Gust

NOVEMBER 7, 2011

If your startup can’t be bothered with social media, or has no plan to take advantage of it, then you are definitely at risk these days. But simply jumping in is not enough. Before you start spending money and time being a user, you need to understand how it can help you and your business. Using it randomly or incorrectly is a waste of your precious time.

Social Media 125

Social Media Media Startup Curation 125

Gust

DECEMBER 1, 2011

What is a startup really? When meeting with early stage entrepreneurs for the first time, after reviewing a demo or hearing their pitch, I often ask them to articulate what they’re most focused on building. In most cases, the answers are (1) an outstanding product or technology; (2) a successful growth business built around that product; and (3) a top-notch team to build and execute the business.

IP 114

IP Intellectual Property Equity Liquidity Event 114

Gust

DECEMBER 21, 2011

Silicon Valley is a very special place – the nucleus of high-growth, high technology entrepreneurship in the US, indeed, in the world. The Valley produces world-class entrepreneurs, angel investors, venture capitalists and successful high-tech companies – all growing and creating jobs on one relatively small peninsula. The Valley has been a unique place for over half a century.

Silicon Valley 107

Silicon Valley Southern California Tucson Seattle 107

Gust

NOVEMBER 15, 2011

The Risk Factor Summation Method the fifth methodology for estimating the pre-money valuation of pre-revenue companies we have described in recent posts. Readers may have noted that both the Scorecard Method and the Dave Berkus Method considered a narrow set of important criteria for investment in arriving at a pre-money valuation. The Risk Factor Summation Method, described by the Ohio TechAngels, considers a much broader set of factors in determining the pre-money valuation of pre-revenue co

Valuation 102

Valuation Pre-Money Valuation Ohio Early Stage 102

Gust

SEPTEMBER 12, 2011

Since this is my inaugural post here, I decided it would fit the occasion to list the five things I value most in an startup investment proposal. What I say here is my opinion and mine alone. It’s the result of several decades in high tech, three years as an investor in a local Oregon angel investment group , some consulting in due diligence for venture capital, and my experience as founder and co-founder of successful ventures.

Technical Review 70

Technical Review Software Review Angel Investor Exit Strategy 70

Gust

NOVEMBER 7, 2011

We recently started a series of posts on establishing the pre-money valuation of pre-revenue startup companies for purposes of investment by seed and startup investors. The High Tech Startup Valuation Estimator is an online tool developed by Cayenne Consulting to assist entrepreneurs and investors in estimating the pre-money valuation of startup enterprises.

Valuation 87

Valuation Pre-Money Valuation Venture Capital Technical Review 87

Gust

NOVEMBER 11, 2011

Many local angel investment groups work with a local event that creates the illusion of a business pitch contest, awarding investment to the winner. There are multiple benefits to this type of arrangement. The event generates local buzz. Local media cover it. Startups and investors discover each other, and the community wins because the event becomes visible evidence of new business and new jobs locally.

Software Review 79

Software Review Term Sheet Due Diligence Angel Investor 79

Gust

NOVEMBER 2, 2011

We recently started a series of posts on establishing the pre-money valuation of pre-revenue startup companies for purposes of investment by seed and startup investors. Dave Berkus is a founding member of the Tech Coast Angels in Southern California, a lecturer and educator. He has invested in more than 70 startup ventures. Dave’s valuation model first appeared in a book published by Harvard’s Howard Stevenson in the middle nineties.

Valuation 79

Valuation Pre-Money Valuation Intellectual Property Southern California 79

Gust

SEPTEMBER 29, 2011

The most successful serial entrepreneurs in the world may found three or four, perhaps even eight or ten venture-backed startups over the course of their careers. By contrast, venture capitalists and angel investors typically make scores or even hundreds of investments over the course of their careers. It should therefore come as no surprise that an asymmetry of information exists, mostly gleaned from experience, between founders and investors in a venture financing deal.

Finance 178

Finance Term Sheet Preferred Stock Bridge Financing 178

Gust

OCTOBER 11, 2011

An “ elevator pitch ” is a concise, well-practiced description of your startup and your plan, delivered with conviction and enthusiasm, that your mother should be able to understand in the time it would take to ride up an elevator. Everybody knows about these, but few people seem to deliver a good one. A good elevator pitch is not just for an elevator discussion.

Elevator Pitch 174

Elevator Pitch Startup Differentiation Distribution 174

Gust

NOVEMBER 22, 2011

If you are looking for an outside investor, you need to know how they see you. Different types of investors look for startups at different levels of maturity. If your startup is at the wrong stage for the investor you are approaching, fishing for money is a waste of time for both of you. For instance, if your company is only a few weeks old and you have zero customers and your product offering is still in design, don’t expect someone to hand over $10 million to fund your efforts.

Venture Capital 171

Venture Capital Investment Bankers Angel Investor Initial Public Offering 171

Gust

DECEMBER 5, 2011

Too many entrepreneurs develop a new product without regard for market demand , then build an entire strategy based on creating a need, rather than acting on an existing market need. Investors characterize this approach as a “solution looking for a problem.” These don’t get funded. The best startups find a way to drive the market with their technology, rather than push their new technology-driven ‘solution’ on the marketplace.

Technology 167

Technology Angel Investor Early Stage Viral 167

Gust

DECEMBER 13, 2011

I’ve recently taken a look at seed stage funding by venture capitalists (VCs) and angel investors over the past five years. For VCs, I chose to look at all seed stage VC deals (from MoneyTree©) as well as those in five of the most active regions in the country. Note that I merged the two Southern California regions (LA/Orange County and San Diego) into one.

Seed Stage 162

Seed Stage Southern California San Diego Silicon Valley 162

Gust

OCTOBER 17, 2011

Remember a term sheet agreement is not a deal until the check clears. Entrepreneurs sometimes assume an initial agreement with an angel is a commitment, so they start spending before any money is received. Due diligence and paperwork take time, and can change everything. It’s true that angel investors typically do not present entrepreneurs with overly complicated deal structures, especially when compared to venture capitalists.

Term Sheet 158

Term Sheet Pre-Money Valuation Due Diligence Post-Money Valuation 158

Gust

NOVEMBER 29, 2011

Crowd funding enables entrepreneurs to raise money in relatively small amounts from large numbers of interested investors. In the sum, substantial amounts of money (as much as a million dollars) can be raised for each startup company. Recently, entrepreneurs in many countries have been soliciting investment through “crowd funding” websites designed specifically for fundraising purposes.

Securities and Exchange Commission 154

Securities and Exchange Commission Accredited Investor Angel Investor Due Diligence 154

Gust

DECEMBER 28, 2011

In the “good old days,” angels invested in seed-stage startups and teed up promising companies for subsequent venture capital financing. If the company was successful, this quickly led to an IPO – a very happy ending for the entrepreneur, the angels, and the venture capitalists. My, my…how the world has changed. The two major differences in the exit environment in the past decade are (1) the disappearance of the IPO market and (2) the rapidly increasing size of the average VC fund.

IPO 153

IPO Venture Capital Entrepreneur Angel Investor 153

Gust

NOVEMBER 28, 2011

Every investor is looking for the “dream team” of executives to put his money on. Often I find that experienced investors flip to the management page of a business plan, even before they read the product description. That’s how important the people are. What are investors looking for in the CEO and the rest of the top executives? Been there, done that, and won.

Startup 147

Startup Bootstrapping Social Network Internet 147

Gust

OCTOBER 31, 2011

Many writers have outlined the critical success factors for product companies, like sell every unit at a profit, patent the design, and continuous product improvement. But recently I was asked about success factors for services startups, and I quickly realized that there is very little published to help the thousands of startups that fall in this category.

Angel Investor 143

Angel Investor Venture Capital Partner Networking 143

Gust

DECEMBER 8, 2011

In Part I , I gave a quick summary of the who, when and why of forming and documenting a new startup company. This week we’ll delve into what , exactly, is necessary or desirable to lay a solid legal foundation for a startup to build upon. I’m reluctant to give legalistic disclaimers, but in this instance, I do need to emphasize that the material in this article is legal information , not legal advice.

Intellectual Property 139

Intellectual Property Non-disclosure Agreement Delaware Stock 139

Gust

OCTOBER 25, 2011

Assume you have the right factors to get angel investment: experienced team, good product-market fit, growth potential, defensibility, and a reasonable shot at a successful exit. Have you asked yourself whether that’s what you really want? Have you considered the tradeoffs? This might seem awkward on this site, suggesting that you don’t want angel investment.

Cofounder 133

Cofounder Angel Investor Equity Software 133

Gust

DECEMBER 23, 2011

A gigantic percentage of startup literature concerns how to raise capital. But before you start on that PowerPoint, let’s ask this: do you really have to? Or is it still possible to bootstrap and build a company organically? Strategically, the advantage outside capital provides is obvious: you can go faster. And since speed of iteration is often the factor that separates success from failure, access to adequate cash is indeed often critical.

Intellectual Property 127

Intellectual Property Balance Sheet Dilution Bootstrapping 127

Gust

OCTOBER 12, 2011

During the summer of 2010, I developed a workshop, A New ACEF Valuation Workshop for Angels and Entrepreneurs. To provide some reference points, I surveyed thirteen angels groups in North American to determine their recent experience in negotiating the pre-money valuation of pre-revenue companies. See the 2010 data reported here: Current Pre-money Valuations of Pre-revenue Companies.

Angel Groups 125

Angel Groups Valuation Pre-Money Valuation St. Louis 125

Gust

OCTOBER 18, 2011

The man stopped talking, finally, summarized his pitch, and thanked us for listening. We sat in stunned silence. He’d treated us – a group of local investors – to a pitch punctuated with detailed stories of how previous partners, an investor , and an attorney had screwed him. He told us he’d finally beaten them back, and was now ready to move forward with his great technology.

Intellectual Property 124

Intellectual Property Valuation Partner Revenue 124

Gust

DECEMBER 1, 2011

For years there has been a pervasive opinion across the entrepreneurial landscape that the US has a shortage of capital required to startup and grow new ventures. It is suggested that companies cannot find the cash necessary to start new and exciting ventures. Furthermore during this economic downturn, we’ve heard a crescendo of voices lamenting the lack of startup funding, as communities finally recognize that new companies are the key source of job creation in this country.

SBIR 120

SBIR Startup New York City Angel Investor 120

Gust

DECEMBER 27, 2011

Due diligence should always be a two-way street. A while back, I published an article on “ Startup Due Diligence Is Not a Mysterious Black Art ,” describing what investors do to validate your startup before they invest. Here is the inverse, sometimes called reverse due diligence, describing what you should do to validate your investor before signing up for an equity partnership.

Due Diligence 119

Due Diligence Entrepreneur Offshore Angel Groups 119

Gust

DECEMBER 3, 2011

Sure, you want investors. But sometimes the outsiders most capable of helping your business are those who invest time, not money. And I don’t mean because they lend a credible name to an investor pitch: way too many entrepreneurs look at names on Advisory Board as just a way to expedite a raise. If that’s all you really expect of the Board, you’re cheating yourself as well as the investors before whom you dangled the names.

Advisory Board 119

Advisory Board Equity Naming Entrepreneur 119

Gust

DECEMBER 12, 2011

After the idea, it’s all about execution. I often hear from investors that a great idea is necessary, but not sufficient. The most important thing is a proven team , meaning one who has built a startup before, and has experience with the execution process in this domain. I’ve talked before about the best personality traits for a good entrepreneur, but I’ve never talked about the importance of process.

Cost 114

Cost Business Plan Entrepreneur Startup 114

Gust

NOVEMBER 23, 2011

Talented entrepreneurs are nothing if not resilient in the face of change: Market forces, competitive threats, technological shifts, you name it. In recent years, government regulation has emerged as another such force to be reckoned with in the technology industry. Startups and founders need to come to terms with the stark reality that the rules of the game may be changed mid-play.

IPO 110

IPO Prospectus SEC Intellectual Property 110

Gust

OCTOBER 12, 2011

Last week , we took the plunge and began dissecting an example term sheet for a convertible debt financing round piece by piece. I’ll continue with more specific terms and wrap up next week with some thoughts about recent changes and trends for the future. Readers may find it helpful to download the sample term sheet from my firm’s website and follow along with the commentary.

Finance 107

Finance Term Sheet Pre-Money Valuation Early Stage 107

Gust

NOVEMBER 11, 2011

All entrepreneurs know the feeling: your vision is crystal clear, but potential investors don’t get it. They ask small-minded questions. They niggle over details. They hem and haw as the weeks melt away your first-to-market advantage. It’s maddening! So, there are two things you can do after getting incredibly frustrated. You can keep pounding your head against the wall.

eCommerce 107

eCommerce Valuation Stock Community 107

Gust

SEPTEMBER 12, 2011

Most of us love the idea of a new beginning, a makeover, and a fresh start. Yet, despite the tremendous amount of innovation in our space, there is still a huge. amount of, (excuse the graphic word), regurgitation going on in our blogosphere. I’m not referring to the use of viral media to spread good ideas; I’m referring to. the frequency with which old thoughts get re-packaged and spread, under new. authorship.

Viral 107

Viral Global Audience Community 107

Gust

OCTOBER 24, 2011

In the world of business, you only get one chance for a great first impression. The stakes are high – you are asking an investor for money, a customer for an order, or another executive for a partnership. Badly written letters, long rambling or emotional emails, or an obvious lack of spell checking will brand you as a poor business risk before the message is even considered.

Audience 102

Audience Email Conversion Business Plan 102

Gust

DECEMBER 19, 2011

One of the most important questions you will be asked by potential investors is how your solution beats the competition’s, not just today, but over the three to five year life of their investment. There is no perfect answer to this question, but there are many wrong answers which will immediately jeopardize your credibility. The concept is called “sustainable competitive advantage.

Viral 98

Viral Advertising Lead Investor Revenue 98

Gust

DECEMBER 16, 2011

You can’t overemphasize the stories when you describe your business. The best business plans are stories, and the best pitches are stories. Your most important story tells how and why somebody buys your product. That buyer, not you, is the hero of the story. Explain his or her problem, how he finds you, what makes her pull money out of her wallet (or click the link, or whatever).

Exit Strategy 98

Exit Strategy Angel Investor Differentiation Audience 98

Gust

NOVEMBER 4, 2011

Entrepreneurs and investors who have spent any time dealing with convertible debt seed financing transactions are likely to have encountered the subject of valuation caps. In brief, a cap acts to place a limit on the conversion price of a convertible note such that investors are guaranteed a minimum number of shares for their bridge loans if the startup does a priced equity round at a high pre-money valuation – “high” meaning above the cap, which is often a heavily negotiated term.

Valuation 98

Valuation Pre-Money Valuation Merger Vesting 98

Gust

DECEMBER 20, 2011

Picture a meeting room with a lot of windows, early evening, early Spring, the Oregon landscape darkening outside. Twenty or so angel investors (me included) sit on tables arranged like a big U, with a table in the middle for a projector, and a screen in front. An entrepreneur has just finished his pitch. He’s a man about 50, clearly smart, articulate, and knowledgeable.

Angel Investor 93

Angel Investor Oregon Business Model Search 93

Gust

NOVEMBER 1, 2011

Are you wondering about angel investment ? How to find investors? What steps you need to take? I suggest you start by asking yourself these three questions. If you can’t honestly answer “yes” to all three, revise your plan, beef up your team, refocus, or pivot. 1.) Can it really grow? Growth means a strong market and a deliverable that’s scalable and defensible.

Angel Investor 93

Angel Investor Intellectual Property Finance Web 93