VC's do with your money if you are so lucky

Venture Fund Economics
When I write about venture fund returns, there are always comments and questions that lead me to believe that the economics of a venture fund are not well understood. And since most of the readers and commenters on this blog are people who work in the startup ecosystem, I think its important that the economics are better understood. So I am planning on some posts on this topic in the coming weeks.
The first thing I'd like to tackle is how returns are calculated and why the reported returns are often higher than people might think.
Unlike hedge funds or other investments you might be familiar with, venture funds do not call all of the committed capital upfront. If you commit $1mm to a venture fund, you will receive capital calls about once a quarter for anywhere from 3% of your commitment to 10% of your commitment. That is because it takes time for a venture firm to put the money to work and they'd rather leave it in your bank account than have in in their bank account.
And because venture investments are generally made in a number of rounds staged out over a three to six year period, even when the venture firm finds an investment, the amount they invest in the company upfront is a percentage of what they will eventually put to work.
So the money flows into venture funds slowly.
The money also flows out slowly. When a company is sold, the proceeds are distributed. There are some situations when the money is not distributed, but they are not that common and it's not useful to dwell on them right now. Venture investments require long hold periods, typically five to seven years. So it's common for a venture fund to have to wait five or six years to make its first distribution. Most venture funds have a ten year life and are often extended a few more years to get all the distributions out.
The low end of acceptable performance for a venture fund is to return two times invested capital to its limited partners (investors). If you put all the money in day one and waited ten years to get 2x back, that wouldn't be a particularly interesting rate of return. It's 8% to be exact, not the kind of return an investor would think is acceptable for a ten year illiquid investment.
But if you map out the cash flows that I described in this post, they look something like this:

So, if you invest $1mm into a ten year fund and get back $2mm, you will likely be earning something closer to 13% than 8% just because the $1mm wasn't tied up in the fund for the entire ten years.
I'd like to make a couple points about this to be clear. First, as I said before, I think getting 2x invested capital back is the absolute low end of acceptable performance in a venture fund and I sure hope and expect we can do better for our investors. But I needed to use a simple number and so I went with 2x.
Second, these cash flows are conservative in my mind. Our 2004 fund has called about 65% of committed capital about four years into its history. This model shows 75% called after four years. So, money can often be called even more slowly than I showed. And waiting for years 8, 9, and 10 to get your distributions is also very conservative. Our 2004 fund returned about 40% of committed capital in its first three years which is likely to happen when you get some companies sold early on in their development. And we are seeing more of that kind of thing these days.
If you model capital being called over a slower pace and distributions coming back earlier, you could theoretically get to annual returns of over 40% for a fund that only delivers 2x on committed capital.
Of course, annual rates of return are not the only measure that investors look for in a fund. They want to get the highest absolute returns they can get. And 2x is just not that exciting. I think 3x or better is what it takes to deliver top tier performance in the venture capital business and that's what we shoot for.

from Fred Wilson's Blog