Posts Tagged ‘venture capital’

Six Hot Industries for Startups in 2013

Monday, March 18th, 2013

The economic climate is getting sunnier by the day, creating an ideal opportunity for entrepreneurs looking to capitalize on burgeoning trends. But some industries are a better bet than others. Unsurprisingly, as the mobile revolution continues, many of these industries center on new technologies and the needs and opportunities they create. Others are growing because consumers have fatter wallets, full of disposable income to spend on nonessential—but highly rewarding—goods and services.

So what are the most promising industries for startups this year? We’ve checked with news sources (like Inc. and The Week), research firms (like IBISWorld), consulting groups, and the U.S. Census Bureau to bring you this list of the best industries for startups in 2013.

Social network game development: As mobile devices become ever more popular, people will naturally spend more time on them. Connecting with friends and playing games are favorite activities, and this rapidly growing industry combines them both. Social network game development is expected to have grown by an impressive 30% in 2012, and its compound annual growth rate over the next five years should weigh in at 184%.
Corporate cloud services: Secure data storage is a must for today’s multinational corporations, many of which employ teams who must work together seamlessly in offices around the globe. Big data was a $3.2 billion industry in 2012, and it’s expected to hit $17 billion by 2015.
IT consulting: As more businesses move to mobile and cloud-based computing, this industry has grown at a remarkable rate. Between 2007 and 2012, the industry added 200,000 new jobs, and grew by more than 8% a year. Experts predict a growing emphasis on security consulting to help businesses keep their data secure.
Restaurants: Thanks to the rising rate of per capita spending, even budget-conscious folks can afford to eat out. This industry already employs about 10% of the workforce, and is expected to grow by 5.5% in 2013.
Residential construction: The recovering economy has finally put this industry back on its feet. Now that property developers can afford to build, and homeowners can afford repairs and renovations, this industry will grow by more than 10% a year over the next few years, hitting $573 billion in 2017.
Pet services: Almost two-thirds of us own at least one pet, and we’re more inclined than ever to spend money on our best friends. The pet services industry was worth almost $53 billion in 2012, and it’s expected to grow by more than 5% a year over the next five years.

Whether you’ve always wanted to be your own boss or whether you’re on the lookout for lucrative expansion opportunities, these industries are a great bet. Of course, if you have a truly innovative idea that the market yearns for, perhaps it’s time for you to help define the hottest industries of 2014…

Tags: bank lending, business plan, economy, entrepreneur, small business, start-up, venture capital
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How To Make One VC Eat His Words (Hint: Follow His Advice).

Wednesday, June 3rd, 2009

It’s articles like this that give venture capitalists a bad name: Silicon Alley Insider ran a post yesterday by VC David Pakman of Venrock titled, “How Not To Make A Fool Of Yourself When You Pitch VCs Like Me.” The article may as well have been titled “Yet Another Arrogant VC Talking Down To Entrepreneurs.” Sigh. But with that gripe out of the way, we’ll admit that Pakman offers a few useful tips among the usual suspects (e.g. “Find the right partner”). And given that he’s in the position of actually writing checks to entrepreneurs whose business plans impress him, we’d be remiss not to share a few of his thoughts (with our kind commentary). We implore you to not only read these tips, but to take them to heart so that Mr. Pakman will be forced to eat his words when it comes to entrpreneurs behaving like “fools” when pitching:

-Your team is all. Your market comes second. “The quality of the team is more highly correlated to success than any other factor. Knowing that, we bet on a team,” says Pakman. We’ve repeated this more than once, but with that being said, make sure you’ve got a solid group of individuals who have the necessary experience to run the company. Not only that, you want to get that information out in the pitch, he says: “It goes without saying that you should be highly selective in assembling your early team and you should make their capabilities and background clearly known in your pitch.”

-Understand that VCs are interested in primarily in companies that have the potential to be massive. “Depending on the size of the fund, most VCs are looking to fund companies that can get big. Typically this means a company capable of achieving at least $50 million in revenue within five years.” This one’s a particularly important piece of advice to consider: “This is not a hard and fast rule, but the notion of finding companies with big potential is what VC is all about. If your company, no matter how exciting, will likely reach $5 million in revenue in five or six years, seeking venture capital may not be your best funding source.”

-Find the right partner. We’ve beaten this dead horse for more than a year now, but we’ll say it again: make sure the VC firm you’re pitching has worked with firms in your industry or market segment in the past. They’ll have more experience in your field, more knowledge about your start-up’s potential, and are more likely to fund your business.

-VCs are beholden to the LPs that fund them. “Remember, at the end of the day, VCs are managing money for a bunch of sophisticated investors. Those investors have expectations about the range of returns their investment will produce. Venture investing is extremely high risk and for that, high returns are ultimately expected. To meet this goal, many firms have developed thought patterns about what types of companies and entrepreneurs are likely to make that happen.” This goes back to the previous point. If you want your best shot at securing investment, pitch firms that are looking to do deals like the one you’re offering.

Tags: pitching, venture capital
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7 Good Reasons VC Isn’t For Every Start-Up.

Thursday, May 28th, 2009

Shamelessly swiped from Silicon Valley Watcher, a site operated by a former Financial Times reporter (that isn’t quite as creepy as it sounds), here are seven reasons why you shouldn’t take venture capital money. Presented with our commentary:

1) “Raising money takes time away from understanding your market and potential customers. Often more time than it would take to just go sell something to a customer. Let your customers fund your business through product orders.” Not always feasible for a business that requires large R&D, but a relevant point nonetheless for businesses with low start-up costs.

2) “Adding VCs to the mix early gives you an additional set of masters you must serve in addition to your customers. It is always hard to serve two masters, especially in a startup.” Touche.

3) “With no money you can’t make a fatal mistake. This is a blessing. Without VC money, you are forced to figure out how to extract funds from your customers for value you deliver. Ultimately that is the only thing that really matter.”

4) “Money removes spending discipline.” This point is particularly relevant in this market. Disciplined spending is critical to weathering the recession, and coming out a stronger business on the other side.

5) “Raising VC money determines your exit strategy. You will either sell the business or take it public. What if you end up with a very profitable, modest sized business that you want to just run?”

6) “You sell your precious equity very dearly before you have a proven business model. This is the worst time to raise money from a valuation perspective.” Well, that is, unless you’re Facebook.

And lastly, number #7 (which we have to admit seems questionable to us):

1) “If you start by selling your concept to potential prospects (rather than stock to VCs), you will either end up with initial customers or a conviction that your idea won’t work. Why raise money and then find out which one it will be?”

What do you guys think? Are these valid reasons for avoiding VC?

Tags: funding, venture capital
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The Best Time Ever To Start A Business…?

Thursday, May 28th, 2009

“This is the best time ever to start business—people need jobs, existing companies are reeling, fewer startup competitors there are new technologies,” said big-wig venture capitalist Tim Draper of Draper Fisher Jurvetson at a forum in Seattle yesterday.

While we’re on board with Draper’s sentiment—and are heartened to hear that some VCs actually feel that way—we have to admit, it’s hard to take him seriously. That’s because he capped his speech with this performance:

That’s right, it’s a VC-themed song. Here’s hoping that he’s only off-kilter when it comes to perceived ability to perform music.

Tags: idiocy, venture capital
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When The Problem’s Not Your Business Plan. (It’s You.)

Thursday, May 28th, 2009

If you’ve ever had your business plan turned down by a banker or a venture capitalists, you first question was probably “Why?”, followed by “What can I do to my business plan to fix it?” Here’s something you may not have considered before, however. The problem, ahem, may not be your business plan—it may be you. Startable, a blog run by two ex-VCs, breaks it down in a post called “It’s Not Me, It’s You”:

“The real, untold, reason that most startup founders don’t get traction in their venture capital fund raising process is that the venture capitalists don’t think the founders can do it. Either they don’t inspire confidence in their ability to market the product, produce the technology, manage/recruit a team, think strategically, etc. VC’s are extremely picky in choosing who they work with.”

Sure, that’s pretty harsh. But if that’s how an ex-VC’s assessing it, well, then it’s true. In other words, you probably should consider how you sound when you’re pitching your business plan to venture investors, angels, or anyone else who may be writing you a check. Do you come off as someone you’d want to give money to? Do you sound capable and instill confidence? If you’re not sure, here’s a few ways to tell if you’re a problem. Look out for the following, says Startable:

-Lots of meeting, lots of rejections from those meetings.

-There is no consistency across reasons behind the different VC firms’ rejections.

-You keep hearing “what are your thoughts on the team.”

So what can you do to combat the problem? While Startable doesn’t necessarily offer up any advice on that count, we’ve got a few ideas:

-Make sure you have a great team. There’s no better way to instill confidence in venture capitalists than to show that you’ve got the smarts to surround yourself with intelligent, experienced people. Not only that, but even if they’re not entirely convinced by your expertise, if you can sell your team, then you’re half way there.

-Listen. The simple act of listening and responding thoughtfully goes a long way toward developing a good relationship with an investor. It also demonstrates to that you’re open to working with your potential investors, and that you’ll hear their suggestions. Remember, stroking the ol’ VC ego a bit doesn’t hurt…

-Ensure that you’re investors are aware of your experience. Don’t spend ten minutes rambling about all the awards you won and how much money you used to make if it doesn’t pertain to how you’ll operate your start-up. Pick the pieces of your experience that are most relevant to your start-up and make sure those are conveyed to investors.

-Watch your audience. Do the investors you’re pitching look terrified? Maybe you need to tone it down. Similarly, if the crowd is sleeping, it’s maybe time to reconsider your pitch as well. Pay close attention to how your audience responds to your pitch, and tweak it from there.

Thoughts, anyone?

Tags: business plan, venture capital
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Super Angels: Don’t Judge Them By Their Name.

Wednesday, May 27th, 2009

Speaking of investors (check our last post), here’s a list of investors you should probably get familiar with if you’re interested in securing funding with your business plan these days: Meet the “Super Angels.” The so-called Super Angels (blame BusinessWeek for the name, not us!) are a group of investors who are investing more money in more start-ups because of the recession. Your heard right. It’s not just that they’re still investing, it’s that they’ve actually ramped it up in the face of the downturn. BusinessWeek reports:

“Even faced with a financial world aflame, [super angel Josh] Kopelman and a wave of new investors are running straight for the fire. It may be bravery or foolishness, but they’re funding startups and entrepreneurs at a time when almost everyone else is holding back. In the latest sign of conflagration, venture capital investment plummeted 61% in the first quarter, to $3 billion, the lowest level since 1997. Only $169 million of that went to companies seeking their first round of venture money, what’s known as seed-stage investments.”

So why are they investing when others won’t? It’s not that they’re crazy or that they’re especially flip with their money. It’s that they see an opportunity. Because most angels and venture capitalists are circling the wagons and hoarding their cash, super angels suddenly have less competition – which means they get the pick of the litter when it comes to funding the next big thing. Opportunity, indeed.

The real question for those of you with a business plan and a need for cash, of course, is how to find these super angels. BusinessWeek rattles off a few, including Baseline Ventures, First Round Capital, Maples Investments, and Felicis Ventures. But the real trick to finding these guys is simply to keep an ear to the ground for who’s investing. Interested in learning more? BusinessWeek has a (sorta-interesting) video explaining in more detail what sets these investors apart from the pack, which you can watch here.

Tags: angels, funding, venture capital
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How To Judge An Investor.

Wednesday, May 27th, 2009

When it comes to the relationship between an entrepreneur and venture capitalists, it’s typically assumed that the entrepreneur should be the one falling all over him or herself to make a good impression. While that’s true, so’s the reverse: as an entrepreneur, potential investors should impress you as well. The reason’s simple: while there are scores of excellent venture capitalists out there, there are also plenty of duds. You don’t want to find yourself shackled to an investor that you don’t get along with, or who isn’t truly invested in your business, or who just isn’t that good. It’s as much of a kiss of death for a start-up as any of the other more common pitfalls you’re probably aware of.

So what should you look for in potential investors? It’s not as complicated as you might think. Over at VCCircle, Naren Gupta, the founder and managing director of Nexus India Capital, rattles off a list of things he says an entrepreneur should expect from a world-class venture capitalists. He writes:

“Alas, all venture investors are not the same. You will need to do some homework before you embark on attracting the needed funding for your dream company. This homework will undoubtedly earn rich dividends. A well conceived plan could land you the right partner in short order. On the other hand a poorly planned foray can lead to an unending series of discussions or worse an investor, who is more a hindrance than help. You never want to end up with an investor who does not share your vision and is either too intrusive or too detached.”

So with that being said, here are the things he says you should look for from an investor (with our commentary):

-Knowledge and Understanding Of Your Proposed Business. “Your financial partner should be willing to dive into your proposed business plan and fully understand and appreciate the opportunities and risks.” Finding a venture capitalist who’s invested in start-ups in your industry before is one of the best ways to approach this. They’ll automatically have an understanding of the market and the opportunity.

-Willingness to Share Risks and Rewards. In other words, you don’t want an investor who’s prepared to bail should things get tough. “The investor should show willingness to support the team if you hit bumps on the road. This support requires deep market understanding and a willingness to share risks. Of course, you should not expect investor support if there are fundamental problems that cannot be fixed. Investors who have run companies in their prior life are more likely to be able to differentiate between temporary setbacks versus fatal flaws.”

-Timely Reponses. This one is a biggie. Sure, venture capitalists are busy, busy people. But if you can’t ever get your potential investor on the phone (that is, after he’s expressed serious interest in your business) or if he won’t respond to your emails, that’s a big red flag. Bottom line: “If the investor is not sufficiently responsive during the fund raising process, it is unlikely to get better after the investment.”

-Independent Thinking. “Entrepreneurs are generally too close to the business and can miss opportunities and hazards that are not directly in the line of sight. A strong investor will act as your eyes and ears into developments in and around the industry that may affect your business.” That is to say, you want someone who brings something new to the table.

-Trust. Get the feeling that your investor is trying to put one over on you? Then you’re missing the most important part of an entrepreneur/investor relationship: trust. Gupta puts it well: “Trust is what is going to carry the relationship when the chips are down – and they surely are at times during any remarkable journey.”

What else do you think you should look for in an investor?

Tags: venture capital
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Facebook Forgets The Fundamentals.

Tuesday, May 19th, 2009

While there’s been plenty of rumors recently about Facebook’s bid to seek venture capital funding, and why they didn’t take any, here’s the current (and real?) story going around the Internet: the social networking start-up apparently turned down a $200 million round of venture capital funding from a group of investors who reportedly gave the company a $8 billion valuation. That’s about $7 billion less than the valuation Microsoft gave the company when they were interested last year.

While the valuation may have been a problem for Facebook, according to TechCrunch, the real problem was that the new investors wanted a seat on Facebook’s board. Currently CEO and founder Mark Zuckerberg controls three out of five of those seats, the other two are held by investors Peter Thiel and Jim Breyer. Two other investors have non-voting observer seats.

While it’s obvious that Zuckerberg wants to maintain control, the situation makes it sound like Facebook forgot the basic rule of venture capital investing—the money ain’t free, and you have to give something up in return. Given that they turned the deal down, it appears Facebook thinks they can get less for more, which is not entirely unreasonable, given that they’re Facebook, but is still a wobbly notion in this economy. That’s not the case though if you’re just a regular Joe start-up, which brings us to the relevance of Facebook’s situation to your business plan. If you’re seeking venture capital, it’s worth remembering that you don’t just get a pile of cash without any strings attached. VCs will always want something—whether it’s a particular percentage of equity in your company or a seat on your board. Even for hot start-up like Facebook, there’s always a give and take. It’s simply the way the process works. Not that you didn’t know that or had forgotten. We just thought we’d provide a brush-up for Zuckerberg.

Tags: facebook, venture capital
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The Free, Easy Money That Never Was.

Monday, May 18th, 2009

Amidst all the talk about how difficult it is to secure capital these days, and bank loans in particular, here’s something everyone seems to have forgotten: raising money for your start-up with your business plan was never all that easy to begin with.

It’s true. Bank loans were never falling from trees, nor was venture capital funding ever flowing like wine, water, or anything else, actually. While there’s no question that it’s tougher now than it has been in the past to raise seed capital, there’s always been the same criteria for securing a bank loan. You need a good business plan, good credit, and collateral. The formula for venture capital is much the same (minus the collateral). That hasn’t changed. So it’s surprising that as things are starting to improve, and as banks and venture capitalists slowly start handing out more money to start-ups, that suddenly there’s the impression that as things revert back to what they were, these factors no longer matter. Reports Reuters:

“‘We are getting a whole bunch of folks coming out saying ‘Where’s my handout?’ There is no handout,’ insisted SCORE network advisor Steven Bloom, who coaches entrepreneurs on how to seek funding from government and private-sector sources.

Bloom said financing for small business has always been a hard sell, because owners typically don’t have the collateral to justify the risk to the lender: ‘There historically are no grants for small business or even for large business; unless you have the next cure for cancer or some other opportunity where scale is huge and the people launching it have a tremendous track record.’”

Make no mistake: having a strong business plan, a proven track record (if you have one), good credit and collateral are still important if you want to raise capital or secure a loan. There is no such thing as free money in the start-up industry, and there never has been. Don’t expect that to be the case as the economy starts to improve.

freemoney

Tags: bank lending, venture capital
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On The Radar…

Monday, May 18th, 2009

Word is that two Initial public offerings (IPOs) may break this week, reports the Wall Street Journal:

“The hopes of venture capitalists ride on two planned initial public offerings of stock this week, from software maker SolarWinds Inc. and online-reservation service OpenTable Inc.”

Count entrepreneurs riding on that hope as well. Big venture exits mean more money’s available to fund hungry start-ups. The two potential IPOs are for the start-up firms SolarWinds and OpenTable. SolarWinds is a ten-year-old business that developed software for businesses that helps them manage their data networks. If the company follows through with the IPO, they’ll begin trading stock on Wednesday on the New York Stock Exchange, with shares going from $9.50-$11.50. They’re hoping to raise $139 million.

OpenTable, an online restaurant reservation network, is hoping for a $42 million IPO. The company is facing some concerns about its ongoing viability in the face of the economic downturn that’s seen fewer people eating out. However, it appears that they still plan to open trading Thursday on the Nasdaq Stock Market. Shares will start from $12-$14 a pop.

The two IPOs would be the first venture-backed IPOs in nearly nine months, meaning that this is a relatively big moment for the venture capital and start-up communities. We’re staying tuned.

iposnew