Tag Archives: gust.com

Q&A: How Do I Get This Startup Financed?

Q&A, ,

I received this question over the weekend via my ask-me form on timberry.com. I modified it slightly to not include private information. It’s about a web software business. It reads … 

Tim Berry bplans.com timberry.com

… we are gaining traction. Financing is difficult. I am looking to find out what resource you would recommend to get financing for the project. Investment would probably be 100-250k. Would like to go to privates like doctor’s groups but please direct me.

I’ve written a lot about angel investment on this blog and on financing a business in the main articles section on the parent site, bplans.com. Check out particularly this article, the right funding for your business type, which talks about the main options and gives you some basic definitions to work with.  And consider these 5 points: 

  1. Narrow your number. Project sales, cost of sales, fixed costs, spend before launch and development costs and come out with what you think you need. Everybody knows it’s just a guess. But there’s a huge difference in options between $100K and $250K. Name your number and have projections to defend it. Yes, that’s part of a business plan. 
  2. Generally it takes as much legal hassle and legal fixed costs to invest $100,000 as to invest millions. 
  3. If you have to ask about venture capital, you’re not a good candidate. Don’t feel bad about it. Venture capital is very rare, usually goes to high-profile startups led by people who’ve already done it. And the amount you need isn’t enough to interest standard venture capitalists. 
  4. If really have what investors want, you understand the hard truths about startups and investment, and you still think you’re a good candidate for angel investment, go to gust.com, sign up as a startup (it’s free), watch the videos, read the blog posts, and get going. 
  5. If angel investment isn’t likely, then start looking at what they call friends and family, which is what you call doctor’s groups. Talk to your nearest Small Business Development Center (SBDC) (you can find info on these at asbdc-us.org.) The best advice I’ve heard on this is to start asking everybody who they know who might be interested. Don’t ask anybody directly; ask who they know. That’s less awkward and more effective. 

If that doesn’t seem to be getting you anywhere, you should probably read these 10 reasons not to seek investment. And finish up with 5 non-traditional ways to get startup money. 

Do You Want Your Daughter to be a Successful Entrepreneur?

Advice, Business Education, Entrepreneurship, , ,

I stumbled on this question on Quora: How should I raise a 12-year-old girl to be a successful entrepreneur? I have four grown-up daughters. Some of them are “successful entrepreneurs,” all of them have tried, some are still trying. So I care a lot about this subject. 

Quora 12-year-old entrepreneurship

There are good answers already posted. The answer I like best, happily, is the one with the most votes.  It’s also posted by a friend, David Rose, founder of gust.com and head of a New York angel investor group. His highlight is:

By FAR the best thing you can do is be a great role model! Show your sister that girls CAN be entrepreneurs! That being an entrepreneur is cool! That entrepreneurs live larger lives, have a greater impact on society and basically have more fun, than anyone else on the planet!  Tell her stories of Mary Kay Ash and Anita Roddick, of Esther Dyson and Heidi Roizen, of Martha Stewart and Oprah Winfrey…and of yourself!

Although I completely agree with that, I really want to add more. This seems important to me, from my experience:

  1. Do everything you can, as a parent, to promote and encourage academic education in whatever your daughter likes. For every successful entrepreneur who dropped out of college there are thousands more, maybe tens or hundreds of thousands, who didn’t drop out. Life and entrepreneurship are easier with a college degree. 
  2. Fight the stereotype: Don’t let your daughter swallow the stupid and obsolete idea that boys do math and science and technology and girls don’t. That unfortunately is a self-perpetuating myth. It’s dangerous.  
  3. Don’t, however — please — be that parent pushing the poor kid towards specific educational directions. Drop that agenda fast. The more you push for a specific path (business, entrepreneurship, high tech, for example) the less likely you are to really help your daughter. It’s her life, not yours. For the record, I know many more successful entrepreneurs with degrees in liberal arts than with degrees in business or entrepreneurship or computer science. 
  4. Give her as much technology as she wants. That means — within reason of course — the computer, the laptop, broadband, smart phone, etc. And of course you have to be careful, as a parent, because there are those well-known dangers. My daughters grew up with computers. I gave them domain names as birthday gifts when they were as young as 10 years old. All of them had laptops for school. One of them liked computer games, so I got her all the games she wanted.
  5. Don’t push your definition of success on her. Help her find her success. It’s her life, not yours. 

I have to add something related to point #5 here, and the qualifier “successful” entrepreneur. That’s a dangerous concept. What we want, as parents, is for them to end up happy, which usually means productive, economically self sufficient, and independent. Is it dangerous that we’re in the context of “successful” entrepreneur instead of entrepreneur? And is a successful entrepreneur happier than than an unsuccessful one, or a professional, or middle manager? Especially where your daughter is involved, always pause to question your assumptions. 

I think I’ll go add this to the question on Quora, but I wanted to put it here first. 

Some Recent Blog Posts Elsewhere

Blogs and blogging, , , ,

Because you might be interested in these … 

I posted How to project expenses for a new business overnight on the SBA (small business administration) Industry Word blog. It’s a step-by-step how-to piece on exactly what it says in the title. 

Yesterday and today I posted two different posts on James Altucher’s Ultimate Cheat Sheet on Starting a Business, posted on TechCrunch over the weekend. The first was good advice, bad advice, land mines on the path to heaven, on gust.com, yesterday. The second was James Altucher On How and How Not to Look Professional Raising Investment Money on Up and Running. 

Obviously I liked his “cheat sheet” post.

 

 

Some Hard Advice on Working for Sweat Equity

Starting a Business, Valuation, ,

I just posted Why Sweat Equity Often Stinks on the gust.com blog for startups and angel investors. It’s quite cynical, I’m afraid, but it also reflects what I’ve seen for years.

istockphoto ball and chain

Sweat equity is a dangerous concept. It’s way too easy to misinterpret and misunderstand. And whether it’s intended to be or not, it’s way too often used as a lure to get people to work for less than they are worth. 

The good side of sweat equity is what startup founders earn by building their business. You create, work, develop, grow … and your business is worth more than it was. And you own the upside. 

The bad side of sweat equity is that it’s so often just thinly-disguised exploitation. 

Here’s my advice: if you’re getting paid less than your fair market value in a startup because you’re working for so-called sweat equity, understand that …

  • unless the equity deal is in writing somewhere, 
  • and defined with real numbers including percent of ownership, shares and total shares outstanding,
  • and real conditions such as vesting, and work expectations, what happens if you want to sell out and quit, what happens if they want to buy you out, and what about termination …

… then it’s probably not worth as much as you think. 

And what makes it worse, quite often, is that the people making the empty promises don’t intend to exploit you. They mean it when they say it, early on. But then the money starts flowing, investors come in, the board changes, and promises can’t be kept. Unforeseen circumstances are very common. So what you get is an apology. 

Some more advice: when I say get it in writing, I don’t mean a formal legal contract; at least, not necessarily. I’m a great believer in simple English signed by both parties, laying out what they think they’ve agreed to. Warning: I’m not an attorney. The attorneys are often valuable for pointing out all the issues to consider. But the big contracts usually end up in mediation anyway. Just make sure you have something written to remind everybody of what was promised. 

(Image: istockphoto.com)

Tipping Point Trumps First Mover Advantage

Economics, Entrepreneurship, Starting a Business, , , , , , , ,

Two interesting milestones: a note last week that Ebook Sales Surpass Hardcover in the U.S. coupled with the fact that digital music overtook physical media for the first time in 2011, something I expected since 1998. In both cases what surprises me is not that it happened, but how long it took. And what interests me is who makes the money on timing these trends. Because it sure wasn’t the first mover. 

I posted about this in Who Makes the Money on An Inevitable Shoe Dropping earlier this week on the gust.com blog. I was an early adopter in both these markets. I bought the Rocket eBook Reader in 1999. I bought the Diamond Rio mp3 player in 1998. Both products were first movers, innovative leaders, but they were brought out well before the right time. Both were discontinued years ago. And, I think but can’t prove, both were business failures. 

What does this tell about first-mover advantage? The ebook reader finally took off roughly 10 years later when Amazon.com and Apple converged on it with hardware and content. The mp3 player took off just a couple of years after the Diamond Rio. 

What happened? The tipping point happened. And the first-mover advantage didn’t. Why not? What do you think? 

Interesting Idea for a Hybrid Crowdfunding Solution

Angel investment, , ,

This is interesting: what if some crowdfunding sites limit the investing to so-called “accredited investors” as defined by the SEC. I just read David Rose’s take on this at Quora.

David mentions two sites, his own gust.com and angelist, that already group accredited investors. Up to now they work as platforms for getting investors together to look at deals, submitting deals to investors, and managing communications, research, and so on. But they could also register under the JOBS act, as he suggests: 

… fully registered Broker/Dealers and actively facilitate financings for a percentage of the raise.

Why not? No good reason why not. 

Why? The JOBS act loosened restrictions on who is allowed to invest in startups, and it is now waiting for regulations to make it real. In the meantime, though, there are hundreds of thousands of accredited angel investors. Using the change coming in crowdfunding but starting with accredited investors could get somebody started quickly, without (in theory at least) violating the existing regulations. 

 

Is There a Tech Bubble? We’ll Know If It Pops

Business Financing, Economics, Technology, Venture Capital, , ,

Earlier today I posted disruption vs. revenue and the tech bubble on the gust.com blog. I’m suggesting in that post that some special-case web-based startups have to choose between disruption or revenue, because they can’t have both.

That may or may not be true, but I’ve been guilty of suggesting it is to a couple of startup software companies recently. I think both were special cases. They had a real chance to go really big and generate spontaneous buzz based on the product itself.  But locking their wares behind pay walls might slow their growth and dampen their success. 

That may or may not be true. After the tech crash in 2000, I never thought I’d see that happen again, much less me recommending not covering expenses with revenue. Still, though, there’s Facebook and Twitter and Instagram and, oh my.

Bubble? Las Sunday the NYTimes’ bits blog published Disruptions: With No Revenue, an Illusion of Value. Author Nick Bilton says yes there’s a bubble and tells why he’s sure.

When this next bubble pops — and it will pop — the idea to make no money can finally pop, too. Then investors can start working with companies to build businesses that have long-term financial goals, instead of just building a short-term mystery.

But on the same day Chris Dixon (smart person) asked Is It a Tech Bubble on his blog and answered with some convincing analysis, “no.” And the second comment on that post is Fred Wilson of AVC (another smart person) saying: 

[Zynga price] certainly doesn’t seem like a bubble valuation either. I do think there is more money sloshing around the tech/internet/mobile sector now than there has ever been. and that is impacting valuations across the board. The question is if this is temporary or the “new normal”. I guess we will find out.

So I’d like to answer this tech bubble question here, but as I was writing this, on Sunday, those other interesting and contradictory posts, from smart people, kept rolling onto the web. I ended up tweeting my conclusion to this post last Sunday, with the following tweet. 

The New JOBS Act, Crowdfunding, and Shoes Waiting to Drop

Blogs and blogging, Weblogs, , , , , , , , , , ,

It’s less than three weeks since the new JOBS act opened the door to exciting new crowdfunding initiatives. This could be a sweeping change, an end to antiquated laws requiring startups to get investment mainly from so-called accredited investors. And it could be another deregulation causing a lot more problems than it solves. 

For the curious, here’s a quick reading list I’ve compiled, full of excitement, eager anticipation, fears, contradictions, and contention.  

  1. Gene Marks has a good summary in Drilling Down: What Small Business Should Know About Crowdfunding on the New York Times. This one is positive and optimistic. 
  2. For a scathing indictment of the whole idea, how it’s actually more of the deregulation that caused the great recession, try Why Obama’s JOBS Act Couldn’t Suck Worse, by Matt Taibbi on Rolling Stone. (Don’t you love the title? Nothing ambiguous about that.)
  3. For a more long-term academic/intellectual view, try Yale Professor Robert Shiller’s Democratize Wall Street, for Social Good, also on the New York Times. 
  4. Jason Calacanis, founder of Mahalo.com and a very well-known and vocal successful entrepreneur, raves about the underlying idea of crowdfunding in The Two Most Important Startups in the World, posted a couple of months ago, before the new bill passed. 
  5. Bob Rice, New York venture capitalist, posted Forget Crowdfunding: Why JOBS Matters on the gust.com blog. A couple other posts on the subject on that blog — which is the major platform for angel investment — are Antone Johnson’s train wreck post, in which he fears the worst from crowdfunding before the bill passed;  and then his somewhat-relieved revision in his back on track post a week later. 
  6. Last but not least (since we’re on my blog at the moment) is my What Worries Me About Crowdfunding on the Huffington Post. What worried me then, before the bill passed, still worries me now. 

I could go on with the reading list, but it’s already too long. 

So which is it? All hail the new era of startups let loose from the nasty bureaucratic constraints? Or the opposite, run for the hills because chaos is coming? Obviously somewhere in between the two. Also obviously, a lot will depend on who does what in crowdfunding, and how quickly, and how well. If this new world starts with some very visible unsuccessful but popular deals, for which a lot of people lose money, that’s one scenario. If the regulations manage to control the scams and somebody builds a good crowdfunding site with some reasonable precautions, then that’s another scenario. 

So I’m waiting for that the shoe to drop. 

True Story: Begin With a Job at a Startup, Then Start Your Own

Business Stories, Entrepreneurship, Starting a Business, ,

The title of this post is taken from Martin Zwilling’s Begin With a Job at a Startup, Then Start Your Own on the Gust blog. In that post, Martin starts with this:

For those of you who want to get in on the ground floor of a new venture, but haven’t yet worked up the nerve to start your own, begin with a job at a startup.

stream_istock_000000904065.jpg

I say that it’s not just the nerve to start your own; it’s also the resume, experience, and resources. And that you shouldn’t feel that every entrepreneur proves him or herself by jumping straight from childhood to business owner. Breathing first, and learning something, is a good idea.

When I was in business school 30-some years ago, Professor Steve Brandt paused on one point, in front of the class, and reflected. He was teaching developing a business plan and getting funded. He said:

Most of you are too young and not ready to jump from school into your own business. Don’t worry about it if that’s the case. If you’re serious about entrepreneurship, just choose the right stream to swim in. Get out of school and do something that relates to what you’d like to do eventually.

I repeated that advice often during my 11 years teaching entrepreneurship one quarter per year at the University of Oregon. Some of my students took it to heart. They didn’t jump straight from college to starting a business. Instead, they worked with startups in their field of interest and eventually started their own.

I’ve noticed since then that the world changes very fast, and the startup leap is happening much more often at a much younger age. But the fundamental value of that advice still applies.

Martin Zwilling goes on to list some concrete specific tips that might help. If you’re interested, that’s a good post to read.

For another taste of that post, let’s finish this post with this quote. I agree with this …

But a word to the wise, be picky about what startup you join. Ask around about the founders. Make sure you meet more than the boss and check the culture before you take the job. Reporting structures are fluid in startups, and unfortunately many startups are like dysfunctional families.

… except that I’d add: well, but not too picky.

(Image: istockphoto.com)

Q&A: Finding a Consultant to Find Investors

Angel investment, Starting a Business, , ,

This is another frequently asked question that came from the ask-me-a-question web form on my main site at timberry.com.

Question:

Trying to find a consultant that links me to investors? Does this exist? I’m a 21 yr old entrepreneur. Learning on the fly!

Answer:

  1. You don’t need a consultant to learn about angel investment. There are thousands of good links on the web. Not that mine are necessarily the best, but since you asked me:  Browse though the angel investment articles on this site (click here for a site search for angels). Read the angel investment category on this blog.
  2. Please make sure you have a deal that will interest investors first. It takes a credible experienced startup team, an attractive product-market fit, an interesting market, and defensibility. Way too many people waste their time and — if they hire consultants — trying to find investors with a deal that no investors would ever be interested in. Please read Is Angel Investment Realistic? and be honest with yourself.
  3. If you don’t have the right stuff, don’t spend energy searching for investors. Change your plan. Either gather some more team members to beef up the offering, or focus on what you can implement by yourself. Bootstrap your business. If you still want a consultant, forget paying somebody to link you to investors. Get somebody to tell you what you need to have.
  4. If you do have the right stuff, then you probably don’t need a consultant. Go register at gust.com where you can browse through about 600 angel investment groups and look for one in your local area, or one with interest in your kind of business. Don’t apply to all; don’t send your info bouncing around everywhere; concentrate on the groups that are more likely. Connect with your local small business development center (SBDC). Ask people you know who they know locally who might be interested. Find out about local investors using the SBDC, the chamber of commerce, local business schools, etc.
  5. And if you really want the consultant, and you have money to spend, buy expertise and experience from the consultant, not heavy lifting. Buy very targeted help. There are honest legitimate consultants in this business, but they are rare. Check references carefully. Talk to past clients. And if you have a consultant help with your own business plan and your own business pitch, what you want is coaching, constructive criticism, not writing and formatting.