Today I'll share with you some excellent questions I received recently from a very bright and budding entrepreneur.
They address issues central to the plans of first time entrepreneurs. My responses are based on the experiences of serial entrepreneurs and venture investors I've worked with.
The timing of he questions is just right, as I have just finished my annual checkin with angels and venture partners who focus on early stage financings of startups.
Read, ponder and act. Get started on the right foot.
- Will this make getting VC funding much harder? I've read that this is a red flag for many VC's.
- How important are co-founders from a funding perspective?
- Is it practical to attract the 2nd, 3rd, 4th, etc person after seeded?
VETERAN: Solo founders with experience usually get funded without a core team - yet most have formed the handful that constitute a fine group to start the new enterprise. First timers should take time to form a core team, avoid grabbing strangers to fill out the group. Spend the time to get to know people well before you need them. Yes, that will slow you down, but without it you'll be at a great disadvantage.
- I'm under the impression that software based start-ups should have everything working before soliciting.
- Is a simple prototype sufficient? Or do you believe it's worth finishing most of the product? (It would take me much longer to do so.. especially without a co-founder)
VETERAN: Experienced and respected serial entrepreneurs do not need a working product, though that will help negotiate more favorable terms for the founding core team. First timers should strive for at least proof of concept. But remember that if you have the next idea for an Uber-class startup, you may be funded without a working example -- if your potential venture investors think boldly enough.
Attracting a Co-Founder
- I'm always looking for people better than me... not worse.
- I don't mind having co-founders from the get go... I just want to make sure they're really good.
- I'm looking for a technical co-founder and it seems to me the best ones are happily employed and compensated and the not so great ones are the ones available.
- Do you have any recommendations on attracting the best? Know of any great folks that might be interested?
VETERAN: Avoid strangers. And relatives. Invest time to get to know others. Qualify them over lunch and talks discussing what great ideas need to be started. When you mutually agree on an idea, it will be a mutual one that all of you will shape and transform. There is no shortage of either great people or early stage money. But there is a shortage of great ideas worth investing your time or money in. Find people and investors at entrepreneurial events in your area. Alumni meetings are excellent as well. Every city has some organized events, as do schools in your area. And contact founders of existing startups. Visit, chat, find. It works.
- When the time is right, would you be able to refer me to some good venture investors in my city who specialize in seed stage funding?
VETERAN: First plan your campaign to raise capital. It is a campaign.That means lots of time and effort. Treat it as seriously and thoroughly as the launch of your first product. Research angels and investors, find people who know your market and industry. Look where they have invested. After that, then feel free to seek introductions from people you know.
BOTTOM LINE: Apply the wisdom of experienced entrepreneurs and you'll get ahead, start off on the right foot. Remember that it is not hard to get started, but it is very hard to succeed. Avoiding the painful lessons of prior founders will help you a lot. That will become part of your unfair advantage. That will attract angels and VCs to you.
Why are startup people talking about category so much?
Those are all great questions by entrepreneurs aspiring to become great.
WHAT IS A CATEGORY?
Fast casual restaurant
Here are some new categories:
Internet of things
WHY IS CATEGORY IMPORTANT TO STARTUPS?
Opens the door to all competitors, the fastest to react will be startups.
No Gorilla (e.g. Facebook) blocking the way.
Instantly brands your startup different than existing solution (Ride sharing versus Taxi; Uber versus taxis).
Clear path forward, next to-dos are no longer unknown.
High growth potential - starts from zero, reaches large numbers of potential customers.
WHY ARE STARTUP PEOPLE TALKING SO MUCH ABOUT CATEGORY?
First to dominate becomes the Gorilla
Search = Google
Ride sharing = Uber
Attracts great employees - people want to work with the next great thing.
Gets investors clamoring to put money into your startup.
The radar of serial entrepreneurs is constantly looking for new categories in which to start a new enterprise. Not too early, not too late. They got great by being "first to get it right." First is death - pioneers get arrows in their backs. Same with first mover advantage.
Somehow the veterans of startups sense intuitively a new space forming, shaping up to be the next amazing category. Such people are worth finding and sticking close to. Maybe you are one of them?
BOTTOM LINE: Spotting a new category forming is priceless in startup land. It gives you a chance to begin a fresh enterprise before a Gorilla emerges and ends the race. And be wise about when to launch into the new space. Timing is everything in this competition. When you can do this, it will add a powerful element to your unfair advantage. You will be the envy of your competitors.
"Is there startup money out there?" I responded to in my recent blog.
Today I'll focus on "Look in special places" for your seed money.
Fresh is first - look for it. There are a lot of fresh, brand-new venture firms out there looking for seed round deals. Focus on them, hold off on the giant VC firms until you have found a dozen of these eager new faces. Each is attempting to be different, to stand out from the crowd. Look for what each focuses on to find the right one for your startup.
EXAMPLE: Xfund focuses on seed investments in startups founded by students, current and recent graduates. HQ in Boston with office Nr 2 in Silicon Valley.
Crowdfunding syndicates soar - rise with them. This is a hot funding wave you might find works for your deal. An angel announces a deal in your company, gathers several well-to-do investors within a limited liability corporation and the LLC invests as a single investor in your startup. Fewer headaches for you with lots of angels investing separately.
Catch the wave and ask to ride. Watch daily announcements of Seed and Series A financings. One way is via the free daily email from Crunchbase. That filters fresh deals by round, something difficult for you and I to easily find and filter. You can see what is hot, in what city and who got the money from whom. Most importantly, you'll see names of angels and venture investors, people you can reach out to.
If you want to know more about a deal, email the founder CEO. That's a private club you belong to as a budding startup founder. Most often you'll get a response to a question or two. You might receive an invite to phone or Skype.
Be Prepared - live by it. Can you do your elevator pitch? Right now? You never know when "that person" shows up, the potential investor you need right now. So don't get surprised, get your elevator pitch polished, stick it into your brain and practice it on friends, in the shower, and staring at the mirror.
For tips on great elevator pitches, do a site search on this blog site (upper right) using "elevator pitch". There you'll learn from the best of the best, the serial entrepreneurs.
BOTTOM LINE: There is a lot of seed and A round capital out there looking for your startup. You can find it. It takes a bunch of effort, there is no shortcut. Serial entrepreneurs know how critical it is to find the right investors for the early stages of their fledgling enterprise. Its a key element they use to build an unfair competitive advantage. You can do the same. Get started, right now!