A Special Week For Entrepreneurs
Bill Warner Thursday, November 03, 2011
Triangle Entrepreneurship Week introduces an exciting new approach to entrepreneurial programs. From November 14th to the 18th dozens of focused events will give entrepreneurs an opportunity to directly engage with successful entrepreneurs, business professionals, investors and community leaders.
Starting with NC State’s Entrepreneurship Lecture Series and surrounding the Internet Summit, this innovative approach to advising entrepreneurs is taking place throughout Raleigh, Durham and the greater Triangle area by:
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Digging into the details of several grass root industries,
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Meeting real investors and getting feedback on your business ideas,
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Exploring how to create solid business ideas,
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Seeing how communities foster entrepreneurship,
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Learning how to establish an effective financing strategy,
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Getting the straight talk about how to raise money and
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Seeing some real “green” businesses.
Conducted by a cast of dozens of leading entrepreneurs, business leaders, investors and community development executives, this event promises to provide “up front and in your face” advice and perspective that entrepreneurs need in order to establish their own businesses. In addition, there is plenty of time devoted to collaboration and networking with all attendees so you can discuss all aspects of entrepreneurship and how to get businesses started.
As entrepreneurs, there is a lot to see and take advantage of in this series of events. This inaugural event should lead to many more to come and provide an opportunity for entrepreneurs to make connections they need to create and grow their own businesses. Just having the chance to meet people that have been entrepreneurs will be a gold mine of information and know-how. The relationships established in this event could lead to the information and assistance you need to be successful.
Triangle Entrepreneurship Week is a fantastic opportunity for entrepreneurs, business leaders and investors to connect in a way that we have not seen in this area before and is a must for any entrepreneur in any industry.
This event is proudly supported by: The Idea Hive, Entrepreneurship Initiative at NC State, Poole College of Management at NC State, Scale Finance, Downtown Raleigh Alliance, EntreDot, Inception Micro Angel Fund – RTP, The State Club, Durham Chamber, Bull City Forward, Triangle Blvd, Center for Creative Marketing, and TTYLapp.com.
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IMAF Launches New Angel Seed Fund In RTP
Bill Warner Tuesday, May 03, 2011
The newly formed Inception Micro Angel Fund in
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The Fund is focused on pre-launch companies in several industries, and positions itself as providing the financing entrepreneurs need to finalize their business just prior to launching into the market. Essentially, this financing is what entrepreneurs need to prepare the businesses for the first round of formal angel financing.
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Entrepreneurs are expected to be prepared with a solid business proposition and a well thought out launch plan and revenue model that has the potential for creating a successful return for investors.
“This is a proven investment model that provides local companies, across many industries, an opportunity to obtain funding and guidance needed to achieve success,” says Rich Kramarik, Fund Executive.
Family of Funds
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Although each fund is independent, they operate under similar principles and can syndicate with one another as needed. This brings the power of North Carolina wide angel investing to the aid of entrepreneurial businesses.
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Angel Investors Narrow Their Focus
Bill Warner Sunday, September 12, 2010
As you know, the entrepreneur’s “Valley of Death” is getting wider as the pressures on our economy move many private investors to lower risk venture investments. As they did early this decade, both VC’s and formal angel organizations are moving to more mature companies, widening the valley that is between where entrepreneurs are and where they need to be in order to find money to get their businesses launched.
The Valley Widens
In the late 90’s, entrepreneurs could get funding from venture capital organizations for start-ups. However, that produced a bubble of companies that were not very viable and most of them failed when the bubble burst in 2001 and 2002. In that same timeframe, formal angel organizations moved from providing start-up seed funding to start-up launch funding, focusing instead on companies that were nearly ready to go to market. The result of this was a large void of available funding for companies that were just getting started. I call it “grant land,” where the primary source of funding is public and private grants for feasibility assessment, research and development.
Well, it appears to be happening again. Venture capital firms are struggling for their very existence, as their model is changing to look more like investment bankers, loan operations, or small private equity funds, all driven by the near disappearance of the IPO. Driven by the uncertainty of the economy, private investors within formal angel organizations have become much more cautious as their managing partners move their investment preferences to companies that are approaching predictable profitability. These investors have been hurt badly by the economic downturn and many are moving to much lower risk investments. This further widens the Valley of Death, leaving entrepreneurs with an even greater period of time between their company’s inception and when they can even be considered by angel organizations.
The Reemergence of Seed Financing
To the rescue is coming the reemergence of the seed fund. Over the last couple of years, the NC Capital Highway project, sponsored by the NC Biotechnology Center and the NC Small Business Technology Development Center has been fostering the creation of seed funds throughout North Carolina, including one in the Research Triangle Park area called the Inception Micro Angel Fund (IMAF-RTP).
IMAF-RTP and the other IMAF funds are trying to narrow the Valley of Death by forming a new private equity fund that invests in startup companies at the seed level of maturity. This is at the point in time when they are still completing their proof of concept and formulating their marketing and sales plans; but are able to explain and verify a strong business model.
The Narrowing Focus
As with the original IMAF fund in Winston Salem, and the other IMAF funds that are emerging in Charlotte, Asheville, Greenville and Wilmington, IMAF-RTP is trying to narrow the focus on the kinds of companies it will invest in. These funds are much smaller than formal angel funds and will be the first investors in a company. They are looking for companies that will not need a lot of capital in order to become sustainable growth businesses. Finally, they will favor companies that have the possibility of exiting in less than five years.
Since these funds usually do not make subsequent investments in their portfolio companies, they are looking for the potential of substantial returns when they evaluate the companies in which they might invest.
Attracting New Investors
Many of the IMAF funds are still raising capital and are also looking for new investors. Angel investors are finding this a way to continue their interest in angel investing at a much lower investment cost, even though at higher risk. For new investors, it is less expensive than formal angel groups while providing a broadly diversified investment portfolio.
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We Need More New Companies
Bill Warner Sunday, July 11, 2010
Sometimes I just sit back in my chair and yell at the ceiling. "What the blazes are we doing in this economic recovery?" We are making no progress and simply growing the government sector that produces nothing that represents lasting economic growth. The administration and Congress are deploying ideas that have not ever worked, both in this country as well as Europe and others.
I am no economist or expert in government, but a key part of the solution seems so apparent to me. We need to foster new business growth by taking the actions necessary to create new businesses through a revitalization of entrepreneurship in America. At the heart of American jobs and economic success is the small business. We need to be doing the things that create lasting viability of small businesses and enable them to prosper.
There's a good article on this in Inc. called Revitalizing the American Dream. Take a look at it each of the sixteen steps for revitalization and see if you agree. The ideas are quite doable but don't go far enough:
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Entrepreneurship should be taught in our high schools, community colleges and universities. We need a new mindset that reflects that going into business for yourself is a fine undertaking, but we need to teach our young people how to do it for real. This would be a monumental undertaking by our school systems, requiring leadership that can make it happen.
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Incubators are fine, but they have to be staffed by real business people that can tap into the entrepreneur's local community. We need to go beyond the limits of incubators and provide pervasive mentoring for entrepreneurs. We need to tap into the wealth of business knowledge that resides with senior business people. Thanks to medical science, we live well into our 70's, leaving many years for retired business people to coach and mentor entrepreneurs. We have a wealth of knowledge that can be put to work to mentor aspiring entrepreneurs. Take a look at EntreDot, an organization that is trying to foster mentorship.
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Government needs to get out of the way, but also enable the way. A partial list of what is needed is as follows:
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Provide tax credits for business investment.
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Reduce the capital gains tax, if not eliminate it all together.
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Reduce taxation on business. We are the second most highly taxed nation in the world, and people wonder why businesses leave the US. Watch the economy flourish at a 15% tax rate on businesses.
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Reduce and eliminate non-productive regulation; including Sarbanes Oxley, OSHA, FDA, healthcare, banking and environmental to name a few that add tremendous cost to business operations.
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Free up angel investor organizations and micro-angel funds from caps on their returns and fees. In addition to grants, this is where the seed money for businesses comes from.
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Government backed education loans for small business programs, but phased out once the private sector can finance this.
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In addition to grant programs provide equity investment in early stage companies
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All tax reduction actions have to be coupled with government spending reductions. A task that should be quite easy by laying a copy of the Constitution next to the budget and start making cuts to all those things that government should not be involved in.
A tremendous economic boost would come from effective action to become energy independent by aggressively exploiting our own oil and gas capacity nationwide. Watch the price of energy drop if we did that; further accelerating company profits.
Basically, we have to let Americans do what they do best. Innovate. Our uniqueness lies in our freedom and an economy based on capitalism. Sure, we make lots of mistakes and the going is rough, but it sure beats any other alternative I have seen from any other country or society ever.
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Successful VC’s “Stay Fresh”
Bill Warner Thursday, January 28, 2010
I just read an amazingly refreshing perspective by Greg Gretsch in PE HUB. It’s all about what it takes to be a successful VC. It is counter-intuitive, but makes a lot of sense.
A Fresh View of a Successful VC
With only ten years as a venture capitalist, with some very successful investments and lucrative exits, Gretsch is worried about becoming stale and out of date. Heck, most VC’s with his record of success would be riding high, living the good life, and pontificating to the venture community about his formula for success.
But no! Gretsch doesn’t think that the longer you’re a VC, the more skilled you become in picking winners. Instead, he theorizes that if you’re a VC for more than 10 years, you’re likely to grow worse at your job over time. And, he has some data that point out that this may very well be true. Even with spotty verification, Gretsch takes this seriously. Here’s why:
- The older a VC becomes, the further out of touch with new technologies they become
- As they move up the professional pyramid, their network actually shrinks because they are working with fewer and fewer people
- They are not meeting the new people that are really bringing innovation to the market; as a result they miss trend setting ideas
- They are stuck in looking at existing market sectors for new opportunities, missing new and significant market changes
- Family demands increase as they get married and have children
How Do VC’s “Freshen Up?”
Gretsch’s simple advice is to “remain humble, keep your attitude in check, and stay hungry.” The hard part is to remember how that all feels. Here’s his formual, which might apply to many of us in lots of different lines of work:
- Increase the number of relevant technologies with which you are familiar
- Follow the leading industry analysts to learn what they are thinking
- Build relationships with the next-generation of successful investors and technologists
- Reach out to the younger entrepreneur and learn from their fresh ideas
- Always be better at what you do
I think Gretsch really believes this and will remain on top in the VC community for another decade.
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VC Investment Outstrips Fund Raising
Bill Warner Wednesday, January 27, 2010
In 2009, the venture capital industry experienced the biggest gap between investment and fund raising in the last six year. In a recent Wall Street Journal Venture Capital Dispatch blog, it was reported that investment was down nearly $10 billion, from $30 billion to $20 billion, while fund raising declined $17 billion, from $30 billion to $13 billion. This $6 billion plus difference is the amount more invested than was raised by VC’s.
Bad news for companies
The implication is that although venture firms still have a lot of money, it is still going to be increasingly hard to get funding because they are running low on available funds and it is still very difficult for them to raise further funds from their limited partners. Their limited partners are still suffering from the economic downturn and have not opened this investment class for funding.
Corporate and other private equity investment is also suffering, further reducing the number of options for equity financing.
Is IPO the answer?
Another source of funds could be successful IPO’s, which could breathe more money into the VC firms. We have recently read about an emergence of IPO filings, including Motricity, a former RTP darling. However, many analysts are quite skeptical that 2010 will bring much hope in this arena either.
What companies need to do
2010 is not going to be much different than 2009; perhaps worse, with respect to your chances of getting new VC investment. It is still a game of the “best of the best” getting due consideration. It means that you need to have a very compelling business, with meaningful and growing customer traction, having the potential for large and rapid growth, to a level that will provide a handsome return.
Due diligence will be treacherous, filled with disappointment for many, but there is still gold in “them there hills.” You will have to mine it with a focused laser.
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Successful Investor Presentations
Bill Warner Thursday, January 14, 2010
One of the leading angel investor organizations in the United States is the Tech Coast Angels in California. They have some great advice on how to put an investor presentation together on slideshare.
The seven P’s
They simplify this process into seven concise steps that hit at the heart of what an investor presentation needs to be about:
- Pitch – answering the question, “who are you and why should we care?” The importance of this bold introduction is to get the investor’s attention right away by telling them why they need to pay attention.
- People – convincing investors that there is a management team that can really deliver what they are committing. Having this right up front emphasizes how important the management team is to investors.
- Pain – explaining how compelling the industry problem or opportunity is to the potential customer. If the “pain” isn’t high, the investor’s interest will be low.
- Product – describing the innovative and differentiated solution to the customer pain, getting across the high barriers to entry and its demonstrable readiness for market.
- Players – showing that your product is the best in the industry while bringing to life how you will actually win against all competitors.
- Projections – illustrating how you will make money and that you have a thoughtful picture of the financial dynamics of your business.
- Proposition – introducing to investors what you are proposing be the investment deal showing that you have a specific view of who the money will be used and how the investors will be rewarded.
There are many other sources of information on the internet, but here is one on how to put together a structured business plan presentation that is often used with investors here in the Research Triangle Park.
Wrap it up
In closing, give an investor highlights summary explaining again why they should be interested, and then open up for their questions. You need to be ready to answer a wide range of questions about your business. Practice these because it is going to be your chance to show that you really understand your business and will be the clincher for gaining investor confidence.
Be sure to practice
Entrepreneurs need to be very well practiced in making these presentations and handling investor questions. Often you will only get one chance at this. If you do well, others will know. If you don’t, others will know. Go into these sessions loaded for bear having had a chance to practice on the firing range.
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Repelling Shark Attacks
Bill Warner Wednesday, August 12, 2009
The new television show, Shark Tank, portrayed investors as vicious animals and was kind of over the top with respect to how they deal with entrepreneurs. Quite frankly, I was ashamed of the way investors were made out to be the bad guys.
The truth about investors
Although the people who played the investor roles had many of the characteristics of real investors in an initial meeting with an entrepreneur, much of what we say was fiction and just plain overstated.
- Investors are much more curious about the entrepreneur’s business model, starting with an understanding of the market and the buyer they are trying to satisfy. A substantial amount of time is spent on this alone in an initial meeting. Most investors need to establish this base of knowledge before they can evaluate anything about the business idea. We saw very little of this kind of inquiry on the show. Entrepreneurs need to really know their market and business model and be prepared to defend it before they engage with any investors.
- Most investors are actually the biggest friend of the entrepreneur, when it comes down to it. It is rare to see entrepreneurs attacked and ridiculed as we saw on this program. Good investors, when confronted by lack of clarity by the entrepreneur, turn the moment into a coaching session; especially if they are seeing the formation of what appears to be a good idea. Insulting and laughing at entrepreneurs is not a typical way they conduct themselves. If you do run into a bull shark like we saw on the show, I suggest you just move on. You would not want them on your team.
- Investors don’t immediately leap into a deal discussion in the first meeting. The first meeting is all about getting to know the entrepreneur and the business idea. These meetings last anywhere from thirty minutes to a few hours, as the investor performs initial due diligence on the plan for the business. Lots of questions get asked in an effort to determine if it is worth any more of their time to seriously consider making an investment in the company. The successful result of an initial meeting is an agreement to enter formal due diligence that could ultimately lead to a term sheet negotiation. Investors don’t write checks after a five minute discussion. This program leads people to think that investors make snap decisions in just a few minutes of consideration. That is ridiculous.
- The entrepreneurs were not prepared very well to give a thoughtful business presentation, and even more unprepared to negotiate a deal. A real negotiation is much more thoughtful and reasoned. Entrepreneurs should explain the basis for the value they place on their company by describing its recent accomplishments and reflecting what the market is right now. They need to be prepared with a reasonable ownership offer, and know what their walk-away point is. Investors normally explain the reasoning behind their offer or counter-offer in order to convince the entrepreneur to accept it. It rarely gets into the shouting matches and insult slinging we saw on the program. Before any negotiation starts, investors carefully think through the numbers and determine the potential future returns, based on what they think the revenue, cost and expense requirements are going to be and how much money is going to have to be raised. We saw none of this.
Meet a real investor
I have no idea why it is good entertainment to publically humiliate an entrepreneur in front of millions of people. If you want to really understand what this process is all about, take the time to meet a real investor. I guarantee you will not find the kind of arrogance and be humiliated and berated like you saw on the Shark Tank. Most will take the time to give you some pointers and guide you to what your next step should be.
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Find the Right Investor
Bill Warner Tuesday, August 11, 2009
So you have completed your business plan, determined how much money you need, practiced your presentation, and are now ready to approach angel investors to raise the capital needed to launch your business. But, you don’t know any. You have heard about the angel organizations in the area. You have read about the venture capital firms as well. Where do you start looking? Here are some tips to finding angel investors:
- First decide what you want from an investor with respect to industry experience, management experience and scope of influence. Your first investors are going to be your business partners and are people who can help you get your company started with their contacts and advice. When you have a good understanding of the kind of help you need from your investors, you will be able to easily qualify them. Not every investor you meet is one that you need on your team. Don’t make the mistake of engaging an investor who is going to ultimately be a bad partner. It could kill your company.
- Right now you probably know more investors than you think you do. Establish a list of people that you know that you think could be an investor in your company. They should be accredited investors if at all possible. Think through all your business associates, friendships and family members, identifying those that could be investors, or those who might be able to introduce you to investors. This approach is often described as a “friends and family” round of investors. The reason it make sense is that you are dealing with people who know you and trust you, and therefore are more likely to agree to become an investor in your company. Of course, the downside of this approach is that you your friends and family may lose their money if your business is not successful.
- The sophisticated angels are territorial and many of them roam in packs. Go to the Angel Capital Association website to find the names and contact information for the angel investor organizations in your area. Many also roam alone or in small private groups. They are hard to find. You need to make a habit of doing a lot of business networking. The more business people that you meet at networking events the better are your chances of finding angel investors. Let people know you are raising angel money to maximize your chances of getting a referral to them.
There is no silver bullet approach to this. Finding angel investors takes a lot of hard work and months to accomplish. You will need to attend a lot of events, meet a lot of people, shake a lot of hands and give your elevator pitch hundreds of times to find just a handful of people that are willing to invest in your company.
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A Glimmer of Hope in VC Financing
Bill Warner Tuesday, August 11, 2009
In its second quarter Venture Capital Survey of venture financed companies in Silicon Valley, Fenwick & West reported some brightening of venture deals.
Financing summary
The number of down rounds in the second quarter exceeded up rounds 46 percent to 32 percent. It looks like bad news, but this is an improvement over the first quarter which was 46 percent to 25 percent. The difference is that flat rounds decreased from 29 percent to 22 percent. Although this is the second time that down rounds have exceeded up rounds since 2003, it does signal that the bleeding has started to subside.
However prices continued to fall, with a 6 percent decline in the second quarter, which compares to 3 percent in the first quarter. This two represents the second time that there was a price decline since 2004.
Other indicators
Dow Jones VentureSource reported that the amount invested by VC’s in the U.S. in 2Q09 was approximately $5.3 billion in 595 deals, an increase from the $4.0 billion invested in 680 deals in 1Q09, but a significant decline from the $8.3 billion invested in 726 deals in 2Q08.
The health care industry received 42% of 2Q09 investment, and information technology attracted 37%, the first time on record that quarterly investment in health care exceeded investment in information technology.
Fundraising by U.S. venture capitalists was $1.7 billion in 2Q09, which was the lowest amount raised in a quarter since the first quarter of 2003.
There were 67 acquisitions of venture-backed companies in the U.S. in 2Q09, for a total of $2.6 billion, a decline from 70 transactions totaling $3.4 billion in 1Q09 and a significant decline from the 89 transactions totaling $6.5 billion in 2Q08. This was the lowest dollar volume of acquisition transactions since 1999. There were three IPOs of venture-backed companies in the U.S. in 2Q09.
Of course, one point of change doesn’t yet indicate a trend, but these numbers do signal a curbing of the decline of venture capital financing. Let’s look forward to the next quarter being even better.
