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The Most Important Skill #Entrepreneurs Will Need is to Manage Investors and Navigate #Funding Landscape

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Manage Investors

There are many skills we ask of entrepreneurs – sales, hiring, marketing, product management etc. Of them fund raising is probably the most detested among technology entrepreneurs and the most desired among investors.

If there are 3 things most seasoned entrepreneurs will tell you that you need to focus on as the CEO is to set the vision and product direction, hire great people and make sure there’s enough money in the bank.

The fund raising landscape, though has dramatically changed over the last 7-10 years for technology startups.

Used to be that most startups went from bootstrapped (for 6 months or less) to friends and family round (for the next 6 months) to an angel round (lasting 12 months) and then, if successful to a institutional venture capitalist (lasting 18-24 months).

It is not unusual to hear of 7 or more funding rounds BEFORE the institutional venture funding round these days for the 80% of the startups that dont have “unicorn type” growth. This crushes previous investors and makes the entrepreneurs more vulnerable to the situation when there is an exit at the company and the entrepreneurs make literally no money at all.

What are the sources of capital now available to entrepreneurs and when should you chose them?

That’s largely a “it depends” type of question, but here are your options.

1. Most entrepreneurs start with a bootstrapped model. It used to be that you had to keep 6 months of capital for yourself to sustain before you started, and now that has remained 6 months or become closer to 12-18 months. If you show quick traction, expect external investment soon, else expect to be in for the long haul.

2. Friends and family are typically still a good option, but increasingly I am noticing ex colleagues who have worked at startups or large companies who trust you and have experience in the market or customer problem you are trying to solve are a good option.

3. Crowd funding sites like Kickstarter, Indegogo, Fundable and Funding Circle are a relatively recent option for hardware startups, but are increasingly becoming a good option for “validating” true customer need and initial funding for many startups as well.

4. Angel investors are still a viable option, but increasingly angel groups are becoming a better source of the next stage of capital. They provide not only the ability to get money quicker than venture investors but also provide valuable expertise, advice and connections to help rookie entrepreneurs along the process.

5. Accelerators are relatively new source of funding, advice, network and mentorship as well. From fewer than 10 that existed 7 years ago, there are over 500 of them across the world, with many focused on specific verticals and industries that have domain expertise to help you further than a generic seed fund.

6. Micro Venture Capitalists (Micro VC) or Super Angels or Seed Funds are a relatively new phenomenon as well. From fewer than 10 Micro VC’s 7 years ago, there are over 250 of these small check-size, quicker to move investment options.

7. Angel List Syndicates are the latest option available to entrepreneurs now in the US and India (via Lets Venture). These syndicates allow any investor who has expertise in an area to help syndicate their “deal” with other interested High net worth individuals.

They are usually led by an experienced and very well regarded entrepreneur and the value to this individual (besides the carry, a small portion of the investment in ownership or future exit option) is the reputation it builds for that individual.

Most of these new options come with their own pros and cons, but they are relatively recent phenomenon. If you are an entrepreneur I’d highly recommend you spend time reading up on all these options before you embark on your funding path. The best sources are usually blogs written by experienced entrepreneurs who have recently gone through the process and have the knowledge and desire to share.

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Creating Artificial Constraints as a Means to Innovation

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Artificial Constraints

Many of the entrepreneurs I know have created new innovative startups thanks to real constraints they had. For example, I was hearing AirBnB’s Brian Chesky, on the Corner Office podcast and he mentioned that when he and his cofounder were trying to get some money to get started and the only way to keep afloat was to “rent” their air bed they had in their room. That, then led to Air Bed and Breakfast, which is now AirBnB.

This was a real constraint they had – no money to “eat” so they had to make it happen somehow.

I have heard of many stories of innovation where in the protagonists had real constraints of either financial, technology, supply, demand, economic, social or any number of other characteristics.

The interesting story that I have also recently heard of how Facebook has “pivoted” from being a desktop offering to getting a significant part of their revenue from mobile is how they were given the arbitrary constraint of only accessing Facebook via the mobile phone.

So there are ways that you can create “artificial” constraints to force innovation to happen.

Most larger companies and some smaller ones as well, have to constantly find ways to create artificial constraints – to find a way to innovate and be more be a pioneer.

While some constraints are good – lack of funds at the early stage for example and lack of resources, there are entrepreneurs that are stymied by these constraints and those that will find  a way to seek a path to go forward.

I think this is a great way for you to think about innovating in a new space. If you have constraints, find a way to use it to your advantage.

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The Great Mobile App Migration of March 2020

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Mobile App Migration

Over the last few weeks as many in the world have been in lockdown, there has been a temporary “mobile app migration” happening. There are new apps downloaded and they replaced existing apps on the “home screen”.

While some of these apps are likely temporary use, for e.g. I have 6 “conferencing apps” – Zoom, Uber Conference, Webex, Google Hangouts, Blue Jeans and Goto Meeting. That is because of the many people I have conference calls with – each company seems to have chosen a different web conference solution.

Other apps seem like they will have staying power – Houseparty, for e.g. which has games, networking and video conferencing all built into one app to keep in touch with friends and relatives.

Houseparty

The apps that have moved away from my “home” screen, which I expect will come back once the crisis will be behind us include – Uber, Lyft and all the airline apps from Delta, Alaska and United.

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Perseverance with the Ability to Pivot on Data: 21 Traits We Look for in Entrepreneurs

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Perseverance with the Ability to Pivot

There are 5 key inflection points I have noticed which makes founders question their startup, to either make a call to continue working on their startup, pivot to a new problem or quit their startup altogether.

It is at these points that you really get to know the startup founder and their hunger and drive to be successful. I don’t think I can characterize those that choose to quit as “losers” or “quitters” because of many extraneous circumstances, but there is a lot of value that most investors see in entrepreneurs who face an uphill part of their journey to come out on the other side more confident and stronger.

These five inflection points are:

  1. When you have to get the first customers to use and pay for the product you have built after you have “shipped” an alpha / beta / first version. Entrepreneurs quit because they have not found the product-market-fit – because the customer don’t care about the product, there is no market need, or the product is really poorly built, or a host of other reasons.
  2. When you have to start to raise the first external round of financing from people you are not familiar with at all. Entrepreneurs quit because while it is hard to get customers and hire people, it is much more harder to get a smaller set of investors to part with their money, if you do not have “traction”, or “the right management team” or a “killer product”.
  3. When you have to push to break even (financially) and sustain the company to path of being self sufficient. Entrepreneurs quit at this stage because they have now the ability to do multiple things at the same time – grow revenues and manage costs, and many of them like to do one but realize it is hard to do that without affecting the other. So, rather than feel stuck they decide to quit.
  4. When you have to scale and grow faster that the competition – which might mean to hire faster, to get more customers, to drive more sales, or to completely rethink their problem statement and devise new ways to grow faster. Entrepreneurs quit at this point because they are consumed by the magnitude of the problem. They overassess the impact the competition will have on their company, give them too much credit or focus way too much on the competitors, thereby driving their company to the ground.
  5. At any point in the journey, when the founders lose the passion, vision or the drive to succeed. Entrepreneurs quit a these points because they have challenges with their co founder, they don’t agree with the direction they have to take, or encounter the “grass is greener on the other side” syndrome.

While I have observed many entrepreneurs at these stages at  discrete points in time, I have also had the opportunity to observe some entrepreneurs in the continuum, and I am going to give you my observations on 3 of the many folks I have known, who, have quit.

Perseverance separates great entrepreneurs from good ones
Perseverance separates great entrepreneurs from good ones

One went back to college to finish his MBA after getting a running business to a point of near breakeven, another found the business much harder than he originally thought he would and got a job at a larger company and the third was just unable to have the drive to go past 11 “no’s”‘ from angel investors.

Over the last 8 years, if I look at my deeper interactions with over 90 entrepreneurs, who I would have spent at least 100+ hours each, I would say that of the 24 people that are not longer in their startup, the one thing that stands out among the ones that persevere is that it is not “passion” or “vision” at all.

It is the inherent belief that they are solving a problem that they believe is their “calling”. They also don’t believe that there is any other problem that’s worth solving as much, even though there may be easier ways to make money.

So most of my questions of entrepreneurs to test whether they will pivot or quit are around why they want to solve this problem (which I am looking to see if they know enough about in the first place) versus any other one.

The answer to that question is the best indicator I have found to be the difference between the pivots, the leavers and the rest.

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