by tomnora | Dec 15, 2011 | Angel Investor, early stage, founder, Launch, Scalability, startup, startup CEO, venture
There seems to be a lot of this going around these days – the “I’m just about to start a startup” category of entrepreneurs, or “I just started a startup” when they haven’t. It’s also become the new euphemism for unemployed.
Here are the justifications and logic process for so many claiming they have a startup before they really do, and in many cases actually getting some funding:
- people feel like they might as well start their own business since nobody is hiring
- funding is more prevalent than ever for early early (read “ideas”) stage companies
- the barriers are now very low for actually forming a business, as is the cost
- micro funding ($25K)
- no formal certification or education required
- many new angels spawning from Google, Facebook, etc. millionaires
- angel investors are supporting these early unqualified launches; many are F&F/parents who believe in the dream
- amazing shining examples of success and IPOs, even though they a 1 in a thousand
- it sounds cool, or used to before everyone started doing it
- many people never before involved in startups want in
There will be significant fallout from this no doubt, but no one knows when.
Not that there’s anything wrong with many new businesses per say – here are some good results of such a rush
- some of these will be the next homeruns (and base hits) in the startup world
- lots of jobs being created, even if short term
- first time startupers will get invaluable experience, whether they succeed or fail
- many more people are learning software development
However, the fallout from all this will set us back a few years again …
- many misled, unsophisticated angels will get burned and sour to good investments (not sophisticated angels, they know the risk)
- whenever investors jump in late (now) many bad things happen
- innovation is heavily suffering right now – almost anything is a business model
- when many vaporware and vapor-businesses crash or fade away they leave damage, possibly fueling the recession (remember 1999-2000? 2008?)
…but will take us back to a more solid footing.
The American Dream of entrepreneurship is one I hold dear, but to apply it to a technology based startup requires a few basic principles – a real business model, hard work, technical excellence, outside expertise, sustainability, market focus, strategy, and more hard work. Eventually it also needs revenue growth and profits.
Hang on tight the roller coaster is taking a dip soon, I predict by mid 2012. It will shake out many people into the streets wondering what the hell happened. @tomnora
by tomnora | Dec 6, 2011 | startup CEO
Startups and businesses are like making wine, it is a blend. It is not about one element.
by tomnora | Nov 14, 2011 | Business Development, CEO Succession, early stage, founder, Launch, Revenue Growth, Scalability, startup, startup CEO
Are You a CEO? Is Your Boss a CEO? Are They The Right CEO for Your Company?
There are those who work as the CEO and those that don’t. The trick is in knowing which one you are.
Are you a CEO? Are you the right CEO for your company? This seems like a silly question at first, but one of the most important for a startup foundation team. In most one-person startups by default the founder is CEO; it’s difficult to resist the temptation of the title. But not all founders do this.
If the CEO not the optimal choice but doesn’t want to admit it, beware, your startup could become an exercise in ego instead of a successful growth/job machine. There’s no formula or perfect background for the “perfect” CEO, and there are many degrees of success; in the end the proof is in the pudding. No one would have guessed Gates or Zuck would have been so successful, but they made it happen. Jerry Yang had many of the right ingredients, but somehow can’t make it as Yahoos CEO. Terry Semel was a great studio head but not a tech CEO. Meg Whitman got slammed trying to run for governor but she was and is a great CEO.
I see many non-CEOs trying to be one in my consulting work. This problem has to be fixed early in the life of a company once it becomes “real”. The first momentum a company has must be nutured like water in the desert;
The purpose if creating a startup is to create something that didn’t exist before – something out of nothing, and thereby create wealth, new money that can be distributed within and outside the company. Even in a non-profit this is true. That goal doesn’t work with the wrong leader at the top. How do you know? Usually you’ll feel it, from the people inside and outside the company. I often play “Shadow CEO” for early stage CEOs, which bridges the gap in experience for many leaders who lack experience but have the skillset. The difficulty comes when the current CEO just isn’t right to scale the business but wants to hang in, often for some very good reasons, but still the wrong choice.
It takes courage to remove yourself as a CEO, but I’ve seen and assisted in the process a dozen times to goos results. Please contact me if you know of any of these situations; they (usually) fascinate me.
by tomnora | Nov 3, 2011 | startup CEO
The Real Lessons from Steve Jobs’ Career | ChiefExecutive.net | Chief Executive Magazine http://j.mp/sSFiU5
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by tomnora | Oct 28, 2011 | startup CEO
http://j.mp/vQEA6M
WordPress has a great opening page “Freshly Pressed” where I found this. http://wordpress.com/#!/fresh/
by tomnora | Oct 26, 2011 | early stage, founder, Revenue Growth, Scalability, startup CEO
The Second Round, or “B Round”, or “Follow On” round can be the achilles heel of a startup. It requires much more than a first injection of funding especially in the current healthy seed and angel investing environment.
No doubt the first round of external funding for a startup is usually critical to a startup as it can be the difference between continuing your startup or shutting it down. But it’s a different milestone than the second round of funding. The first venture round is often based on an idea, past successes, a business plan, or a market hunch. The decision to invest is based on an educated guess by investors. Often the investors are family and friends or angel investors, who have less sophisticated standards for measuring the likely success than top tier VCs.
The current phenomenon of Internet multi-millionaires recycling their money back into the startup markets is creating “super” angels like Ron Conway. For them, a $500,000 seed investment requires very little due diligence or proof of long term scalability. They sometimes invest in multiple companies within one meeting. There’s a slang term “spray & pray” describing this type of investing – put a little bit into a lot of startups and you’ll win by statistical odds.
The second round, however, is based more on cold hard facts. Is this company catching on? Have they built the foundation for the next 3-5 years? Does their product line hit the mark? Is it positioned correctly? What are the follow on products? Where is the market going?
The second round is often for some or all of the following – corporate growth, go to market, turn the prototype into a robust offering, marketing costs, or to hire a sales force. It’s no longer based on a hunch, unless the company is in trouble and needs money to finish what the first round started. (This problem often leads to a lowered valuation or “down round”. Not a great scenario.) If the company is doing well, the second round is easier to acquire. Facebook is a great example of this. They’ve had 9-12 rounds, depending on how you count, with investors still begging to get in. Their 2nd/3rd rounds were bigger than most startups ever see.
Facebook Funding Seed, A, B:
source: Crunchbase
The second round can also be a mezzanine, or pre-IPO round, or even the IPO itself. In one scenario in my career I was with a company that had taken only one round of equity financing. With rapidly increasing revenues, we felt we had enough momentum and cash to execute an IPO without any more funding, thereby retaining more equity and control of our company, but we were getting a lot of pressure to take on another round. Our current venture partners felt we needed some insurance money in case of a downturn, more marketing money, a bigger team of investors, and a new logo. They turned out to be right about everything but the new logo.
Most startups that get a first round never make it to the second round. In todays soft-bubble economy this is more true than ever since so many first rounds are happening. Some don’t even want a second round. But the second round is truly a measure of scalability for your startup. Please feel free to contact me by DM to discuss more. @tomnora or @cowlow
