Sid Mohasseb

Self Promotion :)

2011-06-08T17:40:00.001-07:00

It has been a long while since I have done a post... well just busy with execution at Wise Window - I have been telling everyone for years that it is about execution and focus so I had to focus or be accused of having a double standard(walking the talk).

Recently, I did a talk at TEDx in Orange County and I thought it might be of interest to you. So here is the story, A social and technological Tsunami is breaking borders and barriers of age, cultural differences and authority. A new collective conscious is born out of ... youtube.com/watch?v=mbNpbLmdUoQ

Entrepreneurial “procrastination” – easy to be a victim

2008-06-02T19:27:00.000-07:00

The first proof of the preacher himself committing the sin is my inability to do a Blog in recent weeks – shame on me for procrastinating!

Now back to preaching…

Procrastinating on getting to revenue equals sudden death.

Recently an entrepreneur passionately indicated that they have potential customers that are willing to buy their product NOW, but they are holding back until they raise more capital! because they are concerned about the growth and how they can control it; they have seen this before as they claimed.

Upon further investigation, it became clear that the product works, there are no technical reasons for delay, and that the customer is actually willing to pay a portion of the fees in advance; which can support staffing and internal expenses. This conversation has bothered me to the point of motivating me to write a post (thank god for the motivation!). So, I would like to remind some of my entrepreneur friends of the following key facts of entrepreneurship:

1. Avoiding a potential mistake, may be as bad as making a new mistake
2. A business is built on revenues not raised capital
3. The more of the company you keep the better off you are!
4. Before you control growth you should experience it
5. Risk is a part of life.
6. Fear of failure is as BAD as if not worst than fear of success
7. There is a thing called “competition” , while you ponder they are executing!

Entrepreneurial support – The conversation series

2008-02-29T11:36:00.000-08:00

So here is something new for interested entrepreneurs.

Venture Farm Institute Web Conference
YOU CHOOSE THE TOPIC & WE PAY FOR IT (IT'S FREE)
First event : March 17,2008 8:30am-9:15 pst

Pick Your Topic & Register

The purpose of the series is to inform and enrich the entrepreneur to understand the Funding Process and focus on Business Execution.

The Conversation series is also a complement to our workshop Series with Rapid Fire <learn more>, a 3hr Live Roundtable of providing early stage companies uncensored feedback, from the investor perspective, as well as a 2-Day Workshop on Effective Entrepreneurship <learn more>.

How to participate?: This series is online. You need a computer with web access.
What is on the Agenda: The selected topic will be discussed. A short Q&A for you and your guests is also scheduled.

Who should participate in the webconference?: Any Entrepreneur who wants to build a great company...and yes that may include raising money!

Hope to see you on line.

Entrepreneurial lesson: Ingredients of a failed presentation

2008-02-21T19:30:00.000-08:00

AND CLUES FOR A SUCCESSFUL PRESENTATION!

In the past couple of weeks I have heard a few pitches and noticed some common ingredients. So in my humble opinion here is what did not work.

1- Selling features and product capabilities as opposed to a vision and a company.
2- Being in love with the idea and failing to see the need for a business model.
3- Getting lost in details and going on tangents.
4- Pretending to know it all.
5- Failing to demonstrate how investors can get a return on their investment.
6- Having a big salary for founders built into the projections.
7- Too much animation (distracting) and too small of fonts (can’t read).
8- Disagreeing partners
9- Asking for too much money or not enough to get to the next milestone - winging it.
10- Offering a pre-cooked deal – We have a private placement memorandum (PPM).

Entrepreneurial Observation: yet another reason to be agile

2008-02-08T17:47:00.000-08:00

Just came back from the Always On event in NY; over 600 people packed into a couple rooms on the 36th floor of a fancy hotel – I was reminded of the events and conferences during the late 90’s – lot’s of buzz, loads of optimism and discussions of the perfect storm!

This time the typhoon (as Tim draper from DFJ calls it) is centered around the digital media and what it is doing with advertising models incumbent distribution channels, production time frames, schedule, etc.

Lots of acquisitions, big number valuations, bigger venture investments, and all that Jazz ! just like it use to be in late 90’s. Not that I mind it.

Although I do buy the argument that things have changed since the 90’s; including better business models, proven models of monetization, etc. but a typhoon is a typhoon and when it leaves it destroys!

I am advising to all entrepreneurs that agility is now more critical than ever; execute fast, forget about perfection, build a business that can get to stability and sustainability and fast track to exits if you can.

Entrepreneurial Consideration: Managing the ripple affect

2008-02-03T22:47:00.000-08:00

A non academic view of business change & improvement

Stating the sometimes forgotten obvious:

A business is a living entity that embodies many functioning organs. It performs the best and is healthy when all the elements are working together in harmony. The physical components of this living organ includes sales, marketing, IT, logistics, accounting, etc. and its psychology is represented by the core values, cultures, and beliefs. A pain or a dis-functionality in any organ influences the effectiveness of the business entity as a whole – if you are ill mentally or physically you can not be fully productive.

An illness maybe addressed by a better diet or some vitamins or a few pills a day for a few weeks (process improvement, overtime, incentives, etc.) or may need more drastic measures such as chemotherapy or surgery (re-organization, firings, new IT systems, a new business model, change of partners, etc.).

Almost always, to cure an illness the prescribed actions have some side effects. A change in the sales force compensation plan, influences the accounting daily practices, may require new software, may increase returns and impact the resource needs at the warehouse. An improvement in the resource planning software impacts the practices at both payable and receivable ends, Promote the person who is not competent and deal with your good folks looking for another job, etc. etc. Sometimes we actually create the illness with our actions (cutting our hand with a knife or hiring the wrong person).

Stating the not so obvious challenge:

So BECAREFUL of what I call “THE RIPPLE EFFECT” – Make a decision about A and watch for the ripples impacting B. And every decision big or small has some ripples. So what should an entrepreneur do, not make a decision ? or lose time and opportunities by over analyzing and procrastinating on every decision?

You want to stay healthy, you have to monitor your heartbeat, your cholesterol, your blood pressure, etc. etc. and react quickly to avoid worsening of your situation. You want to run a thriving and healthy organization, remember to measure the “right” performance indicators and watch them closely with a broad inclusive perspective.

Yesterday, I met an entrepreneur, I asked her for some performance metrics about her business and the answer was “we are too busy to spend time on measuring, we will put some performance elements when we get a chance.” Well, good luck! is all I can say; drive a car blindfolded and you will run off the cliff, and that is no accident.

Sales lessons – my souvenir from Mexico

2008-01-17T22:34:00.000-08:00

During the holidays I had a chance to take a short vacation in Cancun Mexico. Upon arrival I quickly was forced to deal with various types of sales people with a diverse range of techniques. And as any good entrepreneur would (or should), I began to pay attention and learn.

Imagine an endless row of stores all selling pretty much the same products, as a sales person how do you have a customer buy from you and not the guy next door? Now imagine you are selling a $20,000+ time share - and so are about a 100 other people in a 100 yard radius - and you have a few minutes while a tourist is walking by to open and no more than a few days to close. How do you do it?

After observing a significant number of data points (and it is not difficult as you can … yes, imagine again), here is some key learning:

Stay observant and you can build a relationship in under a minute - it pays.
Quality is a perception and price is not as important as most sales people think.
You must ask for the order.
It is not about sales pipeline or funnels - it is about real transactions and exchange of payment.
Don’t be afraid to negotiate.
Every sale matters – it is a matter of eating that night.
Dead lines are important in closing

Follow-up discussion: more on channels for raising equity

2007-12-09T18:17:00.000-08:00

In follow-up to the Podcast discussion Frank Peters, Dave Berkus and I had a couple of weeks ago (http://www.thefrankpetersshow.com/), a few entrepreneurs wanted to learn a little more about the various channels of raising equity and particularly the characteristics of each channel.

Following is a 10,000 foot level, but focused discussion of the various equity sources:

Friends & Family

Your dad, uncle or a rich body – almost always non-strategic, almost always come with confused valuations and even more confuse structures that will be costly to clean-up later, and often the money raised gets to be wasted on experimentation. It is however, the easiest money to raise since they know you and trust you the most. Raising Friends and Family round generally does give the VC’s and the Angles the warm and fuzzy that at least your relatives and friends trust you.

Angels (individuals & groups)

An individual angles or group of angles that pull together to invest – generally invest as individuals or as an LLC. If you have the right angel or the right lead (if a group) to spearhead the process things go smooth, the right group or person can bring significant focus to the process, the wrong angels can introduce a confused direction, non-professional angels often offer less assistance than you expect or they originally may claim, professional angles go out of their way to help a good entrepreneur. Angles often do not make second round investments, if dealing with a group the process may take longer than you expect. Example: Tech Coast Angels

Incubators

Provide a place, some computer and office support, some HR and accounting support -- only the focused ones work, a lot of incubators have real estate motives which gets them derailed from operations, often too dilutive for very strong teams. Example: Idea lab.

Venture Capital Firms

Organized large funds with a few managers in charge of investing the funds money and helping portfolio companies on the path to exit - funding ratios are very low (less than 1%), generally. The firm matters A LOT, concept stage investments are possible for insiders or entrepreneurs they have worked with before, but new deals must meet minimum requirements. Strong team is almost a must have. Example: DFJ

Management Intrusive Solutions

Informal Virtual Incubators – Individual angels who take a line position – they do make an investment and often request some options. Some entities have a formal limited fund with experienced operator partners offering money & interim CXO; usually utilizing convertible loan vehicles with options. Example: Momentum Ventures.

Risk Sensitive Loan & Warrant Models

Non-convertible loans with a warrant kicker – taking the first position, acting like a bank, but with a very aggressive risk profile. They are an excellent vehicle to bridge to the next round, but could be very expensive money. Example: Agility Capital.

None-intrusive Capital & Execution Models

Structured and staged investments coupled with extensive execution assistance without management replacement and with targeted valuation increases. This is a new and innovative model that reduces entrepreneur dilution and provides very early stage companies with what they need the most: focus and connections. It works best when the company valuation is not too high and the product is ready for market. For example: Venture Farm.

Open Discussion on early stage funding options

2007-11-29T13:58:00.000-08:00

Recently, Dave Berkus, Frank Peters and yours truly participated in a round table style podcast on the the Frank Petes Show -- click here to listen. http://www.thefrankpetersshow.com/

You may find it interesting.

Additionally, Graeme Thickins did a nice summary of the podcast on his blog at: http://graemethickins.typepad.com/graeme_blogs_here/2007/11/raising-startup.html

related feature

2007-11-26T13:03:00.000-08:00

The above article features related content

Entrepreneurial Case Study: A true failure story.

2007-11-07T15:46:00.000-08:00

… and it happens everyday - different people and different businesses.

A year and change ago, I was asked to make an investment in a venture – a couple of smart technologist with previous management experience creating a VOIP related company. I knew the entrepreneurs and was absolutely convinced that they are smart and dedicated. The business model, however, did not make sense to me and I did not invest.

The company raised around $500K. A few months later, they are looking for money and are considering a change in the business model… and later, a new angel investor with another $500K or so has influenced the team to focus on an originally tangent mobile technology to create a novel consumer application.

The new business model and technology was intriguing and reached for my check book! But before signing, met with the two founders and the recent addition to the team, a brilliant new CEO with big telecom and carrier experience.

So, I met the team and my check book was quickly back in my pocket. The founders were showing early stages of the “founder disease” – we are in love with what we are building, we know exactly how it should work, if we only need money to scale the product and market it, the company is worth millions and WE will build it into a new giant. In short, I found the team non-coachable and looking only for a check book and not a partner. I also found the new hotshot CEO Was suffering from the “big company syndrome” -- very limited early stage experience; I did it at XYZ so I can do it here, we had a $100 mil budget, over 300 developers and delivered the product in only 3 years - oopps there is no mega dollar budget, only a few developers, a very limited and rapidly depleting bank account – no room for error.

Later news … the team had made some progress and a pilot demo was built, VCs were approached and a term sheet was received at a great valuation (dilution of about 30%).

The team did not accept the term sheet. One of the clauses (standard in almost 100% of VC term sheets) was the ability for the board (not the VC alone) to augment the management team, if needed -- the team was offended!

A few months later the team is disassembled, the hot shot CEO is after the next big dream, my simple investigation indicates that the mobile product is falling far short what was promised, the founders are doing some consulting to make the ends meet and are looking for someone to buy the Intellectual property. What a shame! Very smart people, so many hours of hard work, over a million dollar down the drain, a great business concept (the second version), and a true failure story.

The question is who’s fault is it? The founders are of the opinion that they had a great team and a great idea and that the VC’s destroyed their dream company and that the angel seed investors failed them by not giving them more money.

I guess my opinion is rather clear… what do you think?

Entrepreneur Effectiveness alert - The curse & bliss of emails; mundane but important

2007-11-02T17:26:00.000-07:00

This topic may not be sexy or intellectually challenging, BUT, I think it is important. As emails go, I think we are confusing effectiveness and speed.

I get in excess of 250 emails a day. So often important issues may be ignored due to volume and unimportant matters may take a lot of time. And I am not the only one inundated with so much volume.

The problem is that simple issues that can be resolved in minutes with a quick personal conversation actually take multiple emails. Important issues that require real discussion is boiled down to snippets of responses – the result is that decisions are most likely not as comprehensive and often based on either partial information or influenced by the desire to quickly get to a yes / no answer. We achieve speed of exchange but in a lot of situations lose effectives. I can’t count the number of occasions when efforts are duplicated because some one acted on partial information exchanges in emails and had to re-do things. Now, add the complications of global operations, language barriers and time zones and you have a real challenge on your hand.

There are clearly two schools of thought 1) short, abrupt, and to the point emails vs. 2) verbose and detailed – focusing on CYA. Some write so much stuff that makes me wonder, if they have nothing better to do, and others are so quick to rush to an answer that makes me wonder if they truly care about how their answers may effect the company results and effectiveness.

NO, I am not suggesting to go back to the dark ages. I am suggesting, however, that people are essential to execution and confused people can only produce confused results and effective communication is the only way to get to clarity of direction and purpose. One of the ten commandments of effective execution is effective communications – emails are effecting execution!

My advice, LEARN, AGAIN, TO USE THE PHONE for important issues, use the email for things that do not require fact finding and discussion. Be quick on trivial and very diligent on critical matters. Speed is important, but effectiveness is much more important than velocity.

Remember, the faster errors are made, the more errors can be made in a unit of time!

Entrepreneur Issue! - Why do many startups fail?

2007-10-02T19:43:00.000-07:00

I got the following question from an entrepreneur and I thought I share it with everyone.

“Why do many startups actually fail? In my observation, i have felt that there are many a startups which have a brilliant idea, a genuine team to execute that and also a good support for the product they intend to build, but still the companies fail to break even. I would love to hear from you your views on why startups fail? cheers, Vaibhav”

There may be a thousand different reasons, but here is an attempt at simplifying a clearly completed question. Here is a stab at a few common reasons:

1- Chemistry: often entrepreneurial teams fail to have the winning chemistry together ; it is a combination of reaching for perfection and greatness and ability to work together to compromise their way to success.

2- Too much Brilliance: a lot of companies fail because the market is not ready for the innovation yet and the entrepreneurs focus on their vision as opposed to what the customer wants or needs – they continue to miss the mark by listening to themselves more than listening to those who pay.

3- Confusing Execution & Effort: a very typical problem in startups is that the team is genuine and genuinely believes that they are executing well, but they are not! Execution is not doing a lot of work. Effective execution is what bridges aspiration and results – simply put, if they were executing well, they would not fail!

4- Not Listening: I have seen this one hundreds of times, Entrepreneurs often think that their situation is different (it is a different market, a unique product, a whatever …) so they fail to listen to their investors or trusted advisors (whom they picked by the way) or listen partially. By the time they begin to listen it is often too late.

Entrepreneur Issue! The viral marketing mystery

2007-09-14T18:33:00.000-07:00

These days almost every business plan has a viral marketing component to it.

How do you get customers? Viral marketing to the rescue; there seems to be an “understanding gap”.

I have made it a point in the past few weeks to ask every entrepreneur that brings up the issue “what do you mean by viral marketing?” The diversity of answers and interpretations are fascinating. The responses include, funny videos on Youtube, a page on Myspace, putting definitions on wikipedia, planned message board entries, and of course having a blog. What is interesting is that the definition of viral marketing is reduced to the channels of distributing a message vs. the message itself.

To have a viral marketing campaign, you must first have a message that is viral and contagious like a virus, a message that contaminates others as soon as they hear it, to the point of passing it to others. 93% of all sales are initiated through word of mouth, and viral marketing is intended to ignite this process. BUT, the first question is do you have a compelling message, a compelling story a compelling product, and a compelling value proposition that deserves to be viral. The second question is how you communicate it to your potential customers (the channel).

If you want to have a viral marketing program, the initial challenge is to figure out what is your contagious (viral) message (the virus), do people care hearing about it, are they impressed enough (contaminated) to pass it on (contaminate others). In the process, you must make sure that people are not already immune to the virus – just because it worked for someone else, it will not work for you; a fake message, a “me too” message, and a message without a real value proposition backing it is not viral, it is noise and can be more detrimental than helpful.

Entrepreneur Issue! Nothing wrong with a Life style business!

2007-09-10T16:26:00.000-07:00

Speaking to entrepreneurs everyday has lead me to believe that most entrepreneurs really like to build a Life Style business and are not in tune with what motivates Venture Capital firms or Angels to invest.

So what the heck is a Life business?

1. You build it to operate for many years to come
2. It will generate good income for you and you absolutely love doing the job
3. you want to be in control – who needs a boss!
4. This would be a great business for my children to get involved with

If your answer to any of the above questions is yes … well you are on your way to build a Life Style business. Where you do not need a very very large market sizes, you do not need disturbing technology, you do not need a proven management team from Ivy league schools, you do not have to report to a board who is pushing for faster and more aggressive results all the time, and most importantly you do not need to exit (sell out).

So what is wrong with starting a Life Style business – well absolutely nothing, but do not expect making millions in a couple of years, be patient with growth, be prepared to put your name on the dotted line as a guarantor.

Entrepreneur Story #4: Dreams vs. Reality

2007-07-10T18:45:00.000-07:00

The Mobile market is HOT. At a conference in the valley (silicon that is), out of every three entrepreneurs I talked to two and half had the next big mobile application. The biggest idea is the next ubiquities operating system. A system that is running all mobile phones, allow transportability of applications, improves the development process of new applications, etc. etc.

I had a conversation with one these operating system companies yesterday – the fifth or sixth company in the same space I have spoken to in the past couple of months. Naturally, each one has few strengths and some weaknesses and each one has some unique angle and approach. Without a doubt the idea is big and if one could become the standard operating system – the next DOS is conceived and the next Microsoft born – a very nice dream.

What I found as common between all of the entrepreneurs I talked to was the underestimation of the power of the big OEM’s (Samsung, Nokia, and Motorola) in controlling their own operating system and the equal power of the carries (AT&T, Verison, Spring) in being the gate keepers of innovation and user adoption.

Building an innovative technology requires hard work and very smart technologist, building a business requires getting to markets and selling and building a ubiquities operating system requires an acknowledgment of the power of the incumbent players. This is not to say that we should not dream big, but that we should address the very obvious barriers before we spend many many hours of hard work, refinance our house and expect VC’s to invest – dealing with disappointments before they occur.

The point here is simple, and some may disagree with it, find a way to get past the gatekeepers and get the OEM’s on board and you don’t need the best technology in the world – fail to deal with the barriers early and the most innovative solutions will not work – realities that kill a dream!

The broader point is whatever business you are building, figure out what the major barriers are and have a solid (real) plan to deal with it. Work on eliminating or embracing the barriers as vigorously as you are working on the building the technology or the product.

And this is one man’s opinion.

Why bootstrap your business? So when is bootstraping not a good idea?

2007-06-30T16:47:00.000-07:00

There is just too much to say about the topic and I have been warned about being too verbose with lengthily postings so this is a 3 posting series. Following is the third and last posting:

So when is bootstraping not a good idea? Almost never!

However … there are times that injection of external funding is crucial to the delivery of value and no revenues can be generated unless significant investments are made. In these cases the bootstrappong duration may be shortened but not eliminated.

When things are not in your control or costs are very high:

1- You are in the pharma or medical devices business and an FDA approval is needed before you can sell – these ventures usually involve significant upfront research and multiple scientists , require expensive lab equipment and need to have trial results from hundreds to thousands of people. In this cases the SBIR and other grants are critical and should not be overlooked – not only they are non-dilutive, they help provide credibility – building university and commercialization partners are also critical.

2- Chip design – regardless of the simplicity of semiconductor chip ventures, the need for working with fabs and uncontrollable time periods between testing cycles is a killer – every time you make a revision in design you have to wait for 4 to 12 weeks for a turn around – the wait is expensive. These ventures almost always need a lot more money – in these cases the market must be very very large and the innovation very very novel for the investors to engage early – SBIR grants are also often feasible.

3- Situations where the time to revenue is a function of “mass traction” – these would include social networking and some internet projects – this group of ventures will benefit significantly in terms of valuation and funding chances if they can show traffic traction – the novelty in these type of projects is slowly wearing off and targeting and niche play is becoming paramount. A word of advice do not worry bou technology scalability – worry about getting traffic first.

And here are a few against the grain comments on the topic!

Although some are believers in the first to market argument – I am not one of them. If your value proposition is solid, you can be the second to market and win - often is the second mice that gets the cheese. We need significant money now or we will lose market share is an argument against the strength of the value proposition!

I am also not a believer in “we are losing customers” argument either – if your value proposition is compelling converting an opportunity into a sales should be the focus. Customers are your best source of cash (surprise) and they are non-dilutive.

And that is one man’s opinion.

Why bootstrap your business? 2- Some Good Reasons

2007-06-18T18:14:00.000-07:00

There is just too much to say about the topic and I have been warned about being too verbose with lengthily postings so this is a 3 posting series. Following is the first posting:

Some Good reasons to Bootstrap

1- Bootstrapping ensures that you build your business on legitimate, real world value propositions. You truly focused on customer value from day one.

2- Bootstrapping initiates the critical sales learning process sooner, not later.

3-Bootstrapping does not waste money: the focus here is on the early and closer customer contact.

4- Bootstrapping accelerates time to market and time to profitability – if you can not possibility wait for the next version to get ready, you compromise and try to make money from what you have.

5-Bootstrappers are less likely to make big, fatal financial mistakes. Being alert about survival makes people much more alert about catching fatal mistakes.

6- Bootstrappers are forced into unconventional thinking – necessity is truly the mother of invention.

7-Bootstrappers have more freedom and flexibility – when you take money you become slaved to the business plan.

8- Bootstrappers end up owning much more of what they create – and that is a good thing.

Coming next a few words about when you should not bootstrap & some of the negatives.

Why bootstrap your business? 1- The big picture, 2- some good reasons, and 3- a few negatives

2007-06-18T18:05:00.000-07:00

There is just too much to say about the topic and I have been warned about being too verbose with lengthily postings so this is a 3 posting series. Following is the first posting:

The big picture of bootstrapping

Bootstraping, in my opinion, is not about conserving cash or paying out of your credit cards (although those may become ways to achieve it). Bootstrapping is about taking the right action at the right time. It is about making quick and timely decisions. And it is about being focused on cash flow and incremental progress.

There are a few key elements / drivers that make bootstrapping generally lead to better results:

1- When in Bootstrapping mode, the margin of error is much smaller and more importantly the entrepreneur knows it. This causes decisions to be more focused on generating results and on making money, and that is a very good thing.

2- The risk is personal and decisions are reduced to absolute “value” delivery. Being the one who would hold the bag if things don’t work and being conscious about the responsibility to our family makes the risks to be taken very personal. Naturally the game becomes much more dangerous but the danger brings with it a wonderful force of reason that makes us focus on doing the things activities and products that delivers value to the customer – the only way to make money is if we sell & collect and the only way to do that is if the customers see a compelling value in what we do – personal risk forces us to focus on the essentials, and that is a very good thing.

3- Time is a commodity in bootstrapping mode - this makes agility the norm. Being pressed by time makes us move faster, make quicker decisions and deal with our errors faster – being conscious of time, makes the entrepreneur place more focus on the process, the strategy and people – the three elements of execution - time limitation makes us more creative in finding solutions to issues and more agile in dealing with correcting our errors – and that is huge thing!

Coming up some next posting: good reasons to bootstrap.

Real Entrepreneur Story #2: It is about making money NOT raising money

2007-05-22T22:54:00.000-07:00

The entrepreneurs were clearly fatigued when they waked into my office. They had raised close to a $1,000,000 at a whopping valuation of close to $10,000,000. The friends and family investors were joined by a couple of angels who were fortunately (as the entrepreneurs claimed) very hands off. Unfortunately, the bank balance was almost $2000. The product is almost there they claimed and the patent was almost approved. The product a video / picture tool was indeed slick, but I had to scratch my head as how to make money from it. The exit was rather unclear and the deal was over shopped; as almost every VC had looked at it and passed – the problem; the valuation was too high for the progress made, the exit was not clear, and the had no idea as to how to making money.

Nice tool! How have you tried to monetize? the answer was “we are trying to build a community” also, “we can offer the tool as an ASP model to enterprise customers”, “we have a customer that uses the tool on his website” , “we feel that when we develop the next version with mobile capabilities it will really pick up” were some of the answers provided in a span of a 30 minute conversation. I guess the best answer was the last answer they gave me “we really don’t know”. The answer to how you tried to sell it was telling also: “we hired some sales people to go out and sell the enterprise version at a price point of $300 to $500” - the sales people never produced any results.

A very cool tool, about a million bucks, and a lot of sweat and tears was about to go to waste and you could clearly see the entrepreneurs frustrated and in distress.

1- So here is the quick diagnosis and feedback:
2- So what if you have the coolest tool, can it make money?
3- Do not spend all your money on product development, build something that can sell and then improve the hell out of it.
If you over value the company, the chances of getting additional funding when you really need it will significantly diminish.
4- Building a sales model is entirely different that hiring some sales people. If the sales people can not make money, the efforts will fail every time. How could sales people make any money in a direct sales model going door to door - paying for over $3.0 per gallon for gas to drive to the customers and close sale that will produce a couple of hundred dollars of commissions at most - the math must work out for the sales force or they are not a force!
5- It is not only about money, the fact that angels are hands off is not always a good thing.
6- And at the end, it is not about making money NOT raising money.

Real Entrepreneur Story #1 – What to do next?

2007-05-06T21:53:00.000-07:00

Over the weekend, I met with a very hardworking and smart entrepreneur. He operates a business in the medical devices space. He is the founder, has over 20 patents to his name and yes, they are making money! The dogs are in fact eating the dog food. He has successfully raised over $5 million and has managed to put the company on the path to make close to $10 million in revenues this year. The company was in a terrible shape a year ago as he had hired a very ineffective CEO and was dealing with a weak Board of Directors (a story for another time!) – no questions asked the man can execute and deliver!

We spent a few hours together and he and his partner outlined their strategy of raising about $20 million from VC’s at a valuation of over $40 Million (because they thought it was worth that much!) – after discussions it became apparent that that they really did not need that much money to further increase revenues by over 5 fold and they just wanted to be safe! Not considering that this being safe is costing them valuable equity; besides because they were looking for so much money they had to increase the valuation so that they don’t give up the whole company.

Digging deeper, it became apparent that they can increase the revenues by close to 3 fold in a couple of three years without any more money !!! and can get the revenues to five fold and develop a few more innovative products with $5.0 million.

Quick calculation considering an exit in 3 years revealed that they would make more money as founders if they take the lesser amount and that they would not have to value the company at a point where a deal is difficult to make.

The moral of the story is that more money is not always better and a higher valuation is not always to the benefit of the founders. If you make bad assumptions you end up with bad deals; if you can consummate the deal in the first place!

What kind of an entrepreneur are you?

2007-04-22T16:40:00.000-07:00

In my days, I have met with many many entrepreneurs. We have agreed and disagreed on things, learned from each other, and experienced disappointments and successes together.

Here is “one” way to slice and dice the group.

The Pure Dreamer
The pure dreamer is filled with new and novel ideas -- innovations and schemes that will make a lot of money -- for some, every once in a while they see their pictures on the front page of the Time magazine . Despite their potential, majority of these folks never cross the bridge and get to the “doing side.” They are always waiting for the right time and almost always regretful (if only, I had that idea a long time ago, ..). My advice to this group is to either admit that you are a dreamer (get it over with) and then enjoy the dreams and the innovations without regret, frustration and the feeling of failure OR “just do it” as the saying goes; the short cut to results may be finding a partner with a different character profile!
The “not so Pure” Dreamer
These are the self proclaimed entrepreneurs that generate ideas faster than bunny’s produce offsprings. They have a shotgun approach - the more bullets in the air the higher the chance of a hit. The not so pure dreamers have yet to see an idea they do don’t like and a risk level that is too high! My advice to them is that entrepreneurship is more of a laser guided sport and the more is not always the merrier. Aim carefully and focus. Fast talking is not the same as salesmanship and focusing on a quick buck is not entrepreneurship.
The Always Stealth Creator
As the name suggests these guys have discovered the next big thing but are afraid that others may find out and copy it - on the basic assumption that the rest of the universe are “non-thinkers” and will not figure it out on their own. These folks skill fully conceal the innovation, often to the point of obsolescence. My advice to this group is there a lot of smart people out there and that it is “doing” that makes money and not “hiding” – To capitalize on a good idea you must first share it.
The Enforcer
Well, these folks are skillful, mechanical and hard workers. They are intelligent and astute. They particularly shine in large corporate settings. They are not necessarily “first idea” people or original tinkers, but they can find a 1001 ways to expand an idea, open up markets for it and lead an organization to results. However, they often fail in start-up situations – naturally they would disagree. My advice to this group is that being a great corporate entrepreneur does not necessarily qualify you to be a start-up executive / founder. Be very careful; make sure you fully understand the differences between the two before you jump in.
The 100% Genuine thing
The genuine thing, although a risk taker can walk away easily if the opportunity does not make sense at a gut level. Is constantly planning the next step and most often has a passion that transcends “dollars.” A genuine entrepreneur prefers smaller organizations that can be turned on a dime. They like to be in the middle of things and can motivate people with their vision and passion to accomplish unordinary things. They are always looking for new ideas but are fairly grounded with respect to execution – can it be done? Is it worth doing? My advice to this group is “don’t” fight it!

Which one are you??? Should I develop an “Are you an entrepreneur test” ?

My Education

2007-04-22T16:21:00.000-07:00

I am quickly learning that writing a blog requires a lot of discipline. You need to be thoughtful and quick - My apologies for being a slow learner - I’ll get there. It would be great, however, if you could help me with topics – what interests you? Here are some topics I am looking at:

Weekly tips on effective execution, this is not a how to work harder guide! but a how to be more effective series of thoughts.
A session with and entrepreneur -- documenting a conversation or two every week with some of the entrepreneurs I meet and discuss funding with (naturally, the name of the company & founders, as well as, the business details will remain confidential) – the good, the bad and the ugly. The idea here is to take real life interactions and turn them in to a learning experience – this is NOT an interview, but rather a one sided (my) perspective.
Random Tips on valuation, term sheet, trends, concerns, etc.

ALL from the Investor’s perspective.

Any thoughts?

The truth about Venture Capital and Angel Investing is …

2007-03-28T19:35:00.000-07:00

Last week, I was on a panel with other investors discussing the “do’s” and “don’ts” of angel and venture capital investing some one from the audience fired a series of intriguing compounded questions ” why are the VC’s so illusive?, why don’t they have all their information available? Why don’t they disclose how they come up with their valuations? Why are the selection criteria’s so undefined????”

All valid questions and valid statements – the event made me think that entrepreneurs view of the equity investment community is entirely different than that of the inner circle and this mismatch of perceptions is not disruptive and unhealthy.

So let’s talk about the truth about the Angles and the Venture Capital firms; here is a few points to start with:

1- Looking for Money Vs. looking for a partner: investors look for a partner that they can invest in and help grow a business. Entrepreneurs look for money and often feel (although they may claim otherwise) that if they had the money they could do it by themselves. This difference of view causes so many deals to stall and never get funded. Investors don’t want to be running companies, period. They are, however, investing to make money and if the team is not doing it, they have the responsibility to their investors (limited partners of their funds) to act and to get a wining team in place.

2- Saying NO: it is very difficult for the VC’s and investors to say no to hundreds of deals before saying yes to one. People don’t like to hear it; it is their baby, their dream and they have worked hard – the no becomes very personal to the entrepreneur. If the investors wanted to make an investment in every deal they see, they would run out of money very quickly, lose focus on the type of investments they are making and end up being bad partners for the entrepreneurs. The truth is that there are a lot of good ideas out there, but chemistry is also very important.

3- A days work: Being a professional investor is a lot of work – I have found that the entrepreneurs often feel VC’s are on the golf courses a lot and are being aloof and unavailable and not really busy – on the contrary, between talking to hundreds of entrepreneurs to identify the right deal that fits their portfolio and performing due diligence to fulfill their fiduciary responsibility to the fund, meeting with lots of service provider to ensure that they have solid relationships that secure deal referrals, spending time with portfolio companies to ensure things are going smooth and surprises are minimized (ooppps we are running out of money or well the customers just did not move fast enough, or we have more bugs that we anticipated and delays are unavoidable, etc. etc.). So … often, they are not unresponsive, but just simply overwhelmed – and yes they do get paid for it well; particularly when things work out.

4- The valuation Myth: entrepreneurs are puzzled about how VC’s and angles come up with valuations – the truth is that investors are puzzled about that as well. There is no “absolute” formula! It is more a question of what other deals are being looked at, what other investors are willing to pay for similar deals, how over crowded a space has become, and how confident the investors are with the team pulling it off. The other dimension is purely mathematical, investors have to invest in a lot of deals for one to payoff so that “one” has to payoff big. Which means large markets and big revenues are a must. The investor should take somewhere between 25% to 40% of equity and target a 10x (ten times what they invest) in a 5 to 7 year time frame – so you can back into the valuation number. Again, it is more of an art than a science – now this is different where companies have trailing revenues and already show a profit; and that is a an all together a new blog entry.

5- Acknowledge the Differences: angels are investing their own money, get involved earlier, make a lot more emotionally charged investment decisions and like to be involved. VC’s on the other hand are investing someone else’s money and get paid a management fee (usually around 2.5% of the total fund) and also get a carry (or a piece normally around 20% of the upside). VC’s performance is measured by the investors and if they don’t perform, they can not get to close the next fund and are out of a job! – the fact is that these days a lot of VC’s are having a hard time closing a new fund and are thinking of other careers. At the end of the day, the truth is both VC’s and Angels are looking for very high returns because they are making very risky investments; and that for VC’s this is a job and for Angels, it is an opportunity to be involved with a success story and entrepreneurs should realize and acknowledge it.

And so what are your thoughts ?????