Business Mentoring for Entrepreneurs
Bill Warner Wednesday, February 17, 2010
Approximately 26,000 new companies are formed each year in North Carolina. In that same year, over 23,000 companies fail due to poor management and operational mistakes. The statistics are worse in rural and minority populations. This means that good ideas go to waste along with the grant and investor funds that helped get these companies started. As a result, the potential growth of revenue and new jobs is lost also.
If we had assistance for entrepreneurs who are struggling to create successful businesses, the failures should decline considerably. Entrepreneurs should be seeking out business mentors that can help them through the early years of their business.
EntreDot™ Connects the Dots for Entrepreneurs
For the majority of the companies that fail, the missing ingredient that could have ensured their success is basic business-operations “know-how.” This is the void that EntreDot™ fills. At no cost to them, EntreDot™ provides business mentoring to entrepreneurs and helps them make the right decisions as they start and operate new companies.
[2] Comments | Permalink
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capitalist, with some very successful investments and lucrative exits, Gretsch is worried about becoming stale and out of date.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.
Permalink
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.
Permalink
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.
Permalink
Outlook for 2010
Bill Warner Sunday, January 03, 2010
Boy, I want to be optimistic, but I have too many doubts. It’s not just me either. The subject of a lot of holiday party talk has been about the economy. Much of that is centered on the subject of job growth and the state of the US dollar.
At the heart of it all
Job growth now is stagnant at best. Unemployment is actually increasing when you discount the growth in short term government jobs that produce no economic growth and count the people who are no longer on the unemployment ledger. There are a lot of moving parts that are needed to put velocity back into the small business engine.
- Banks have to start loaning money again; companies need working capital
- Government has to reduce regulation on small businesses; too much is spent on responding to new regulations and it stifles businesses
- Removing the capital gains tax will fuel investment in small businesses; bringing more private equity to entrepreneurs
- Lowering the income tax on businesses will accelerate investment in company growth; increasing profitability
- State and local government resources are needed to support entrepreneurship; creating a community in support of entrepreneurship
- Reduction of the individual income tax will put more money back into people’s pockets; firing up affordable spending
Until we get legislators in place that understand what we need, entrepreneurs will be fighting an uphill battle again in 2010.
The unknown about our dollar
I am no expert on monetary policy, but what I do see still frightens me.
- The debt is higher than ever in our history
- The growth our debt has never been higher in our history
- Other nations are visibly looking to move off of the dollar
- We are getting a lot of pushback on purchasing any further government securities
If we were to have a balance sheet for the United States Company, it would show that we are bankrupt and have negative cash flow. These are all signs that lead me to continue to worry about a coming inflation, especially if we really put the TARP money into circulation.
So what do entrepreneurs do?
The growth of our economy will come from the small business arena getting back on track. For 2010, entrepreneurs are going to have to continue to fight through the lack of effective legislative and administration support. Staying with the basics of survival is first and foremost:
- Execute well thought out marketing and sales plans; the fewest mistakes as possible
- Keep nearly a year’s worth of cash burn in place as a buffer on further economic decline
- Hire only what will be needed in the long term; outsource the rest of your personnel needs
- Invest in cost cutting measures that pay back in a few months
- Continue to establish and nurture a lasting credit line
The pros will tell you that this is the time to look for great investments at low prices. That is still true, but I suggest that you don’t go too far out on that limb with so much uncertainty and volatility in the economy.
Permalink
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.
Permalink
To Be Or Not To Be An Entrepreneur
Bill Warner Sunday, July 26, 2009
Entrepreneurs take an idea for a business and do what it takes to create a company and make the business a success. Often, they join with other like-minded entrepreneurs in order to create the right kind of team to get the business started. In the midst of this recession, we see a lot more people starting new businesses due to the downturn of job opportunities. However, the lack of a job is not a sufficient reason to decide to become an entrepreneur. There’s a lot more that goes into the consideration of whether or not you are cut out to be an entrepreneur. Take a look at the insight perspective of Carl Schramm, President of the Kauffman Foundation.
Are you ready to be an entreprenreur?
Becoming an entrepreneur and starting your own business is a big deal, not to be taken lightly. If you are considering this, you need to think it through:
- Do you have the passion of an entrepreneur? In other words, does the business you want to start drive every ounce of your energy and you wake up every morning with the drive to keep it going. If you don’t, you should not attempt this because your passion will be the only thing that keeps you going during the hard times.
- Can you afford it? If you have a day job, don’t quite until you know you have something new to sustain you.
- Are you prepared? Before you start a business, you need a well thought out business plan that you can finance and execute. Do the due diligence needed to make sure.
- If you do have financial resources, do you really want to spend it on a new business? If you are not prepared to lose it all, don’t make the bet.
- Is your family with you? Better not leap into a new business if your family doesn’t know what they are in for. You will be working 14-16 hour days and making other sacrifices that they will need to know about. This could be the end of a good relationship if you don’t get their support.
This is still a good time to start a business, but really think it through before you attempt it. Maybe you should be getting another job instead.
Permalink
Venture-Backed Liquidity Continues to Plunge
Bill Warner Thursday, July 02, 2009
Venture-backed liquidity continues its plunge that started in 1Q08. It’s now down to $2.8 billion, a 57% drop since this time last year, and down from $18.4 billion in 4Q07. The number of venture-backed IPO transactions continues to be anemic with three so far this year, versus seven for all of last year. M&A is also down to 67 deals totaling $2.6 billion, down from $16.2 billion in 4Q07 and a drop of 23 percent since last quarter. See all the data at VentureSource.
Venture’s life blood continuing to be squeezed
As you know, these two types of transactions are the life blood of liquidity for venture capital firms. With so few transactions, venture firms are feeling the pain with no viable way to exit from their portfolio companies. Their entire business model is built with the assumption that there will be a sizable exit. Of course, very few of their investments achieve this goal, but they are supposed to more than offset the lower performance or losses experienced in the rest of their portfolio. With M&A’s and IPO’s continuing their decline, venture capital firms are faced with not being able to meet their commitments to their limited partners.
The fallout continues
Unfortunately, there are also an increasing number of venture capital firms backing away from the market in the face of these realities. You have read about the optimism of the National Venture Capital Association’s initiatives to find new venture capital business models and several venture capital firms experimenting with new markets as well as smaller investments with small expectations for returns. These are far too late for many firms, especially those that need to raise new funds. We will continue to see the fallout through the remainder of the year.
What is the future of venture capital
With the continued anti-business and anti-venture capital regulation by the federal government, it is hard to imagine how the current venture capital market will survive. We are more likely to see a continued weeding out of the weakest firms as others redefine themselves with business models that are much more modest with respect to amount invested per company, expected returns and time to exit. Models like this are being tried as some firms actually are dipping down to take on some pure start-ups. Others are playing in the debt markets which would be an entirely different model for achieving returns to their limited partners.
What about entrepreneurs
As for entrepreneurs, you have to analyze the viability of any venture firm that you approach by taking a hard look at the value of their current portfolio and where they stand with their current fund. You want to determine if they are going to be able to be with you in subsequent rounds and whether or not their key personnel will be there to assist you. A lot of hard questions need to be asked about their business model so that you can satisfy yourself that they will be a long lasting partner or not.
They will certainly offer low valuations and strict terms, but the negotiation is a two way street. Make sure they are really going to be worth what they claim to be.
Permalink
Venture Capital Firms Chase New IPO’s
Bill Warner Friday, June 19, 2009
We all know that the IPO market for venture-backed companies has pretty much disappeared, substantially destroying their business model that requires high value exits via an IPO. Dixon Doll, in his interview with the Wall Street Journal gives us an update on the reshaping of the venture capital industry. Doll is a seasoned business consultant, a leading venture capitalist and the outgoing Chairman of the National Venture Capital Association (NVCA).
NVCA’s “Four-Pillar Plan”
The NVCA’s Four-Pillar Plan is targeted at restoring the venture-backed IPO market, and it takes unprecedented cooperation between the private sector and the government’s taxation and regulatory policies. Given the slap that the venture capital world just took in the SBIR renewal bill, that cooperation is not evident.
The NVCA’s direction is to convince venture capital firms to modify their financial models and business practices to focus on small-cap IPO’s, moving away from blockbuster winners. Another bubble is bursting. This will require substantial reshaping of the way venture capital firms structure their deals and the transition will take five to seven years to complete. But, given the state of the IPO market, this makes sense.
This means that venture capital firms will have to go after more deals, with less money per deal, driving for quicker exits, and culminating in smaller IPO’s. This opens up the venture-backed IPO market to a whole new set of investment banking firms that will be able to service this opportunity. It won’t be just the big firms like Goldman Sachs and Morgan Stanley.
The task ahead
Doll points out that this is going to be a painful transition. Some venture firms won’t make it. It will require a massive education initiative to explain how this can work. This education will have to include entrepreneurs, venture capital firms and investments banks who currently don’t view that they have an IPO market available to them.
There is considerable skepticism throughout the industry. Even if the NVCA pulls off this first pillar, the government regulatory and taxation policies will represent another giant hurdle to jump over. Doll has always been a positive and aggressive thinker. If anyone can make this change happen, he can.
Permalink
Venture Capital Snubbed By SBIR Bill
Bill Warner Thursday, June 18, 2009
The Senate committee unanimously passed the bill to renew the Small Business Innovation Research (SBIR) program with only partial support for venture backed company eligibility, allowing them to have access to 18 percent of the Department of Health and Human Services and 8 percent of all other agencies. Read the details in the Wall Street Journal.
The problem with venture capital backed companies
This debate has gone on for years and comes down to two opposing views. The first is those that think that grant funding is an integral part of a company’s financing strategy and that there should be no restrictions on the amount of private equity money invested in the company. The other view is that grant financing should be devoted to private companies that are not substantially owned by venture capital firms.
The debate continues
This is not the last we will hear about this debate. The National Venture Capital Association and the Angel Capital Association are strong advocates for lifting the restrictions on venture capital backed companies. In any economy, it seems like a good idea to strengthen the financing capability of entrepreneurial businesses.
