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Sunday, February 2, 2014

Are We Running Fast Enough?

It is common for entrepreneurs to ask themselves: "Are we running fast enough?". It seems like other companies are moving forward and making progress. New competitors start popping and the media seems to be covering anything but your startups.

Of course all startups need to move fast. Each founder or early employee should step on the throttle and never let go but is it really the time hire 20 people yet? How do you know?

I like to use the metaphor of a road vs. a maze. Startups start in a maze and until they can figure out how to get out of the maze quickly, they can't and shouldn't run very fast. This should usually be your high level plan:
  • Step 1 - Burn as little cash as you can while you figure out the path out of the maze
  • Step 2 - Raise enough funding to get out of the maze (probably 2x more than you think)
  • Step 3 - Run fast
During Step 1, you need to be patient. It might seem like things would go faster if you have 7 people instead of 5. I say it's not really that much faster anyway. Any VC backed company can put more resources and run faster even if you have 7 people. At the same time, if your path to glory suddenly gets blocked by facebook moving into your space you would really wish you had 5 people in there so you have more time and cash to pivot and find another opportunity to pursue.

The reality for startups is that they can't outrun the big guys on the road. They need to find the mazes and win by outsmarting, being nimble, agile and lean.

If you are not sure if you are already on the road or still in a maze, you can use the "Product Manager Test" to know for sure. Try to imagine a product manager in a big company trying to pitch your idea to his CEO. If you are on the road, a good product manager should be able to pitch it - "here is the customer, here is the revenue projection, here is the business". Most startups however are still in the maze. there are too many unknowns, monetization model is unclear and no one can explain how to get distribution. In that situation, a product manager will not put his career on the line and no CEO will raise that in a board meeting. Only entrepreneurs are crazy enough to do it. 

Wednesday, January 15, 2014

David S. Rose - PItching to VCs is about selling YOU

Great talk by David S. Rose about pitching to VCs. The most important thing you are selling is YOU. That's kind of obvious but David goes into details about what qualities of yourself should be sold and how can you sell them.




I used some of the concepts in our last round. One of them was to maintain eye contact at all times. I didn't used a clicker exactly. It was an app on my iPhone called Keynote Remote that allows you to control Keynote slides on your iPad. The end result is quite impressive.

Tuesday, June 25, 2013

How I closed a round with 7 Investors: – Here’s why an Angel round is nothing like a VC round

When I started SOOMLA (http://soom.la/), The In-App Purchase Store Solution, I thought fundraising would not be that difficult. In 2008, the first company I co-founded, EyeView (http://www.eyeviewdigital.com/), raised a round from 2 Venture Capital (VC) firms when we were very green. This time around, it will be much easier I said to myself. I'm much more experienced, have put together a strong team, validated the heck out of our business model and have good relationships with most VCs in Abba Even Avenue (that's the Israeli version of Sand Hill Road for those not familiar with the Silicon Wadi).

I couldn't be more wrong.

Funding is never easy. Even when you hear stories about entrepreneurs who walk out of a VC with a personal check from the managing director, it is usually after 6 months of pitching and hearing 'no'. Moreover, the world has changed and raising VC money in 2012 in Israel has become harder. I soon realized that I had to restructure if I wanted to raise funding for SOOMLA.

Finding Angels
The first difference (challenge?) one notices right away is that while VCs are highly visible, Angel investors mostly fly under the radar. The reason is simple: in addition to being angel investors, they usually have a different day job (e.g. the CEO of some other company or an entrepreneur who sold their previous start-up). One of my investors doesn't even have a Linkedin profile. The truth is that anyone Executive in a big company can be an Angel, even if they don't know it yet.

I discovered potential investors in a few odd situations: interviewing for a job, swimming at the pool and taking my daughter to pre-school. In other situations, a VC referred me to an angel when I realized that I already met him before I knew he was an angel.

Connecting with Angels
Once I found Angels, I assumed it would be the usual investment pitch drill, but I was wrong. I went to one meeting, told the Angel that I want him to invest in my startup (he recently sold his company to eBay) and he completely shut down. The guy has the money and he is better off investing it for tax reasons so what went wrong?

Wooing private investors is very different from wooing VCs. Most angels you will pitch too are highly accomplished people that have a passion for building stuff and love to help. But they don't want to be thought of as a proxy for their money. When reaching out to Angels, it’s important to respect what they have accomplished. To make the Angels feel like they are part of the evolution of the company’s story (better yet, actually make them part of the story) and allow them to help with introductions.

As an example, I approached an accomplished entrepreneur as a potential advisor in SOOMLA. After he gave me some great tips I discovered he is also an early stage investor and he became our first investor.

Presentations for Angels
As you can imagine, the presentation one shows Angels is different from the presentation one would show to a VC. In my presentation, I told one Angel that we needed $250K to build a Proof of Concept (POC), and that later on, we are planning on raising $10M in 3 VC rounds. That was not a good idea. First, the likelihood for any startup to raise $10M from VCs is1%-3%. Second, and more important from the Angels perspective, if we were successful in raising 3 VC rounds later on, the result for the angel would have been a diluted position with no way to defend it.

It's not just the slides that need to be different for angels. The entire business plan needs to be leaner when pitching to Angels. As a result, we created a much leaner plan, focusing on the one thing that our customers were willing to pay for and showed how we can be breakeven in 10 months with no additional investment. Our PowerPoint presentation had no bullshit market forecast slides or barriers to entry analyses. Instead, it was focused on how to get revenue and be profitable. The examples we used were of companies that raised little and sold quickly in the sub $50M range.

I’m not going to include the slides I used. They are below average on any standard and most of the investors didn’t even see them. I can, however, refer you to the slides that Joel and Leo from buffer uploaded and stress out their most important point that you need to focus 100% on traction before you even think about raising money.

Starting to Close
Everything we learned brought us to a situation where we were able to generate a lot of interest and it was time to start closing. VCs normally initiate the closing move by giving a term sheet. With Angels, however, you have to make the first move. The right moment to start is when you have a weighted pipeline estimation that exceeds the minimal amount of the round. A weighted pipeline is a tools from B2B sales where you list all your opportunities and assign a probability to each one of those. Multiply the probability by the expected investment to figure the angel weighted contribution and sum all the contribution to get the weighted pipeline net. An important tip with regards to that is take off 20% from whatever probability you initially assigned.

Probability
Amount
Weighted Amount
Investor 1
40%
$100,000
$40,000
Investor 2
60%
$150,000
$90,000
Investor 3
20%
$50,000
$10,000
Investor 4
20%
$100,000
$20,000
Investor 5
20%
$100,000
$20,000
Investor 6
40%
$200,000
$80,000
Investor 7
20%
$50,000
$10,000
Investor 8
20%
$100,000
$20,000
Investor 9
20%
$100,000
$20,000
Investor 10
40%
$50,000
$20,000
Total
$1,000,000
$330,000

Don't Stop Meeting until the Money is in the Bank
As soon as I reached that point I started discussing the terms with the angel who had the most potential of leading the round. While that investor wanted to lead, he wasn’t he didn’t know the industry well enough to make quick decisions about the investment. Without a leader, I was trying to close a round with 5 different angels at the same time. Each of them making different demands. Moreover, I had a risk that the entire thing will fall apart so I was doing that while taking more meetings with new Angels to generate a backup plan and keep the closing pressure. , which ended up being the winning tactic. One of these new angels liked what he saw and suggested leading the round. Once I had a lead investor on board, the remaining negotiations moved faster and the round closed pretty quickly. Ultimately, I lost that first investor, but it was a small price to pay. In retrospect, I'm not sure we would have gotten the lead investor without the first one. 


The importance of Angel investors in the investment eco-system is only increasing, which is why I want others to benefit from our hard learned lessons.

Friday, May 10, 2013

Launch is Dead (For Lean Startups)


Are you launched? Have you launch yet? When are you launching?
These are questions you hear quite a lot in an early stage startup. To be honest, the thought about doing a big launch like Steve Jobs, dramitcally unvailing our great product to the public and listen to the crowd cheering.



Ok, back to reality. The fact is that I'm always struggling with these questions. SOOMLA, my current company is doing a platform for mobile game developers - allowing them to add In-App Purchase Stores to their games. We are big advocates of 'Lean Startup' and so we had quite a few launch related events in chronological order:
  • Sep 2012 - Released our first 'thing' - an open source project for IAP in Android
  • Oct 2012 - A similar open source project for iOS
  • Oct 2012 - We participated in a Startup competition that is often considered a launch pad. We also received some coverage in TechCrunch
  • Nov 2012 - Our Cocos2d-x Plugin was completed and we received coverage in the official Cocos2d-x website 
  • Dec 2012 - Released an early version of our premium product (on top of the open source framework)
  • Jan 2013 - Launched a plugin for the leading 3d engine, Unity
  • Mar 2013 - Our premium product reached a level where the value outweighs the problems. Also started, charging money for it
  • May 2013 - Releasing a new version of our Dashboard - giving mobile game developers the ability to edit the stores on all devices in real time without a need for an update.
As you can see, the right answer for "when are you launching" would be "all the time". In a world where everyone is talking about lean startup, continuos deployment and failing fast, you can safely say that Launch is Dead. It might be still alive for hardware startups that have huge upfront investments and need to create a big hype to push inventory out. 'Launch' might also still be a valid event for big companies who can summon a press conference and get a lot of buzz going with little effort. For statup, however, the concept of launch is a pointless pursuit. Here are a few reasons for this.

First, as a startup, you want to launch as early as possible with a half baked product to guage the demand and test many other assumptions. Like in the case of SOOMLA, this means that there is no spceific launch date but rather a series of small iterations. 

Second, most startups get very little impact from the press they receive while launching. For B2B companies, there is an obvious mismatch in the target audiences but even for B2C companies, the small audience that will be willing to test the product is the early adapters that happen to belong in the niche target market that you are targeting (yes, you have a bigger vision but you are starting by targeting a niche) when you are crossing that with the audience of the publications the number you get is not very high. When we got covered by the press, the result was always a spike of traffic resulting in low conversion rates and after a few days we were back with our average number of visits. 

Third, the effort or cost for getting the press to notice you is quite big due to the amount of companies starting up every month. Reporters are constantly flooded with new companies and getting noticed requires a great deal of effort that you can't afford more than once or twice so it's hardly a strategy. 

So how are we getting noticed? For us, the answer is content marketing. Being able to produce valuable content in topics that interest your target audience is a great way to get your brand out there. Hubspot Walkme and Flurry are great examples of doing it right. There are so many ways you can leverage good content to get traction. I'll cover that in a different post.

Tuesday, March 26, 2013

Can iPad Replace My Laptop

That's it. My laptop is about 4 years old. It is a Lenovo U350 with an Intel Centrino. Used to be a decent machine when it was bought but feels really outdated now. About a year ago I gave it some new life by installing a brand new 8 cell battery, deleting and formatting the hard drive. It did wonders and lasted about 8 months before becoming too slow again.

So now it's time to get a new laptop and I'm playing around with an idea to use an iPad as my only carried computing device. My day to day tasks include:
- Blogging: Researching topics online, Writing, Editing and Moderating
- Product: Web applications, Illustrations
- Fundraising Materials: Making Slides, Image Editing, Illustrations
- SEO and Website: HTML editing, file uploading, Analytics
- Business Communications: emails, Notes, Calendar, Contacts


There are a few obvious advantages. The iPad is lighter, it makes better impression in presentations and meetings, it's has better battery life and it's quicker to wake up. Adding to that two important components: a Logitech keyboard and 4G connectivity results in an ability to work from almost anywhere without having to worry about carrying a big laptop and searching for WiFi.

I started on the blogging side. So far, it is a lot nicer with this setup. I didn't have to change much of the services I'm using with the exception of Typepad but It was time to move away to a newer blogging platform anyway (currently using Blogger and Tumblr).

I'm expecting that the other tasks will require a bit more flexibility and maybe a few paid apps. However, taking into account that a laptop would have cost a lot more, it's would still be a good investment.

Sunday, March 24, 2013

Goodbye Typepad - My Blog is Moving On



Goodbye Typepad

Well, it has been about 4 years. You have served me well for a while and we had good times together. 

My blog needs to move to a new home now. There are a few reasons for this decision: the monthly fee, the lack of widget support but more then anything is the poor support for mobile. Ironically enough, I'm writing this post the second time since the first version was mysteriously deleted by the web interface that doesn't support mobile well enough.

The world has moved on and I'm with it. Most of my blogging is mobile now and so there is no other choice but to go through the painful process of moving the blog to a new home. I found this post about moving from Typepad to Blogger and Tumblr - http://justin-singer.com/post/1014549984/how-to-move-a-blog-from-typepad-to-tumblr-spoiler. It doesn't sound like a fun task but it has to be done.

I'm sure there will be glitches, broken links and other problems during the process but in a month or two the blog will be hosted on a more suited platform.

Ok, back to the porting work.

Good luck to all of us.

Wednesday, January 30, 2013

The Sound Bite Glossary of Our Seed Round

About 6 weeks ago we started a round to raise a bit more funding. We were lucky enough to close a round in 3 weeks and in very favorable terms. I'm not going to share too much information about that but we doubled the company's value in 6 months and maintained the flexibility and control.

Fund raising requires to condense complex ideas and strategies to short statements and terms that are often known as Sound Bites. I thought that an interesting way to share some of the intereststing aspects of the round would ge as a glossary of Sound Bites that defined the round:

Breakeven with a Squeeze (Kvetch in the Hebrew version) - Basically it's a situation where the company generates enough revenue to support the founders on a low budget - eating mostly Falafel or Ramen soup in Paul Graham's version - "Ramen Profitable". This is a desirable milestone since it frees the founders mind from the idea that VCs are the only source of money and at the same time allows the company to focus on activities that has a business impact.

Instant Gratification - In today's internet/mobile startup world, there is a lot of emphasis on design and UX and the company's ability to create highly usable and great looking products is considered a key element in attracting and engaging users. Instant gratification is a term that encapsulates a lot of this approach and communicates that both sides understands the importance of UX.

SDK Companies - The high number of companies who are trying to offer services to mobile app developers created a situation where mobile game developers are flooded with an endless stream of offers and emails from 'SDK Companies'. We made a strategic decision to differentiate SOOMLA from all the SDK companies by targeting pre-launched developers.

The January Share Holders - We made a decision that we will only bring investors as common stock holders that will have no special rights. This creates a very strong foundation for a scalable and agile company that focuses on product execution and market validation. At the same time, there is no easy way to refer to the share holders as a group in the legal documents. So "The January Share Holders" Became a substitute for the "Holders of Series A stock".

Share Holder with Fingers Crossed - As one of the founders of EyeView I still hold quite a few common shares in a company I have very little influence on. Although my situation is quite unique among founders it is very common among early stage investors who find themselves at a minority position in later stages of the company. The common fate allowed me to establish relationship and trust with Angels and create a funding strategy that is appealing to early stage investors.

Developer Product - Our product is made for developers by developers. Many investors are struggling with that concept. The VC playbook says that succcessful companies make products for "Rich Customers" (see Sequoia bplan tips - http://www.sequoiacap.com/ideas) and developers for the most part don't have big pockets as individuals nor they command big budgets in the companies they work for. The beauty of this model is that developers can become a very effective channel for getting rich customers. This is known as a B2B2C model. Two recent Israeli success stories - CrossRider and Wibya did us a huge service by demonstrating how a good developers product can reach hundreds of millions of users in less than 2 years and with zero marketing effort. 6 weeks ago a very smart guy helped us figure that out and I was lucky enough to find investors who understand it as well.