Talk to people. You will be surprised at who knows whom in your community. Right now, I'm in Pittsburgh. Everyone knows everyone else, if you get into the right circles. But you've got to get in "somehow".
Listen to your customers. Don't be a science project looking for a problem to solve. Let your customers tell you what's really bothering them. Then charge them to fix the problem. People will pay more money for a pain they feel, than for an annoyance they can endure.
Fire people: fast. It's been said before, but it is important. Get rid of people who are slowing you down. They might have been great when your company was 20 people, but most people can't grow with a company. The skills that make someone excellent for a small operation are the same skills that make that person terrible for a mid-sized operation. Few people can or will change to fit the company. Get rid of them. Give them the options, give them the cash, but don't drag them, and you down, by trying to give them a nice cushy job. They won't like it, and it will only hurt your company.
Time is the enemy: You can get/buy everything else in the world. The one thing you can't get is time. Don't waste it.
The B-plan: This is only important in how it helps the entrepreneur/business. VC's want to read it so we know where you think you're going, and how you're going to get there. Don't hire someone else to write it. They won't know the business as well as you. And if you don't know what you're doing, no one wants to invest in you.
Know what you do: I challenge people to put what they do into 5 words. If you can, you've defined your market/customers/competition.
Be number 1: Today, there's no place for number 2. First person to cross the Atlantic solo? Lindy. 2nd? Don't remember. 3rd? The only reason you'll know number 3 is that she was number one in another category. 1st woman to cross the Atlantic solo: Amelia.
VC's tend to travel in packs. Software is not in vogue right now. Lots of things aren't "trendy" but will still make money. But what makes a company look interesting? A home run.
Let's do some quick math on what makes a home run. I'll use the numbers that were mentioned earlier. These values are all rough, but will give an idea of what any investor will be looking for.
Of the companies that are funded, 80% fail.
Somethings that/.'ers might not know:
VC's get their money from other "rich people" willing to take a bigger risk for a bigger reward. So VC's, in order to keep their jobs, have to do better than the T-Bills and better than the stock market (after all the risk is higher). Let's put that number at 30% return. And let's play with $100 and 10 companies. Each company getting $10.
Now if we invest $100, and expect a 30% return, that's $130 at the end of the year.
So if 80% fail (8 companies), that's $80 down the tubes: -$80 Let's call 1 a marginal success, giving back the return we promised (30%) that's $13. Finally, we have the 1 homerun. It's got to give back enough money to make $130. Right now, that's $197.
This is off a $10 investment.
The key is EVERY single investment looked like a homerun when the $10 was put in. 19.7 times return. Let's call it 20 times return on investment, or 2000% return is what's needed, annualized.
I'll be the first to admit that we'll make mistakes. We'll see gems, and not invest. We'll see dogs, and throw money at them. But the key is every investment has to be a homerun when we start.
Know/plan how large you can get. If you're going after a $60 Million market. And you need $15 Million to do it. Why would an investor want in? Even if you're wildly successful and get 100% of your market (monopoly). You haven't given the returns needed. It doesn't look like a homerun, it doesn't have the potential for a home run. Say you're worth 2 times the market, $120 Million, from the initial $15 Million investment. It's good, but not a home run.
Finally, take a good hard look at who's behind the money. Everyone's money is green, just what shade of green. Look for people who understand your business, and can help you succeed. When a VC puts in money, the last thing he wants to do is take control of that company. The 2nd to last thing he wants is to do is lose his investment. Why? Time. It's cheaper to lose the money, than it is to squander the time spent trying to save that money.
Here at Triangle Capital, we're part of 2 funds in Pittsburgh. Draper Triangle Ventures, and Lycos Ventures. We understand the web, and the craziness of internet companies. Give us a chemical reprocessing plant, and we'll pass on that. It might be a home-run, but we couldn't help that company, and we would be a drag rather than an asset. We would constantly be asking the management why certain processes were done, and getting in the way.
With internet companies, we understand the business model, and what flaws exist. We can smooth over transitions with the network we have, and can open some doors for you.
This is the value of angel investors as well. They should be able to add more than just money.
This is only the tip of advice that exists. But remember:
No Customers = No Business.
(See? 5 words)
If you have any questions or B-plans, I can be reached at jpark@tricap.com. Just write "Slashdot 2/2/00" in the subject line. If I get./ed, I won't be able to respond to every e-mail personally, but I will read all of them.
Last bit: to the CMU-CS students. I'll be on campus sometime this month, check the calendar.
Slashdot Mirror
Talk to people. You will be surprised at who knows whom in your community. Right now, I'm in Pittsburgh. Everyone knows everyone else, if you get into the right circles. But you've got to get in "somehow".
/.'ers might not know:
./ed, I won't be able to respond to every e-mail personally, but I will read all of them.
Listen to your customers. Don't be a science project looking for a problem to solve. Let your customers tell you what's really bothering them. Then charge them to fix the problem. People will pay more money for a pain they feel, than for an annoyance they can endure.
Fire people: fast. It's been said before, but it is important. Get rid of people who are slowing you down. They might have been great when your company was 20 people, but most people can't grow with a company. The skills that make someone excellent for a small operation are the same skills that make that person terrible for a mid-sized operation. Few people can or will change to fit the company. Get rid of them. Give them the options, give them the cash, but don't drag them, and you down, by trying to give them a nice cushy job. They won't like it, and it will only hurt your company.
Time is the enemy: You can get/buy everything else in the world. The one thing you can't get is time. Don't waste it.
The B-plan: This is only important in how it helps the entrepreneur/business. VC's want to read it so we know where you think you're going, and how you're going to get there. Don't hire someone else to write it. They won't know the business as well as you. And if you don't know what you're doing, no one wants to invest in you.
Know what you do: I challenge people to put what they do into 5 words. If you can, you've defined your market/customers/competition.
Be number 1: Today, there's no place for number 2. First person to cross the Atlantic solo? Lindy. 2nd? Don't remember. 3rd? The only reason you'll know number 3 is that she was number one in another category. 1st woman to cross the Atlantic solo: Amelia.
VC's tend to travel in packs. Software is not in vogue right now. Lots of things aren't "trendy" but will still make money. But what makes a company look interesting? A home run.
Let's do some quick math on what makes a home run. I'll use the numbers that were mentioned earlier. These values are all rough, but will give an idea of what any investor will be looking for.
Of the companies that are funded, 80% fail.
Somethings that
VC's get their money from other "rich people" willing to take a bigger risk for a bigger reward. So VC's, in order to keep their jobs, have to do better than the T-Bills and better than the stock market (after all the risk is higher). Let's put that number at 30% return.
And let's play with $100 and 10 companies. Each company getting $10.
Now if we invest $100, and expect a 30% return, that's $130 at the end of the year.
So if 80% fail (8 companies), that's $80 down the tubes: -$80
Let's call 1 a marginal success, giving back the return we promised (30%) that's $13.
Finally, we have the 1 homerun. It's got to give back enough money to make $130.
Right now, that's $197.
This is off a $10 investment.
The key is EVERY single investment looked like a homerun when the $10 was put in. 19.7 times return. Let's call it 20 times return on investment, or 2000% return is what's needed, annualized.
I'll be the first to admit that we'll make mistakes. We'll see gems, and not invest. We'll see dogs, and throw money at them. But the key is every investment has to be a homerun when we start.
Know/plan how large you can get. If you're going after a $60 Million market. And you need $15 Million to do it. Why would an investor want in? Even if you're wildly successful and get 100% of your market (monopoly). You haven't given the returns needed. It doesn't look like a homerun, it doesn't have the potential for a home run. Say you're worth 2 times the market, $120 Million, from the initial $15 Million investment. It's good, but not a home run.
Finally, take a good hard look at who's behind the money. Everyone's money is green, just what shade of green. Look for people who understand your business, and can help you succeed. When a VC puts in money, the last thing he wants to do is take control of that company. The 2nd to last thing he wants is to do is lose his investment. Why? Time. It's cheaper to lose the money, than it is to squander the time spent trying to save that money.
Here at Triangle Capital, we're part of 2 funds in Pittsburgh. Draper Triangle Ventures, and Lycos Ventures. We understand the web, and the craziness of internet companies. Give us a chemical reprocessing plant, and we'll pass on that. It might be a home-run, but we couldn't help that company, and we would be a drag rather than an asset. We would constantly be asking the management why certain processes were done, and getting in the way.
With internet companies, we understand the business model, and what flaws exist. We can smooth over transitions with the network we have, and can open some doors for you.
This is the value of angel investors as well. They should be able to add more than just money.
This is only the tip of advice that exists. But remember:
No Customers = No Business.
(See? 5 words)
If you have any questions or B-plans, I can be reached at jpark@tricap.com. Just write "Slashdot 2/2/00" in the subject line. If I get
Last bit: to the CMU-CS students. I'll be on campus sometime this month, check the calendar.
What ever happened to the VC forum idea?
TJHSS&T '90
CMU '94
GSIA '98