Forward a few years and I was at Techstars. Founders approached me all the time and said: „Whom shall I approach for fund raising?“ So I took my Excel list, added more investors, turned it into an online spreadsheet and shared it with the Techstars founders.

Then something unexpected happened. I was in hospital, waiting for my wife to give birth to our second child. In that particular moment, Phil Wilkinson decided to share my spreadsheet on Twitter (thanks Phil! ) Within an hour, I had hundreds of founders who asked to be given access to the list. They then gave permission to yet other founders and investors and so forth. Within a day, the sharing permissions of the spreadsheet were completely broken, my inbox was flooded, and the crowd had taken over. My daughter obviously didn’t mind, she was happily born later that night.

In the next days, I created a new, clean spreadsheet with clean access privileges and moved the old spreadsheet information across. This sheet has been used by 1000s of founders ever since, there are typically a few dozen people on it every time I look.

But there were lots of problems with the new spreadsheet. People link forms to it by accident. People write the most annoying things into it. Other people are threatening to sue me over some of those things. Funds are deleted for no reason, incorrect information gets added, versions get rolled back and forth without control.

In addition, the information was useful for me, but not so useful of the founders. I knew which funds were interested in which geographies and sectors. So I ended up explaining each fund to each founder: „This is a Swedish VC that makes Series A investment in Nordic companies…“ and so on ad so forth.

So after a while, I stopped using my own spreadsheet. Instead, I copied it, created a private version, tidied it up and started making it a lot better. I added fields, so I don’t need to explain each investor anymore, it is now completely obvious what they do and where they focus.

I then gave comment only access to the founders in the Techstars Berlin class.

By now, the list is starting to take on a life of its own again. History repeats. The new sheet now has more concurrent users than the old one. There are far more investors on it. The structure of the information is much better. Most importantly, only a very small number of people can make edits. Everybody can comment though, and contribute in this way.

So, in the last few days we did a little count and found that just the funds that we have listed on this spreadsheet that are currently actively looking to invest in European startups total some €15 Billion. Lots more than I thought. And that doesn’t even include all the money family offices etc have to invest.

We also made a little map that visualizes where these funds are located (Investors from outside of Europe investing in Europe are not shown).

The list is open, everybody can access it, everybody can contribute to it (either via comments or by emailing us). This time it is not just me, but I am putting some Techstars’ resources behind it to make it awesome and keep it up to date. We will keep adding investors to it, until we have all investors on it that routinely make investment in European startups.

So far, €15BN and counting…lots more to come.

#givefirst

The area most founders struggle with is commercial. At its most simplistic level, there are three tasks a company must achieve in order to be in business:

1. Marketing: Qualified leads
   A qualified lead is an individual who has expressed interest in buying the product and has the budget and authority to make a purchase decision. Marketing’s primary role is to produce and deliver qualified leads.
2. Sales: Closing deals 
   Sales is converting qualified leads into closed deals. This function can be operated by a sales person; it can be operated by the product itself. Somebody or something has to convert leads into customers.
3. Customer success: Keeping customers happy & upselling them
   Selling to customers is great, but you need to actually deliver what you promised. Customers should purchase again and preferably purchase more in the future. This function is frequently referred to as customer success.

Marketing, sales, customer success are the three key building blocks of a commercial business function.

Now, here is the trick. Each of these three areas should be owned by one individual. At the same time, any individual should own only one area of responsibility, not two or three. For example, ideally you have one person responsible for marketing, another for sales and another for customer success. Each of those three should report to the CEO. Each may have their own team reporting to them.

This makes hiring for these functions easier. It makes formulating targets easy. It makes incentivizing easy. It makes management easy. It leads to focus on achieving goals. It removes excuses.

As soon as you mix those responsibilities, performance drops. Individuals who are good at marketing are not good at sales. Salespeople are not good at customer success and so forth.

I always suggest to founders to focus on:

• Number of qualified leads produced per day / week (and the cost peer qualified lead)
• Percentage of leads closed by sales (and the time to close)
• Churn of existing customers (and overall customer satisfaction)

This is the most basic structure of a commercial team. I find it serves as a good starting point.

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]]> 1217 jenslapinski Structure-company https://jenslapinski.com/2015/11/10/when-investors-go-dark/ Tue, 10 Nov 2015 12:26:16 +0000 http://jenslapinski.com/?p=1206 One of the most annoying aspect of fund raising is when investors ‚go slow‘ or ‚go dark‘ on a company. Meaning the investor doesn’t say yes and they don’t say no. Instead, they respond very slowly to the emails or calls of the founders. Below is advice I give to founders. The key is understanding the different investor mindsets. You can then act accordingly.

No (Qualified Out)
The investors passes right away or they take a look and then pass firmly. This is actually great behavior; it saves founders a lot of time. The only way I have seen that can change that investor’s mind is when another investor / board member gets in touch and says: „You should look again at this company; I think you have read the situation incorrectly. “ Unless you can do this, it is exceptionally difficult to convince investors to take a second look. Instead, accept it gracefully and don’t annoy them.

Upfront significant information request
Sometimes a junior / inexperienced investors request a lot of specific information upfront. This happens before it is clear whether there is real partner level interest in the company. This can take up a lot of the founders’ time and should be politely refused. The investor should first establish whether there is real interest.

Going slow or going dark
The investor is slow to respond. ‚Going dark‘ is a term often used. They say: „We are very busy with internally processes and are doing due diligence.“ There are three dozen variants of this. What they actually think is the following: „I can’t make up my mind about this company. It is not so compelling I feel I need to make an offer. Yet it also isn’t so disinteresting I feel I need to reject them.“ It is highly unlikely that this investor will lead your round. What you can do is to try to either convert them to a ‚soft-circle‘ or to qualify them out. You can go back and say: “It doesn’t feel as if you are interested in leading the round, tell you what, I will keep you in the loop and once I have a lead and there is space left, I will get back to you, how does that sound?“ If they say yes, try to crystallize the conditions under which they would say yes to a deal. Get that in writing if you can. If you cannot progress them in this way, qualify them out.

Conditional Yes / The ‘soft-circle’
The investor is interested and happy to commit. But their check or interest level won’t crystallize the round. That is fine. Soft-circle them. Try to get them to a ‚conditional yes’. A conditional yes is not a term sheet, but a statement where the investor says under which conditions they would be happy to invest. There is a scenario where you will have multiple soft-circled investors. You can then issue a term sheet yourself and have one investor do the legal work.

Yes
Every time when I have been involved with a fund raising and a firm received a firm yes, this happened relatively quickly. There was speedy and continuous communication. Ideally you have multiple investors say yes at the same time so you can compare them and then work with the firm(s) of your choice.

Those are the five most typical initial outcomes of an investor discussion. The key for all involved is to get out of time wasting and slow discussions ASAP. Push to either No, Conditional Yes or Yes. And then you can construct the round accordingly.

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• Over 100 applications to Techstars Berlin in less than a week! Wow. That made me very happy.
• 100s of emails from people wishing me well and asking how they can help or be involved. Still smile at this one: “I would love to get involved in any way I can. Just tell me what you need. -g”
• Over a dozen applications for the Program Manager position within the last three days alone. Loved this endorsement: “Throw the kitchen sink at her, and she’ll build you a kitchen.”

I am still trying to properly reply  to all the emails, but it will take a while.

So meanwhile here is a quick. Thank. You.

Applications open today, with a program start date in June and Demo Day in September. The program will run like other Techstars city programs in Austin, Boston, Boulder, Chicago, Cloud (San Antonio), London, New York City, and Seattle.

My full profile can be found here but I have been mentoring at Techstars (and its London precursor program Springboard) for many years. When I told Techstars I wouldn’t be able to mentor going forward as I was moving to Germany, I was asked whether I would be interested in opening up a Berlin program. I then spent the next six months working with Techstars in London and at the same time met 50-100 Berlin based entrepreneurs and investors. What I found really excited me:

• Over the last ten years or so, many new tech startups have sprung up in Berlin. Rocket Internet, Zalando, and Delivery Hero, each valued at $1BN+ are headquartered in Berlin. According to an analysis by Ciaran O’Leary of Earlybird, there are now a similar number of $10m+ financing rounds of top VCs in Berlin as there are in London. And the year-on-year growth rate of such financings is higher in Berlin than London. There is a lot of activity here and I expect much more in the future.
• Berlin is a city with almost no ‘old’ money. Almost all of the angel investors that are actively investing in Berlin are former Internet entrepreneurs. They have been there and done it. It makes a huge difference when compared to investors in other (German) cities. And there are a lot of them. I think there is more high quality seed capital in Berlin than there are investment opportunities of the same quality. Perfect for entrepreneurs.
• Berlin is a fantastic place to live and work. The cost of living here is a fraction of what it is in London or New York. The quality of all public services is high. Crime is low. Berlin is a global city with an overwhelming offering of cultural activities. And best of all, everybody speaks English. You can easily live here without ever having to use a word of German.

All of the above makes it easy to attract high quality talent into Berlin and keep it here. All of this at a fraction of the cost of US/UK startup centres. And as Matt Cohler of Benchmark rightly pointed out, startups take centre stage in Berlin.

When I asked the local entrepreneurs and investors whether running a Techstars program in Berlin made sense, two things were pointed out over and over again. First, Techstars has a very strong reputation so we should be able to attract highly quality mentors and companies that will make for a successful program. Second, Techstars has a very strong network of over 3000 people in the US and UK. This is a unique asset that could add significant value to the startups going through the program.

We’ve already built a community of investors and mentors to support the Berlin program and we’re growing the network every day. Here are some sample investor mentors, with many more to be announced in the coming weeks (VC and angel investors, local entrepreneurs, and other key players in the Berlin tech community):

Brad Feld – Managing Director, Foundry Group
Pawel Chudzinski – Managing Partner, Point Nine Capital
Christian Buchenau, Partner, Paua Ventures
Suranga Chandratillake & Rob Moffat – Balderton Capital
Jason Whitmire & Simon Schminke – Earlybird Ventures
David Cohen – Founder & Managing Partner, Techstars
Fabian Heilemann & Lydia Benkö – Partners, Heilemann Ventures
Philipp Hartmann & Tobias Johann – Managing Partners, Rheingau Founders
Benjamin Rohe & Ludwig Preller – Partners, MAS Angel Fund
Christoph Gerlinger – Founder & CEO, German Startups Group

If you are a startup founder and want to apply for the program, please fill in the application form here.

If you want to reach out to me to discuss Techstars Berlin, please email me at jens.lapinski@techstars.com.

PS: We are looking for a Program Manager to help me run Techstars Berlin. Details of the job can be found here.

You have probably heard from dozens of VCs what they want to see in a pitch. You know what, they tell you what they are shown every day. But that is not what I want to see.

Let’s do a thought experiment. Let’s suppose that of all the slides in your slide deck, you were only allowed to show one slide to potential investors. One. Single. Slide. Which one would that be?

What you do? Team? Product? Market? Projections?

No.

The number one slide you would show is the ‘wow’ slide. The slide that shows how much traction you have. How high your conversion-rate it. How high your viral co-efficient. How much revenue you have. How fast you are growing. How sticky your product is, how low the churn rate is.

In essence, what you have achieved.

Here is what happens instead. I was at a pitch event last Friday. Not a single founder pitched me on their traction. I had to pull it out of them in Q&A. One founder said he had an idea and now he wanted me to invest. He had achieved nothing. Then there was another founder who had $10ks of revenue per month. Again, she didn’t tell me that. I had to pull it out of her.

The problem is that I can’t tell the difference, unless you tell me.

Here are two example pitches of the same company.

1) Typical pitch I hear:
We are an e-commerce company. The key thing about us is blab la bla and this is useful for our customers blab la bla and what we are currently working on is blab la bla. We are looking for money, do you want to invest?

2) Focussed on achievement :
We are an e-commerce company. We sell x to y and our special sauce is z. Last month we did $25k in turnover, our product margin is about 60%, so we made about $15k in revenue. Returns are low, so this is a net figure. We are currently growing at around 25% month on month. What I am trying to achieve right now is to improve our x and what I think I need to do is y. Do you think this is the right focus for us right now?

I would be super happy to talk to any entrepreneur who talks about their business in the second way. At length. Any time that works for you. Happy to help.

I think these business models can produce scalable, defensible companies and that is why these categories win.

Apart from existing business models, I am also interested in entrepreneurs inventing new ones. Looking back, I think you tend to find that new business models are an evolution of existing ones. For example: classifieds -> search. content -> social interaction tools. software -> SAAS.

I received this email from a buddy of mine. I totally agree to this. I have yet to see a situation where an early stage startup changed the CEO and did really well afterwards. This is very hard to get right. This is why we work with entrepreneurs from day one in Forward Labs.

I find it really interesting to see what kind of deals are doing the rounds in London. There are a few patterns that one can discern with regards to stages and how far down the line companies are or should be at that stage to avoid premature scaling, which is one of the major startup killers. If you scale prematurely, your chances of becoming successful are slim indeed:

1. 74% of high growth internet startups fail due to premature scaling.

2. No startup that scaled prematurely passed the 100,000 user mark.

3. Startups that scale properly grow about 20 times faster than startups that scale prematurely.

4. 93% of startups that scale prematurely never break the $100k revenue per month threshold.

There is more information here.

Here is what I see that works. This is what I would say is not premature scaling in a London-based Internet business context:

Pre-Seed – £100k to £250k

Typically there is no evidence of product market fit [1]. There is just the founders with an interesting idea, maybe there is a product to look at, maybe it is a bit fleshed out with some concierge service customers or similar. SEIS protection means this is throw-away money. I frequently see that experienced founders finance this stage themselves. (Btw, some people have started calling this the ‘Genesis’ round.)

Seed  – £200k to £800k

Companies that raise a Seed round typically have early evidence of product market fit. However, this evidence typically hasn’t been collected for very long and may be somewhat tenuous. The team consists of the founders plus some advisors/ board members, and typically a team of junior (and some senior) ‘doers’. EIS protection means angels have partial protection at this point.

Series A – £1m to £10m

The business has solid evidence of product market fit. It has achieved an acceptable level of efficiency in their business model. It is more or less ready to scale. The team consists of the founders, has a group of advisors and NEDs working with it and a more or less complete team of both junior and senior doers. There is sometimes EIS relief at this stage, obviously not for VCs.

What I see is a lot of is people raising inappropriate amounts of money for the stage in which their company is at. Examples of this kind of premature scaling are:

• Raising a Seed / Series A round without having launched a product and thus not having any evidence of product market fit whatsoever, typically just a team of founders (come on, either finance it yourself or start smaller);
• Businesses who have launched a product, but failed to get early proof of product market fit, raising a Seed or small Series A round to ‘take it to the next level’ whereas what they should do is admit failure and repeat the previous round to try and get to some proof of product market fit (I see that, too, and have to applaud the founders for being honest);
• Businesses that jump over one stage and try to go to a full Series A round with some very tenuous product market fit and a weak team (this typically ends up being a waste of time and when it works has the potential to derail the company).

My comment with regards to premature scaling is that raising an inappropriate round when compared to the stage at which the company is at is bad for the company. At best this effort fails and is a waste of time. At worst it succeeds and you end up with investors who typically invest much later stage and whose expectations and modus operandi screw up your business. Or even worse, you see the funding as validation of product market fit (it is not) and spend the money pursuing of an incorrect set of targets. Both are terrible.

For example, if you are doing a Seed round, the first thing that the company needs to achieve is product market fit. Not refining the business model. Or scaling marketing. Or hiring lots of ‘senior’ people. Or spending a lot of money every month. You focus on the wrong things and spend too much money trying to achieve them.

Funding expectations

My second general point is something that seems to coincide with premature scaling, which is incorrect expectations, both on the founder and on the investor side.

Many of us read in the press about amazing Seed rounds, Series A rounds etc. The reason why these get reported is because they are outliers. The press doesn’t care about the norm. This means that what is written about is not ‘normal’. The problem that that creates is the same for both founders and investors: unrealistic investment expectations.

Let’s look at the founder side first.

I see quite a few founders who believe they can or should raise £1m+ rounds when they don’t even have anything like product market fit. Quite the opposite. Maybe in the valley you can do Seed deals of $1m, I doubt they are the norm. However, in London this is exceptionally rare. And even when it does happen, I would still contest that this is premature scaling and actually ends up harming the company. As a former founder, I regret taking what was probably too much money in first funding round of my own business. This was most certainly a mistake. [2]

Now let’s look at the investor side.

I see quite a few investors, particularly inexperienced angel investors or VCs trying to go early stage who are asking for inappropriate levels of achievement before they are ‘prepared’ to invest. If you are an investor investing in a Pre-Seed (SEIS) round, you have to accept the fact that there will not be any evidence of product market fit. You are just investing in the people. If there was evidence, the company would be raising a Seed round. If you are investing in an Seed (EIS) round, then you should be able to see some evidence of product market fit, however, you cannot expect this to be solid. Neither can you expect a full team. If the evidence for product market fit was extensive and the team was more or less complete, the company would be raising a Series A round. I see a lot of investors wasting a startup’s time, as they are trying to get deals that are simply not realistic.

A founder whom I know summarised both points succinctly:

“Founders watch the news from the West Coast and expect that here (not realistic) and investors want to buy a perfect business with full product market fit and opportunities for 30x return at a sub £500k valuation.”

Premature scaling kills companies. Trying to raise too much cash before you are ready is both a waste of time and can harm a company. Asking for evidence and teams that are inappropriate for the round wastes a ton of time.

Maybe we should avoid all of the above.

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[1] Product Market Fit means that the company has identified a repeatable and scalable business model. You can read Steve Blank’s article on this here. In my experience startups typically get initially to some form of product market fit where the evidence is somewhat tenuous. The evidence base is then solidified and strengthened over a number of months.

[2] It is very rare for a company to attempt to raise too small a round, but it does happen. If you have some form of product market fit and the beginnings of a real team, you should probably not try to raise a Pre-Seed (SEIS) round. You are beyond this point. You will probably just cut corners that don’t make sense.

Fund raising can take some time. Several months can go by while you are closing a round.

Once investors have committed to you, it is critical that you don’t change your pitch. Or your strategy. Or your senior team. Or where you are located. Or anything else that is important to your business. Really anything at all.

Anything that you change has the potential to make people incredibly nervous. They might change their mind. Your consortium might fall apart. Really, you can only make matters worse. Not better.

What investors want to hear during the closing process is GOOD NEWS. More sales. More effective marketing. That new awesome person who has just joined. You know. Stuff like that. Not bad news.  Missed sales targets. Fired employees. Delayed product updates.

If you really want to change things significantly, wait until you have the money in the bank. Close the deal, then you can change stuff. Keep in mind that you don’t want to breach your warranties…some things you will have to disclose. But overall, don’t change your pitch. Not a good idea.