Tag Archives: entrepreneurs

The one mistake most entrepreneurs make when they are at an accelerator

I have noticed that the biggest mistake most startups make when they are at an accelerator is that they focus on

“Increasing their total surface area” instead of “accelerating their business”.

This results in the “tail wagging the dog”, where the accelerator schedule, mentors and connections determine what the entrepreneur and the startup does each day. It is important to ensure that you get enough value from the accelerator program, but I would recommend entrepreneurs optimize for acceleration.

If you dont have a clear idea on what to expect from an accelerator, you should spend time with alumni of the program to understand the value their provide first.

It is almost as if after the startup got into the accelerator, the entrepreneurs believe they have a new boss – those who run the accelerator. That could not be farther from the truth.

If you get into an accelerator program, the #1, #2 and #3 thing you should be focused on is validating key assumptions, building product and customer development. Most everything else at the accelerator stage of your company is a waste of time, including attending knowledge information sessions on term sheets, understanding the “local” investor scene or going to “startup events” – unless startups are your target market.

There are 3 important things that most accelerators promise:

1. Learning from mentors, other members in your cohort and industry experts.

2. Connections to investors, potential customers and influential early users.

3. Infrastructure, office space, and a little sustenance money to get your team and product ready for seed investment.

If you look at these 3 items in isolation, there are many other entities that do a much better job individually, but a good accelerator “bundles” these items together so you can have a great experience.

Let me explain with 3 specific examples of what increasing your total surface area is versus accelerating your startup.

a) The best learning is via practice and teaching. So if you spend as little time as possible understanding the contours of the topic you want to learn, you can spend more time practicing and refining your learning. 

Instead, I find most startups attending every learning workshop including “how to sell your company” or “the legal ramifications of your series A investments”. While <10% of the startups in any cohort will really be ready for a series A, 100% of them actually “try to increase the surface area” of their learning by attending sessions that they dont need given the stage of their company.

Instead, I would spend more time accelerating the learning of specific topics from your customers – what real problems they face outside of the pain point your company addresses, etc.

b) The best connections are those that are mutually beneficial. So, if you can help your mentor or adviser learn about your business, the market or new updated techniques of engineering, marketing, sales, etc. they can help you learn more about the nuances based on their experiences. If they are unwilling to learn or are not interested, they are not the right mentor.

Increasing the total surface area is trying to network with every mentor from the accelerator and networking with every potential investor, even if they have not invested in any company in your market or domain.

Instead, accelerating your startup is focusing on specific investors by domain, check size, background, connections, and other criteria you need to help your company grow.

c) While the infrastructure is available to have meetings, get the team together and learn from other entrepreneurs in your cohort, increasing your total surface area is trying to spend every evening with other startup entrepreneurs, networking over beer or having a lot of meetings at the space with other startup influencers from the community.

Accelerating your startup, instead is spending enough time with your own team, learning about the challenges they are facing and understanding how to remove the roadblocks. Or, spending time outside the building, trying to meet potential users and customers to refine and validate your assumptions.

If the accelerator focuses you on increasing your total surface area, they are wasting your time.

The most important skill #entrepreneurs will need is to manage investors and navigate #funding landscape

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.

The rise of the new angel investors in Bangalore, thanks to #successful #startups

At the Lets Ignite event last week in Bangalore, I had an opportunity to meet a few entrepreneurs who have all recently raised between $90K to $250K (50L to 1.5 CR) in India over the last year.

The biggest change from 2+ years ago when I wrote about how to hack your seed round in India, is that the number of angel investors in India, has risen from about 300 to over 1000. Over 30% of these are active in any given year (meaning that they have made at least 1 investment in the calendar year in a startup).

Where did all these investors come from? According to the new investors who I spoke with:

1. Many are the first few employees at large successful startups such as InMobi, Flipkart, Myntra, Manthan etc. At least 3 startups I know of were exclusively funded by current Flipkart employees alone. They formed a syndicate of 10L each to put over 50L in one company alone. I have heard of InMobi employees taking to angel investing (small amounts of < INR 10L) as well.

2. Thanks to the 2 pages of daily startup coverage in the Economic times which has gone from 2 full time employees covering startups to over 13, many businessmen and women from other industries (retail in particular) have started to ask to get in on the action. Many of these folks come from older industries and are keen to diversify, invest and make some money as well. This was something I predicted 3 years ago as well – non technology investors are a key part of the tech angel investment community.

3. Finally a few (much smaller in number than the 2 other categories) of the early employees at Infosys and Wipro, etc. have finally started to get engaged with the technology startup ecosystem in India, creating opportunities for entrepreneurs to raise small early checks.

Of these 3 categories, I am most excited about the first category. This pool is the “smart money” which can offer help (though not necessarily desired advice) and connections to the entrepreneurs in India.

Which makes the advice a lot of investors give students these days, graduating from the top colleges in India more sense – Join an early stage startup, get some wins, then go on to create your own startup.

This advice helps you make a little money (hopefully), and build some relevant connections into the startup – which if successful only helps your raise your seed round.

I think the opportunities this creates for Indian entrepreneurs is awesome. Many of these investors are “off the radar” and tend to only invest in early stage entrepreneurs they know and trust. They also create a forcing function for investors who used to take their time to invest and string entrepreneurs along to move quicker.

The one question you need to ask VC’s in #India to understand how quickly they will move to fund your #startup?

I was in Bangalore for 3 days, meeting about 30 entrepreneurs on day 2 and about 50 earlier stage in-the-process-of-starting-a-company entrepreneurs. The first thing that strikes you is how amazingly vibrant the ecosystem in Bangalore is. I met with over 100 investors (angel as well as a few VC’s) as well at the Lets Venture event and they while many were complaining that “valuations are higher” and “entrepreneurs are pushing them to make decisions quicker”, they were very upbeat about the opportunity in the Bangalore ecosystem.

The entrepreneurs are also much more savvy than folks were even about a year ago (I know that I spoke with a curated list, but previous curated lists were provided as well and this cohort of entrepreneurs were far ahead of those a few years ago).

The most interesting part that I noticed was that there was a bigger focus on “traction“.

I can confidently say that having been to 23 cities in the last 6 months including New York, Beijing, San Francisco and other cities in the US, Bangalore has a clear shot at being in the elite “top 5” entrepreneur ecosystems (Of course it will be Silicon Valley (Snow White) which will be #1 by a wide margin, but the other cities (the 7 dwarfs) are doing well relatively. I look at ecosystems for entrepreneurs around cities more than countries.

That optimism also bears itself out in the numbers. From look at IVCA funding and other locations, Bangalore is trending stronger than other cities such as Seattle, New York or Austin.

There were many observations I had in my 3-5 indepth discussions with Venture Capital investors in India. One of them was their necessity to now “compete” to get entrepreneurs’s attention.

Which in itself indicates a strong and vibrant startup funding ecosystem.

The most important takeaway for you as an entrepreneur, that I have learned is this –

If a venture firm has spent any time forming an “investment thesis” in a particular market or segment, then they will move much quicker than other firms who have not.

So that’s the million dollar question you can ask to determine if a VC will move quickly in India. I know this is the case in other locations as well, but the funding frenzy has been more acute in Bangalore than I have seen before.

I would ask a variation of the question – “What is your investment thesis in XYZ market”? Or “Do you have an investment thesis on “my XYZ” market”?

if they do, then your job is only to convince them that you are the best team, company and startup with the right traction to invest in.

If not, they will take weeks to understand the lay of the land, look at competitors and then form an opinion on your market.

Let me know if this works.

Cold calling does not work during, customer development process, so what does work?

As many entrepreneurs start their customer development workshops at their accelerator programs, they quickly realize that “Cold calling” potential users to get feedback does not work, any more especially for B2B users. In 99% of the cases, most of our participants at the Microsoft Accelerator found out that they got voicemail, with no responses, over the last 4 cohorts.

Most accelerator programs tell you to call potential users, who are not your “friends and family” to prevent many cognitive biases. The first couple of weeks is spent by most entrepreneurs trying to identify potential users and spending time trying to get them to validate the problem. This is the most uncomfortable time for most entrepreneurs.

It is an absolutely important part of the development of your company, but the caveat is that many entrepreneurs find out that cold calling does not work any more. Most Americans are unlikely to pick up the phone from unrecognized numbers.

In fact, when you try to do it in B2B situations, and call the potential user’s work number, at their desk, it is worse. The number of times you go directly to voicemail is about 999 out of 1000. “Smile and Dial” is truly the most frustrating part of your customer development.

The situation is so bad that many entrepreneurs sometimes falsely believe after their customer development phase that no one truly has the problem.

Most people dont want to be interrupted, and dislike having a synchronous discussion with a stranger.

So, what are the alternatives to cold calling and what can you change.

First, you can change the “interruption” and align it with their routine, then you can remove the “synchronous” portion and make it “asynchronous” and third you can change the “stranger” to acquaintance.

1. To remove the interruption, the best is to put your feedback gathering into the flow of the problem. So, like native ads, you have to insert yourself into the normal course of the problem surfacing for your users. The best way to start this effort is to do a “Day in the life” scenario mapping of your potential user. I would typically do it in 30 min increments.

Find out when the problem surfaces and what the “Triggers” are for users. What I have found is that you can leverage moments of downtime to target your message and bring out the pain. For example if you are selling keyword optimization services to SEO marketers,  answer questions on Quora or LinkedIn Groups about these services so they are aware of the problem. Or ask a question on an active forum (something WhatsApp did) about the problem you are trying to tackle.

2. Email seems to work, to make the conversation asynchronous. If targeted, specific and brings value to your user before you make the request or have a call to action, it is powerful. Typically you’d want the email to be highly personalized (look at the users recent Twitter or social media feed) to start the conversation with highly relevant topical points, before asking for advice.

3. To remove the stranger problem, dig your well before you are thirsty. In fact, use social media (Twitter and LinkedIn groups work very well, as do Quora and SlideShare) to build “acquaintance” relationships well before you need them.

Finally, make it easy for people to give you feedback. Before they are willing to commit time to giving you feedback make them believe they will get value from your interaction as well.

I’d love to know what’s worked for you. Drop me a note on Twitter, if you have found a better way to engage users during customer development.

The first 30 seconds of your “demo day” pitch – sell to the heart, mind and wallet

There are 2 schools of thought that most people assume are contradictory.

First that, people buy from other people – so folks buy because they like the other person and if they like the person they will buy anything (or everything from that person).

The other school of thought is that people want to buy from a trusted brand, so even if the individual goes away the business remains to support what they bought.

Actually they are both true.

People dont just buy from other people, they buy from people they like.

Which brings me to the demo day pitch. If you dont create an emotional connect with your audience quickly enough (first 30 seconds) you are likely to be perceived as wooden, robotic or impersonal.

The best entrepreneurs realize they are saleswomen and show-women first and CEO’s next. That does not mean they are “watch your pocket near them”, sales people.

One of the things I learned very early in my sales career was that you need to appeal to the “heart, mind and the wallet”. That means, you have to emotionally connect with your buyer, then appeal to their brain, by solving the problem they have and finally ensuring they are willing to part with money to solve that problem.

Hopefully if you solve a problem that they have, then parting with money is an automatic, but if you dont appeal to them emotionally (or to their heart), then they will likely try and make the decision purely on the merits of your product, company, website, etc.

That’s not necessarily a bad thing for some people, but if the emotional connect does not exist, then they will look for reasons to not want to do the deal, if it does not meet any of their criteria (or “features”).

The first thing your audience at the demo day is trying to do is answer the question – “Is this worth my time, or should I go back to looking at my smartphone and get distracted for a few minutes”?

The best way to answer the question is to appeal to them with a problem they likely have themselves or ensure they know someone with this problem.

After that they are evaluating if the problem is large enough – market.

The last thing they try to assess is if you are the right team to solve it.

Surprisingly all this happens in seconds if not minutes.

I have seen many investors decide in the first 60 seconds if they want to “Work with the person” and then do their “due diligence” over the next few weeks, months or quarters to consummate the deal.

So the best thing you can do for yourself and your startup is to tell a personal story that appeals to your audience, with something they can relate to.

See to their heart first, then the mind and finally their wallet.

Who should you raise money for your #startup from if you had a choice?

I got a question from a friend Abhinav Sahai, as a follow up to my post “Does who you raise money from limit or grow the size of your ambition?”

What are the parameters that one should look at when choosing ‘who’ to raise money from? 

I am going to give you the easy answer first to the question. This is based on my observation that most entrepreneurs find it extremely hard to raise money for any number of reasons – positioning, not being in the network, not having sufficient traction, etc.

The answer is “Whoever is willing to give it to you”.

For over 80% of entrepreneurs that answer should be sufficient, unfortunately.

Lets assume though that you are in a position to receive interest from multiple investors and you have to make a choice. Or you are going about your fund raise in a strategic fashion and are looking to target specific investors who you’d like to bring on board at your startup.

The overarching theme to address this question is to bring folks who provide “Smart Capital“.

Most investors will give you money. That’s why they are an investor.

What you need in addition to the capital is what you should be looking to get from investors if you have the choice.

1. In some cases that might be connections and networks – to other investors, to potential customers, partners or future employees.

2. In other cases it might be expertise and insights – how to address questions that you will face while you scale and grow your startup.

3. In still other cases it  might be credibility and advice – being associated with top folks in your industry gives you a leg up over others.

4. In still other cases you might just want someone you can trust and sound ideas off. Knowing that your startup journey is going to be long and lonely means you need folks to help keep your morale up or to help you gain perspective.

They may be more things you might need in addition to capital, but most will fall into these 3-4 buckets.

Typically most folks will tell you that they can bring their expertise and connections. 

If you can be strategic about your fund raising (meaning you have good runway, or have great traction), then I’d highly recommend you look at your fundraising as a project that the CEO undertakes herself.

It will take about 3-6 months (elapsed time) from start to finish, so you should be willing to be patient, and consistently follow up as with any strategic project.

So the question then becomes how do you gauge if someone has expertise or connections?

The simple test is to ask them questions you face daily and look for depth of the answers, the breadth of their knowledge and the ability for them to customize their learning to your needs. That will give you a sense for their expertise.

The depth and breadth of their network is also easy to test – ask them to introduce you to 2-3 people you have been trying to meet to help validate your plan.

Above all I’d highly recommend you reference check. Talk to others in their network who they have invested with or other entrepreneurs they have invested in to get a sense for the investor.

The most critical question you can ask is how they respond to tough situations. 

100% of all startups go to hell and back before they are a success or a failure. When you have supportive investors to help you along the hard journey, it will be a lot less stressful.

Does who you raise money from limit or grow the size of your ambition?

I was speaking to a prominent angel investors in the Seattle ecosystem yesterday. He has been pretty prolific, doing over 20 deals in the last 5 years. He does mostly syndicates and has a band of investors he works with. Having been a successful technology executive before, he understands the market and the landscape fairly well.

We got talking about accelerators and their place in the startup food chain.

Most VC’s and angels will tell you that in the last 2-3 years, accelerator backed companies have gone from 0 to about 5-10% of their portfolio. Many seed (angel, individual) investors still believe that proprietary deal flow is critical to their success in building a strong portfolio.

The thing that struck me was how he mentioned that in the last year he has changed his position from “angel investor education” to “entrepreneur education”.

The reason was that he felt entrepreneurs were not clear on the market landscape for exits and how angel investors need to make money as well. I can understand and empathize. If angel investors don’t make money, they wont be able to convince other new investors to come along.

He was talking about the example where most of his companies (of the ones that exited) have been acquired for between $25 and $100 Million. He has 4 exits, so there’s clearly insufficient data to form a trend.

Nonetheless, he felt it was important to ensure that entrepreneurs understand that the series A VC round was getting bigger and getting harder, so he was pushing for his entrepreneurs to be capital efficient and raise as little as possible, expecting to raise < $3 million ($500K – $1Mill, first seed, followed by a < $2M post seed). That way he felt, that a < $10 Million valuation in your post seed will still get you a 2 – 5X multiple return.

Normally I would have filed this under “investor that cares about returns only so don’t bother”, but this investor is really smart and has been helping his entrepreneurs successfully raise their follow-on’s. Of the 20+ companies, he has helped 80% of them raise follow on funding within 18 months. Pretty impressive.

Then it struck me as I was speaking to a valley VC later in the evening, who mentioned there was “frothiness” in the valley and that companies were raising money because everything is just so much more expensive. He was advocating the “Go big or Go home” strategy.

Turns out there are multiple options indeed for entrepreneurs – if you can get to the valley, and plug into the network, you tend to raise a lot more money, grow big and scale fast.

If you are not in the valley, you grow slower.

I have a few questions though:

1. Do you know what drives you – making good money or making a difference? – Saying both is an easy cop out. What would you prioritize?

2. Does the size of your ambition affect who you raise money from and where?

3. Does who you raise money from (not the amount) affect the size of your outcome as well?

I suspect the answer to all these questions is a qualified yes. I’d love your 1-2 sentence answer (or 140 character tweet) to these questions.

The analogies and words people use in your startup meetings define your culture

As a founder, it is important to define and constantly manage / prune your company culture. Why? It defines your growth, who you hire and how you respond to situations.

Most founders don’t understand, though, what the company’s culture really is. When you have more than a few dozen people, things change dramatically if you are not constantly pruning and hiring the right folks. Even the best leaders have a little more than 50% batting average when it comes to hiring stars, so it is no surprise that culture changes at a startup quickly if it is not nurtured.

What is then the best way to understand what your company’s culture is and how it manifests itself in your interactions?

The best way I have found you can understand your company’s culture is attend a critical kickoff meeting for a key project for every team, every so often.

Not as a contributor or a participant, but as an observer.

Sometimes folks in the room will be cautious about having the founder attend their meetings and be likely guarded in that meeting, so I’d recommend you ask to be on the conference call, not in person. Most people tend to forget folks on the conference call, and tend to be their natural self.

Then look for key words that people use to describe actions, situations, responses and milestones.

For example, at Microsoft teams use the words rhythm, cadence, muscle memory and “landing things” a lot on the sales side of the house. On the engineering side it tends to be “shipping bits”, agile, “landing things” and cadence a lot.

It is very useful to understand where those words come from and what people believe in when they are confronted with situations. They also though, define the culture of the organization.

As instrumental as these words are in understanding what people value, it is also indicative of what gets ignored.

The best way to have an understanding of the culture is to ask questions about quality, deadlines and budget.

These items will give you the best response into the psyche of the organization.

Another thing to look for is the analogies that people use to describe situations.

Most sales teams will use sports analogies (for example you will hear at Microsoft about “hail Mary” effort to secure a difficult customer effort by end of the quarter). Engineering teams tend to (at Microsoft at least) use science analogies – (for example you will hear frequency and amplitude of releases, and the signal to noise ratio of feature requests).

Some of these analogies are truly regional and defined by background, but once in a while, when you have a new leader who wants to redefine the culture they start to use different and new analogies, which stay for much longer than their tenure.

As a founder the best way to have these “grapevine” stories stick is to use analogies that folks will adopt because it creates a sense of “insider knowledge” or “tribal power”. It is also the best way to ensure that your culture has a cult following.

Why accelerators focus so much on “Pitch Preparation” than operating plans

Josh at First round capital is usually attributed to the quote:

As I always say, there’s nothing like numbers to f*** up a good story.

Here’s the rub though, the story is not as simple as that. That’s not the reality.

Here’s a better way to think about numbers and funding, actually.

Story and Numbers
Story and Numbers

See the 2X2 Matrix above. The easy cases are when you have good numbers and story (funded) or if you have poor numbers and story (not going to be able to raise money).

If you have good numbers (traction, growth, revenues, users, etc.) but have a poor story, you are much likely to not get funded.

If however, you tell a good story and have poor numbers you are more likely to get funded than the person with good numbers.

That’s not just a hypothesis, that’s the truth outside the valley.

If you go to Chicago, Bangalore, Boston or Berlin, the entrepreneurs show great numbers – likely in revenue, but their funding prospects in the valley and locally are slim.

The reason for this is that as investors most of us are fooled by slick, great PowerPoint slides more than we are jazzed by 3 layer Excel spreadsheets.

So, if you want to raise money, even if investors tell you to master your numbers, I’d first master your story more than your spreadsheet.

Which is the biggest reason most accelerators focus on “Pitch preparation”, more than “Operating plans”.

That’s not the case with what I advocate at our accelerator, but I have tried that for 3 years and failed constantly to help great companies with good strong numbers to get funded.

The problem is that in the absence of funding, most entrepreneurs judge accelerators by “connections to investors”, knowing that they cannot force and investor to put money, but they can give the entrepreneur more “at-bats”.

If, as an accelerator, you want to give strong introductions to investors, you are going to likely send an email with a short pitch or at best a deck. You wont send a spreadsheet with numbers.

So, getting the story is more important than showing strong traction, but all else being equal, I’d recommend doing both.

That’s also the reason why you hear stories of “entrepreneurs from Google or Facebook” raising “seed funding just on napkin drawings”.

My advice to entrepreneurs, is that you have to master both to guarantee funding, but if you have to make a choice (a poor one, but that happens), focus on getting you story right.

That’s poor advice, actually and dangerous, for some entrepreneurs, but that’s the truth.