Archive for November, 2016

Stanford for Start-Ups

Tuesday, November 8th, 2016

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“There is nothing special about Stanford, everyone around the Bay Area tech scene has been there”.

Those were the throwaway words from a West Coast adviser, when I first mentioned that I had been asked to speak to this year’s class in Stanford’s Continuing Education program. Of course, those comments were directed to the university students, not the global audience of largely mature students and entrepreneurs enthusiastically engaged in a discussion about capital raising. Here is my findings from a really informative session:

  1. The dynamics of raising money at any stage are largely similar but the consequences vary immensely. When less than 25% of seed-funded startups fail to get to the third funding round (they have died, been acquired or are self-sustaining), many entrepreneurs overlook the importance of building and nurturing really strong personal support systems. Family, friends and wise counsellors, who have your best interests at heart, are willing to provide frank solicited advice and a supportive shoulder, when it doesn’t work out.
  2. The in vogue buzzwords are “agile money”. I prefer to talk about “resilient money.” Finding investors sufficiently agile to adapt to your changing needs is helpful but finding those that are sufficiently resilient in the tough and the good times, is really the gold standard.
  3. More than 80% of the class are positive about tech investment in the next 12 months and don’t believe we are in a tech bubble.
  4. Students often ask tougher questions of themselves than serial entrepreneurs. “How do I give myself the best shot at being a successful entrepreneur?” Perhaps it is the desire not to repeat others mistakes or the willingness to readily invest in improving their own skills, behavioural traits and expertise. Too often the mindset flips for the entrepreneur in the real world, “let’s save every cent”, when investing in their own personal needs (mentor, coach, advisor) is critical to their success.
  5. More than 60% are intrigued by corporate venture capital but certainly not beholden to its’ charms. Great question, “Why are corporate businesses suddenly experts in startup investing?” Many believe that CVCs remain highly susceptible to short-term changes in executive decision-making.
  6. Entrepreneurs learn best when they are willing to be vulnerable. In our case, to jump into the role play seat with little preparation and test their abilities to direct the conversation with an investor towards their desired goal.
  7. Understanding the distinctions between public and private investors such as a traditional VC Fund, a Family Office and a Corporate Venture Capital fund requires thinking about the future, not just the present or the past. What are their highest potential future needs? How are you uniquely qualified to address those needs?
  8. We over estimate geographical differences. A multi-lingual global audience of 75 entrepreneurs drawn from 5 continents, brought together by a singular objective, to learn the shortest quickest route to their desired objectives.
  9. Technology won’t replace “in the classroom” learning but tools such as Zoom, enable an increasingly intimate learning experience that certainly narrows the gap, at a a fraction of the cost for the host, guest lecturer and students.
  10. There is something special about Stanford – its’ global brand power. The ability to charge a premium price for global learning, to attract globally re-known lecturers and a culturally diverse group of students. I learn more than the students at these events and I can highly recommend it to others.

© James Berkeley 2016. All Rights Reserved.

Losing The Potential Investor

Monday, November 7th, 2016

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Why do so many executives and entrepreneurs lose control of discussions with potential investors at an early stage in the capital raising process? Most don’t have a route map. A set of small steps that starts from the first approach direct or by their adviser and takes them through and beyond committed capital into the value creation phase. Since they have no way of knowing where they are, they don’t know when they are lost.

Here is three common mistakes, and quick ways to avoid the landmines:

  1. A Failure to Identify the “Economic Investor”. Definition: The individual within the investment firm with the ability to approve the investment, the ability to sign off on the terms sheet, whose fund  will support the investment into your business, who will be held accountable for success or failure and so forth. In large firms, private offices and funds, of course, there may well be multiple “economic investors”. Obstacle: Too much time is spent with non-investors or worse, you are caste as a peer of the junior folks, never welcome in the inner sanctum. Next Step: It is your job and that of your adviser BEFORE you enter the conversation ideally to know, who the economic investors are specifically and to work out the ideal conditions (warm referral) in which they will respond favourably to your request to meet. Thereafter, the goal is to build a comfort level and sufficient trust that an informal or informal relationship can ensue.
  2. Hiccup or Fatal Diversions. Having broken the ice with the “economic investor” in a first call or meeting, he or she asks that you meet with some of his junior analysts to qualify the investment opportunity, as he is currently “travelling / busy this week / unable to respond quickly” (code: you are not my priority). You have two options: say, “No, quite frankly, we are both first, making a strategic decision on whether to invest in a potential relationship, unless I am wrong we don’t need others to decide that for us. If not now, when can we meet or talk next?” or “Yes, we will happily agree to talk to them but we must have a definitive time and date for us to speak again. Specifically, to compare notes on what we hear and more importantly, to agree the nature and direction of our relationship.” The mistake many entrepreneurs make is once they meet the junior folks with a propensity to please them, they start engaging in a more detailed conversation (sharing follow-up information with them, agreeing to their next steps). They are now a “plaything” of the junior people, which is great for them but potentially deadly for you. The economic investor watching from the sidelines is quite happy to allow this to happen because it is one less priority for them, creates distance (another layer of protection) and the unpleasantness of rejecting your proposal. You have now descended from the executive floor to the second floor, not only had a conversation when the elevator doors open, you are now following them through the corridors on the second floor, at their speed and direction, getting further away from the executive’s office. I find that entrepreneurs of an amiable disposition or those that somehow feel fortunate to be in the building are most susceptible. There is also a cadre of restless entrepreneurs, who won’t take heed of their adviser’s warnings. Bye bye!
  3. Talking About Valuation Before Defining The Investor’s Objectives – I see this so often it is almost laughable. Unlike a game of monopoly or snakes and ladders, this isn’t bad luck, this is self-inflicted pain. You know the question is coming your way, you either choose to neatly sidestep it, by re-framing the conversation in the investor’s self-interest or you allow yourself to tread on it at your peril. Think about this way. How many times does the investor respond, “Wow, you are massively undervaluing your business” or “That is an eminently sensible valuation”? Perhaps, 1 in a 100. I’d say, 30% respond “that’s way too rich for us” (immediate termination), 40% respond “we are struggling with those kind of valuations”  (highly probable termination) and the final 29% “tell me where did you get that valuation from” (needs a lot of convincing). You are left constantly defending rather than explaining your approach to making your investors money. If it comes up early on, you are wise to say, “it would be unfair to throw a valuation at you without first explaining how we intend to accomplish your objectives and secondly,  determining whether a relationship is in both of our best interests. If you are willing to listen, we’ll happily address it at the appropriate moment.” (Note, if they won’t listen, they almost certainly see you as a commodity. Do you need that kind of investor relationship?).

© James Berkeley 2016. All Rights Reserved.