Category Archives: Venture Contests

Your Profits Are Way Too High!

Angel investment, Business Plan Marathon, Venture Capital, Venture Contests, , ,

Business plans everywhere. I’m reading, annotating, filling in score sheets, and getting cranky. I explained that on this blog last Monday.

So what’s with the unrealistically high profitability projections? This year it seems like I’ve discovered a new 50-50 rule of profitability in business plans, as in, 50% of the plans I’m looking at project 50% or higher profits on sales.

That reminds me of a song my youngest daughter used to play: “That Don’t Impress Me Much.”

Occasionally a very successful startup will come up with something so new that it can, for a while, chalk up very high profit margins. That’s extremely rare. Out here in the real world, though, nobody really makes much more than 5-8-10% or so profits on sales. The real startups might make 15% or even 20%.

Projecting 40%, 50%, and even 60% profitability on sales doesn’t tell me you have a great business; it tells me you haven’t done all of your homework. You’re underestimating cost of sales, expenses, or both.

I find this particularly galling in business plans with some social implications, related to health care, or education.

What would I like to see instead? First, find out average profitability for the industry you’re in. Put that number into your plan. Then explain why your company’s projected profitability is higher. Proprietary technology, specialty niche market, new processes? Okay, I can take that; just be aware of what the normal is, so you know what you’re up against. Please.

Standard financials are available from several vendors, for less than $100 per industry (and here I can’t resist adding that they’re bundled with Business Plan Pro, my company’s software product. Sorry. I’m an entrepreneur. I can’t help it.) You can also get those from Oxxford Information Technology, or the Risk Management Association (RMA).

Anyhow, that’s my opinion.

True Story: 75 Business Plans in a Month

Business Planning, Venture Contests, , , , ,

Sometime in middle May you might find me emerging, blinking, uncomfortable from the sunlight, after reading and evaluating 75 or so business plans in a single month. And watching and judging and asking questions about almost as many presentations. I can see the headline:

Man reads 75 business plans in a month … and lives to tell about it.

Does that sound like a complaint? I hope not. Actually; there’s a touch of bragging to it. I couldn’t have spent the last 30 years focused on business planning if I didn’t like reading them (although, perhaps, maybe it would be better without so many all at once).

This is business plan season for me. I just finished reading half a dozen plans for Notre Dame’s annual business plan competition (we, Palo Alto Software, give a prize to the best one), and another half dozen plans for the Rice Alliance business plan competition (I’m a judge, and we have a best business plan prize for that one too). I still have to read five plans for the University of Oregon’s New Venture Competition next weekend (I’m a judge), and I’m supposed to produce a first-cut on 43 plans for the Willamette Angel Conference (I’m one of the angel investors) by the end of the workday today.

Oh, and this is the season I teach my Starting a Business class at the University of Oregon, so I’ll have another 20 or so plans to read as part of the class.

Despite all this, I’m very disappointed that I have to miss the University of Texas’ Moot Corp Competition this year, because of a scheduling conflict. That would have been another half dozen or so plans, also this month.

So don’t tell me, please, that nobody reads business plans. I do. So do the other judges. So does a whole team at Palo Alto Software. And so do all the other members of the angel investor group I’m in.

So you’d like tips, hints, suggestions? If you wrote one of those plans then it’s too late for you to change it now; but maybe I can influence your presentation. And also, maybe if I comment on some of the business plans I’m reading while I’m reading them, it might help somebody else with a plan later on.

All for the greater good, I’m sure.

Maybe I’ll make it a category, like “the business plan marathon,” or something like that. So you can click for related entries. Tim’s folly, perhaps.

And just to kick this off, some points worth noting:

  • Profitability too high: I’m not impressed with a plan promising 40%, 50% or more net profit on sales. That doesn’t mean the business is very profitable; it means they’ve underestimated expenses.
  • Dense text: Particularly dense scientific text. I’m a business reader, I’m not going to evaluate your science anyhow. I’ll just look at your degrees and past work to see whether that makes your claims credible. Maybe the patents, too, but patents don’t mean much unless they’re good strong patents with a lot of legal work supporting them.
  • Missing tables and charts: For example, I want a bar chart to show me the highlights — projected sales, gross margin, and net income, for the first three years, or five years if you insist. I want to see the projected income table in detail, so I can track things like marketing expenses and payroll. I want to see cash flow table. I want to see startup costs, and what the proposed investment is going to buy the venture. 
  • Treasure hunts: Don’t make me hunt around to find exit strategy, valuation, defensibility, market focus, or any other key point. Make it all easy to find, please.

Now You be the Judge

Venture Contests

So this is a refreshing change: a venture competition you can participate in. You be the judge, really, in the Forbes.com $100K Boost Your Business contest to be decided next month. Yes, you do get a vote! And, better still, before you vote you get to watch the presentations, and what Forbes.com Entrepreneurship editor Brett Nelson called "10 minutes of withering Q&A" that followed, as Web video.

I don’t have the exact website address yet, but you’ll be able to find it in the entrepreneurship section of Forbes.com. You can use this link to get a head start.  You can go there right now to see the five companies, what they do, who they are, where they are, and why they are interesting.

And they are all interesting companies, believe me. These five finalists were chosen from 20 semifinalists, from a field that started with more than 1,500 entries. There’s a wide range too, from companies with several million dollars of investment already, to companies looking for their first capital infusion. And some big names as well, among the early investors and advisors.

This is a great chance for you to get a good look at what these contests are like. I’ve posted before on this topic. I judge about half a dozen major venture competitions every year, including several of the top intercollegiate and international ones. This one is a good example to watch, for several reasons. First, applications are wide open instead of restricted to teams that have to have at least one MBA student. Second, the flow of presentation and questions and answers is typical, with the possible exception that usually they go 20 minutes of presentation and 20 minutes of Q&A, and this was 10 and 10. Third, most important, you can see it yourself, as it happened.

So what happened yesterday was the finals. I sat at a table with Brett and four other judges, in a video studio at the Forbes headquarters in New York. One by one, the five finalist companies delivered their carefully-timed 10-minute presentations. After each presentation, the judges got 10 minutes to ask questions. All of this was filmed and will be available.

I think the popular voting process is particularly intriguing. In every one of the contests I’ve judged for several universities, the process ends with winners chosen just a few hours later by the judges as a group.  In this one, you get a vote too.

I’m not going to spoil the fun by telling you which I’m going to vote for, or how the discussions went at lunch, after it was all over, between me and the other judges. I am going to tell you that the toughest problem is deciding how to choose between very different companies. For example, what if the one I’d like to have an ownership percentage in is not the one that I think will generate the most incremental sales from the prize money? Do I want a solid investment opportunity, or a high-risk high-growth opportunity. I’m not sure.

As I said above, you be the judge.

And you can click here to see the five finalists, and from there click deeper into their companies and backgrounds.

Forbes.com’s $100K Boost Your Business Prize

Venture Contests

I’m in New York today, looking forward to being one of the judges for the Forbes.com $100K Boost Your Business contest. Finals are today.

As I start the day, I’ve been through all five of the plans, and it’s a very interesting group. It should be a good day.

One thing I really like about this competition is the criteria for winning. Forbes has defined it as the company that can make the best use of the prize money.

What’s going to be hard is figuring out how to deal with how different these five finalists are. Great plans all, but a huge range of size, scope, history, and investment levels.

It should be a good day.

Finally: the Right Criteria for Judging Business Competitions

Venture Contests

Finally! As more business venture competitions pop up, here’s the best take yet on determining a winner: Forbes.com’s Boost Your Business competition offers a $100K first place prize and — here’s where it gets interesting — asks the judges to choose a winner by determining which company can do the most with $100K.

I’ve been asked to judge that one. It should be fun. That makes my judging list for this year include Rice University, University of Oregon, University of Texas (Moot Corp), Princeton, and now Forbes.com. That gives me a good view on what’s going on at the top, some very good plans, some very strong teams. It’s a privilege that I appreciate.

Having done this judging thing for more than 10 years now, I will say that I’ve been disturbed for years by the ambiguity in the criteria for choosing the winners in business venture competitions.

For example, how do you decide between a solid, well-planned and believable business that doesn’t need outside investment but could grow fast (say, $5 million sales in the fifth year) regardless, on the one hand; and one that needs $10 million investment but has a very small chance of getting to sales of  hundreds of millions of dollars in five or 10 years, on the other?

True story moment: the semifinals judges (including me) had evaluated 20 plans in four channels, choosing a finalist from each channel. In the judges meeting at the end of the semifinals, somebody pointed out that the team that was going to cure cancer didn’t get into the finals. "Does that bother us," somebody asked.

A consortium of top venture competitions got together a few years ago and dealt with this problem by determining that judges should decide which is "the best investment opportunity."

That at least set the terms more clearly than before, when judges had to decide between the high-risk high-growth highly improbable cure for cancer and the low-risk highly likely to succeed smaller business with a great niche and no need for investment. That has bugged me for a while, because I like the second case a lot — I don’t sneer at lifestyle businesses like most professional investors do — but at least it kind of solved the problem.

Not that it isn’t still fraught with ambiguities. There are still major ambiguities in the "which is better" area, but at least these are also true in the world of investment at large, and there is some validity in assuming a relationship between risk and return.

So I think the Forbes contest does it better: the judges are supposed to decide which of the competing companies can make the best use of the $100,000 first prize. That’s still potentially ambiguous, but it does go a lot further than the "in which would you invest" question that drives most of these contests.

The Harder You Work, the Luckier You Get

Venture Contests

I’m sorry, that’s an old cliché, but the thing about clichés is that they so often become that because they hug the truth. Consider this quote, from Nate Alder of Klymit Technology. He’s talking about how his team approached venture competitions.

In preparation for each event we would spend our nights at the hotel refining our presentation based off of practice round judges feedback and stay up rehearsing our presentation as opposed to going out late drinking with the rest of the students from other schools.

We have always treated this as a serious business from the beginning and not just an extracurricular activity we do for fun on the weekends but we have sacrificed a lot of personal time, social life, entertainment, grades, and even other job opportunities to make this company a success.

We just have so much fun with it that it makes up for all our other sacrifices. Before each event we always made sure we had gotten plenty of sleep, ate a health meal, always avoiding alcohol, tobacco, or any other substance that could impact our minds or bodies. All these things combined really helped us stay relaxed and focused to perform well and have a lot of fun doing so.   

Hmmm … I think we’ve got something there. Work hard? Success? Correlation.

I saw Klymit three times last month in my month of judging venture contests. They took second place at Rice University, tied for first at the University of Oregon, and second place again at Moot Corp (University of Texas) in Austin. Klymit has innovative new technology that uses inert (as in complete harmless, already in the atmosphere) gases as insulation in ski jackets. The insulation is adjustable, so as the day warms, you can set your jacket to cool. The company has an impressive management team, and agreements already in place with major clothing vendors. It’s an exciting new venture. The team, by the way, comes from Brigham Young University. And the business plan started (can’t resist adding this) with Business Plan Pro.

Nate’s quote is part of the behind-the-scenes detail of A conversation with Klymit Technology, in which he’s interviewed by ‘Chelle Parmele over at Business in General.

And the plot (or the cliché) thickens too, with the fact that NeuroBank, from Carnegie Mellon, won the Moot Corp in Austin. NeuroBank took third at Rice University in early April with a combination of a new technique to harvest brain stem cells from the spine (instead of drilling a hole in the head) and a cell bank storage offering borrowed from techniques used to store human eggs, etc. Between the Rice contest in the first week in April, and the Moot Corp in the first week of May, NeuroBank went out and developed a waiting list of people ready to subscribe as soon as the service is available.

So there’s that same theme: work, luck, reward, and all that.

And the Winner Is…

Venture Contests

At lunch on Saturday, in the judges’ room, Jeff Mullin of Ropes and Gray, suggested I not rule out NeuroBank.

"They’ve done a lot since the Rice competition," he said. "They’ve got a waiting list now."

Jeff, however, is an alum of Carnegie Mellon. And NeuroBank was the entry from Carnegie Mellon. And NeuroBank finished third at the Rice University Business Plan Competition, behind Qcue and Klymit (I posted on that last month). And Klymit tied for first at the University of Oregon New Venture Championship, a week after Rice (I also posted on that last month).

And the event last week was what they call the superbowl of venture contests: Moot Corp, in Austin, at the University of Texas. Every year since 1984. This year, eight divisions, 38 teams, each one a winner in some other major contest.

And this time NeuroBank took the prize. Klymit was second, and Qcue third.

NeuroBank is built on two innovations: first, and most important, a better way to harvest brain stem cells, using a spinal tap instead of drilling into the brain. Developed and proven by a surgeon who is on the team. Second, less innovative perhaps, a system to save those brain stem cells so they can be used later. That’s something that’s being done with human eggs, sperm, other kinds of cells, but NeuroBank is the first to apply it to brain stem cells.

And I have to say that I have enjoyed this month of venture competitions immensely, judging first at Rice, then the University of Oregon, and last week at Moot Corp. Business plans have never looked better.

I’ve been judging venture contests for more than 10 years now, starting with the University of Oregon’s in 1997. I’ve done them there, Rice, here in Austin, at USF, in Notre Dame, and in New York. This year’s crop was the strongest I’ve seen.

I posted about Qcue last month after they won the contest at Rice University, in Houston. Fortune Small Business also covered that Qcue, from the University of Texas, complete with a video of their elevator speech. I also posted about Klymit, which is now calling its product "the holy grail of insulation." Looks like a great new idea in ski clothing. Klymit, from Brigham Young, came in second place at Rice, then tied for first at the University of Oregon contest.

The fourth finalist was OvaGuard, a patented natural egg coating technology developed in Thailand and developed into a venture plan by students at Thailand’s Thammasat University. Disease outbreaks require the $177B egg industry to implement the washing and coating of eggs. OvaGuard offers breakthroughs in safety and performance.

There were some excellent ventures that didn’t make it to the finals, but — I’ll bet — will also make it to the real world. I judged semifinals, wildcard, and challenge round, and saw several other very interesting ventures:

TakeShape
University of Oregon
TakeShape will license a patented, 3D body scanner to sell to institutional sports teams and high-end fitness clubs. The scanner allows athletes to monitor important physical information and track progress towards fitness goals.

Orchid King
Thammasat University
Our OKlone micropropagation technology cultivates market dominating Phalaenopsis, growing these highly demanded orchids at 5,120% greater yield, while practically eliminating labor in this $1.5 billion segment.

ShellSwitching
London Business School
ShellSwitching is an online community that helps vacation home owners find trusted guests by filtering potential guests based on personal relationships, shared group affiliations and owner reviews.

MicroTransponder
University of Texas at Dallas
MicroTransponder is a medical device company commercializing wireless interfaces for the repair or enhancement of the nervous system.

AmWell
University of Utah
AmWell provides innovative vaginal drug delivery technologies to the pharmaceutical industry; products that empower women to protect themselves against sexually transmitted diseases.

PhotonWave Technologies
Indian School of Business
PhotonWave Technologies offers a Silicon Photonics & Nanotechnology-based patented innovation that will revolutionize fiber-optic communications through high performance, cost effective optic interconnects for FTTx/last-mile and high-performance computing markets.

AccelerEyes
Georgia Institute of Technology
AccelerEyes’ solutions deliver up to 100x speed improvements for existing technical computing software by optimizing the software’s use of desktop and laptop hardware.

ReTel Technologies
University of Chicago
ReTel’s patent-pending solutions bring powerful online shopper analytics and dynamic pricing capabilities to offline retail environments.

X
University of Oxford
X is community-based sharing of Internet bandwidth via wireless medium. It’s a really interesting idea; a community sharing project, something like Fon, but with some refinement.

An Awkward Moment. People Who Need Investors.

Venture Contests

Things were going great until that moment. 

I was listening to a smart, articulate, and engaging MBA student at the Rice business plan competition last week, as he was presenting his pitch for a very intriguing science-based venture that would greatly enhance battery output from roughly the same materials input. 

He and his teammate had related scientific degrees, and patents, and a lot of credibility. And it doesn’t take much to convince me that there’s a market for enhanced battery output in all shapes and sizes. Whether that’s more power per unit of cost, or more power per unit of weight, both are interesting. 

And then came the problem. He said they didn’t actually need outside capital to make this go. They were going to go with it regardless. But with investment, he added, they could go faster. 

He showed a sales forecast that got close to $1 million in revenue in the second year and just under $2.5 million for the third year. With investment, he added, they could hit the third-year number in the second year. 

He lost me there. I tried to stay focused on the presentation but my thoughts wandered. Was he saying that because the rules of that particular business plan competition (and most others, by the way) required that all teams entered be seeking investment? So he and his teammates pragmatically established an investment offering to comply with the rules, hoping that they could with that change compete for prize money without needing the investment? Or was the team really undecided?

My problem was thinking how much better off these entrepreneurs would be if they could build that business as their own business, entirely owned by the teammates, without outside investment. As the song goes, God bless the child that’s got its own. 

I do know that few businesses have the option that this one seems to think it has. Most businesses either fund themselves because there’s no other option, or get funded or never start because the startup investment is inaccessible. But once the assertion was made, once they’ve said they can get to a million next year without investment, it’s hard to put that out of my mind. Maybe they are simply naive. On the other hand, the technology side of it, the science, was very convincing. If you have a market, if you have something to sell, and defensible technology, that’s a pretty good start. 

I did get a chance to have a talk with one of the teammates later. I told her about my reaction during the presentation. I hope that helps them in the future. I think that in general it’s a good idea not to seek investment unless you need it, and if you do, not to say you don’t.

People who need investors are not necessarily the luckiest people in the world.

10 Notes From a Venture Competition Judge

Venture Contests

I spent last Friday and Saturday in Portland as a semi-finals judge at the University of Oregon New Venture Championship (NVC). That means spending all day Friday listening to four teams, choosing one to go to the finals, and then giving feedback to all four. I also listened to two of the five finalists on Saturday morning. And I attended the finals reception Saturday night.

  1. Klymit, a venture built around new technology substituting adjustable gas insulation for what is now done with Thinsulate or goose down. This very intriguing new company has a strong management team, a strong technology-driven new business offering, and strong strategy. They did an excellent presentation. They also won the Palo Alto Software best written plan award, and another award for the trade show. They came in second the week before in the Rice University 2008 Business Plan Contest in Houston, just barely edged out by a very strong Qcue team from the University of Texas at Austin. Investors are jumping on board quickly. And the plan started with Business Plan Pro. 
  2. A tie for first place. The finals judges took the $10,000 second prize and added it to the $50,000 first prize and gave $30,000 each to Klymit and TakeShape, from the University of Oregon. This is the first time I’ve ever seen that in a venture competition, so with Klymit doing as well as they have, I’m assuming TakeShape has to be very strong. I got the background information on this (confidential source): the five judges dug into their scoring schemes and did the numbers three different ways, and then again, and everything kept coming up so even that they gave up and called it a tie. 
  3. An excellent luncheon talk by Dave Hersh of Jive Software. A brief entertaining story of a startup success, plus the entrepreneur as traditional iconic hero with the full cycle of challenge, achievement, sharing, and so on.  My botched summary doesn’t do it justice. I hope to have more on this later. You so rarely get a morph of real startup wisdom and classic literature and mythology in the same luncheon talk.  Wow!
  4. There’s a problem with comparing prizes and winnings from different venture competitions. The University of Oregon gives money to winners, as in checks, which they can deposit in their bank accounts. Many of the other similar intercollegiate competitions give a mix of money with services, or investment. I ask you: how do you compare $30,000 in real money to services worth $100,000? And what about investment of $125,000 that also brings you conditions and partners? These are interesting questions.  
  5. I’m still uncomfortable with contest rules that force all ventures to compete as investment opportunities. This is the rule for venture competitions in the U.S. today; judges are asked to choose the best investment. This devalues entries like Recon Recycling, from San Diego State, an excellent bootstrapped company but doesn’t really need outside investment. Should a successful startup that shows a realistic plan to get past $10 million sales in a few years be ruled out because there’s nothing there for investors? That bothers me. 
  6. I’m still seeing plans promising completely unrealistic profit margins. Don’t tell me you’re going to make $27 million net profit on $42 million sales, please, it lowers your credibility and doesn’t raise my interest. 
  7. How about a team presenting with three young men, dressed in identical stylish dark suits with white shirts and identical stylish off-red ties. I didn’t give them style points but it does show good planning and that they are really trying to optimize all the details. 
  8. My cool business award for the week goes to Comuto, which owns the leading carpooling site in France. More than 80,000 users, great strategy, great media successes, and an excellent presentation by founder Frederic Mazella. Seems like a really good investment opportunity for somebody, particularly somebody located in France. 
  9. I wish the University of Oregon would hold this event in Eugene, a great small city, and the site of the university, rather than in Portland. Facilities on campus did just fine with this event in the past, and since the competition moved to Portland they’ve inaugurated a $45 million new business school building on the campus in Eugene. When I do this for other schools and other competitions I always like the fact that they are held on campus. It’s given me a chance to get to know Rice University and the University of Texas and I’m grateful. 
  10. I like the idea of making the finals more inclusive by inviting the audience to judge. In Rice the finals were full to overflowing as something like 200 people were invited as judges. And David Miller mentioned in Campus Entrepreneurship last week how Boston University’s Institute for Technology Entrepreneurship and Commercialization (ITEC) competition allows real time voting for finalists by audience members.  Great idea.

True Venture Contest Story: the Fish Tacos

Business Education, Venture Contests

The board room had maybe 15 or 20 people in it, most of us judges, some of us faculty and organizers, for a lunch meeting just before the presentations and judging started. Outside the windows, the campus of the University of Notre Dame on a gorgeous late Spring day in Indiana. Inside, boxed lunches, shaking hands, getting started. It was just after noon, and the competition — McCloskey Business Plan Competition at Notre Dame — was due to start at 1 pm.

Teams were ready and waiting. They’d been carefully selected using a process that took several months to pare them down to a few finalist teams. They had done summaries, business plans, and they were about to do their pitch presentations for the judges.

"But did you want this to be a realistic experience?" One of the judges asked. Most of the judges were members of the Irish Angels, an angel investor group. A few (including me) had other affiliations. I’m not sure which judge asked that question.

"Yes, of course," was the answer. It probably seemed like an odd question.

"Well then, what’s this about 20 minutes without interruptions to give the presentations? That’s not realistic. I don’t think I’ve ever heard an investor actually listen to a pitch without interrupting. If you want it to be realistic, let us ask our questions when they come up."

"But that’s not what we told the teams would happen. That’s not what they prepared for."

"Aha, even better," another of the judges answered.  "Let’s give them a real experience then. That’s what we want, right? Since when don’t things change at the last minute."

"And we could keep the playing field level, make that the same for all the groups," added another.

So it was decided. The rules of the game were changed. The teams were notified.

About an hour later, a team was two minutes into a presentation about taking fish taco restaurants into Baton Rouge. At the time they were common, and successful, in San Diego, but unheard of in Baton Rouge. But one of the judges interrupted.

"But do you know whether or not they like fish tacos in Baton Rouge?"

The presenter, prepared to be interrupted, said that was one of their assumptions. If they liked them in San Diego, they’d like them in Baton Rouge. No?

"Not necessarily. Have you cooked up a batch, and given them to people in Baton Rouge?"

"Well no, not …"

"Here’s what you should do. Make three or four trays full of them and go to the busiest place in Baton Rouge at lunch time on a Saturday. Give them all away. See if people like them. Oh, and by the way, be sure to check what happens in the trash cans on either side of you."

It was a good learning experience. In fact, it was the start of a great program at the Notre Dame Gigot Center for Entrepreneurship, one that has flourished since, and reaches its annual final event late next week. I think this will be the eighth year.

Yesterday I had to decline an invitation to judge the Notre Dame contest (again) later next week. I’m not able to make it from Oregon to South Bend this year to be there, although I did help with the screening last November. If you are anywhere around that area next week, I envy you; it’s an excellent event to attend. Business presentations from teams with the ideas can be fascinating. And Notre Dame does two venture contests in one: the McCloskey Business Plan Competition, for traditional entrepreneurial ventures; and the Sustainable Social Venture Competition, for ventures combining entrepreneurship with social purpose.

I wish I could be there again this year.