Category Archives: angel investor

How to Make a Bad Idea Good (or at least less bad)

I’ve been reading a lot of pitches lately, and many are obviously ill-fated. Here are some themes that would benefit most of them:

1) Cut the budget in half. Costs will be higher than expected, and returns will be lower than expected. Inflated numbers won’t fool anyone.

2) Plan the project in multiple phases. Then focus on phase 1 – it should make sense on its own.If it’s only value comes from the success of future phases, then that’s a problem.

3) If you can’t even explain it clearly, then what chance does it have of actually working? Simplify.

4) Money does not equal marketing does not equal success. There is often low correlation between each.

5) Time is not money. Spend the time, don’t spend the money. If your team doesn’t have the in-house capabilities, then it’s not the right team for the project.

6) Experience matters – but experience doesn’t matter. Past successes are great, but what’s even better is experience that will help with the current idea.

7) Think small – but be ready for success. How will the idea scale if it turns out to work?

8) How will it fail? How long will it take? How much will it cost? Will there be any salvageable value?

Inc Magazine: Best Industries for Starting a Business

Inc Magazine article highlighting 16 industries for starting a business. A few of the industries are a little goofy (e.g., selling homemade goods online and sperm banks), but others come from the just-released Top Industry data from AnythingResearch.com. Cool, huh? There are certainly a lot of other factors that go into identifying venture opportunities, but many of theseĀ  less well-known industries are worth looking at.

Why Startup CEOs Are Fired

Noubar Afeyan, founder and CEO of Flagship Ventures, started his first company at age 24. As he was raising money, many investors told him that they wanted to bring on a more experienced CEO to run the company. But Afeyan wanted investors who would trust him, so he kept looking until he raised $1 million from three VC firms that would let him stay as CEO. Then on his second day after receiving funding, he did something unexpected: he hired an outside CEO to replace himself.

Now a prominent venture capitalist, Afeyan says a startup CEO stands for “Current Executive Officer.” It’s simply a matter of fact, he says, that 80% of startup CEOs are replaced at some point. And the cause is in large part due to the structure of venture capital firms.

Proposition #1: startups miss their numbers. It’s inevitable with any startup, good or bad, successful or failing.

Now, VC firms are run by individuals but have collective responsibility. Each partner has a portfolio of startups that they work with, but the other partners at the VC firm have an interest in the performance of all portfolio companies, if only a passing knowledge of what’s going on inside the companies.

The first time a startup misses its numbers, the lead partner usually goes to bat for the company. He or she tells the other VC partners, “yes they missed their numbers but they have a plan…”

The second time a startup misses its numbers and the VC partners are unhappy with the performance. They ask the lead investor what he’s doing about the situation, the most obvious answer is “there’s a leadership problem and we’re replacing the CEO.”

CEOs are critical to the success of a startup, but also the most interchangeable. Pull one out, drop a new one in, and the startup continues without missing a beat. So long as the CEO is not the founder. That’s why venture capitalists don’t like the founder to be CEO – because then if the founder/CEO is fired there is no more company.

Moral of the story? If you’re a founder of a startup looking for Venture Capital money, you probably don’t want to stay on as CEO. And if you’re a CEO of a VC-backed startup, keep your resume up to date (and try not to miss your numbers!)