how to turn-off investors and what business plans & sausages have in common: best of web2.0 expo belin 2008

the second incarnation of o‘ reillys web2.0 conference took place at the bcc - well placed at the center of berlin, next to alexanderplatz.

the new location was a welcomed change to last years 60ies-bunker style berliner messe facilites like a „community lounge“ promoted interaction between attendees and with last year‘s food problems solved people were happy to focus on the topics at hand.

besides the „big pictures“ keynotes for tim o‘ reilly, john lily (mozilla), martin varsavsky (fon) et al., the show brought a wide range of in depth topics , ranging from business to marketing and design to development.

the collective presentations of the show can be found on slideshare, respectively on the conference website . going through the (until now) uploaded 42 presentations on slideshare is too much noise, so let‘s setup up best of the show. start with the five best events of the show:

1) pitch camp
pitch camp was a driving event. 12 companies were selected to pitch for two minutes each, in front of a 200+ crowd and a grand jury (ranging from techcrunch and venturebeart to accel and index ventures, see here).

the short intro giving on the art of pitching can be reduced to 3 points:
1) clear view of business
this is necessary to be able to communicate the start.up (business objectives, market segments, problems solved)
2) understand your audience and what they care about
who are they, what do they want, why would they care about you.
3) build 3 month, 9-12 mont and long term business objective

there were book recommendations as well, crossing the chasm (again!) & blue ocean strategy, chan kim, renee mauborgne, understand the problems of your market.

also interesting to note were comments by the jury what turns them OFF, when the listen to pitches.

investors

• lack of ambition displayed
• lack of character and leadership
• homework not done (not knowing the background of people start.ups pitch to, not done the business metrics, not having market figures, competitor ignorance, lack of execution plan, ...)
• lack of understanding potential customers, investors, partners

media

• old stories
• no potential to bring journalist on techmeme/digg for x weeks
• clones of anything
• no magic sauce begin

potential partners

• telling the potential partner how cool the start.up is
• not telling or not being able to tell what the partner will exactly (=cash) gain from partnership, when and how.
• unfulfillable expectations from partners (like: just put my link on the google landing page...“)

how to get in contact?

• through references
• email (keep it short, send a compelling 2 sentence pitching email)

not just also judging on the start.ups at pitch camp but also discussing on stage was:

2) keynote speaker yossi vardi

being a serial entrepreneur himself and a rather successful venture capitalists, yossi vardi gave some interesting statements at the discussion with tim o‘ reilly.
that at the end of the days successful vc just have luck, is quite a open statement.
also that it is very important to check the vc a start.up is interested in. is he friendly? do entrepreneurs work repeatedly with him?
and that business plans and sausages have one thing in common: only people who do not know how they are made eat them.

this made the 2nd of the best web2.0expo berlin events. read more about moo, user interfaces and user action through design in the 2nd part of the upcoming web2.0expo roundup.

six steps to venture capital: part 2.1 fund selection

after being sure, that venture capital is the best choice (see “six steps to venture capital: part 1/6 on funding motivation) , the next step is to select which funds to approach.

2) fund selection

the best resources out there to find professional risk capital are the european venture capital association (evca) and the local venture capital associations, like avco in austria. on the evca webpage, all the national venture associations can be found.
Other sources are local economic newspapers, blogs (as can be seen in the blogroll, with lists like here), or the webpages of known venture backed start.ups in general, like jaja.

based on that basis research, a list can be compiled from all the vc out there, meeting the requirements of

1) investment period,
2) geography,
3) focus,
4) experience,
5) cash available,
6) fund exit horizons and
7) references.

the result will be an “a-b list”. “a” for your hot hits, “b” for the maybes.

1) investment period
start.ups will be looking for early stage, seed funding focus or even incubators. funds having no investments and no mission to do so will not make it on the list. funds having no early stage investments but write that they want to get into, are on the b-list.

2) geography
most investors stay within their local area. looking at their profile and their portfolios will tell that easily. if for example a uk fund has no investment outside of uk, chances are low, that they will invest e.g. in romania at all. if they are otherwise a perfect hit, make them a b-list candidate. we will see later why those are needed as well.

3) focus
there are different investment philosophies existing. funds can focus on investment stage or selected industries (horizontal or vertical). it is important to be in the funds focus, otherwise an application means wasted time.
if a fund has similar companies in it’s portfolio, for example three other software companies in the field of telecommunications, then that is an a-list candidate. because this fund should have an deep understanding of the technology, the business models, the market addressed. just to dig deeper on one point here: the technical due diligence will be faster and more accurate, as the funds typically use their portfolio companies to evaluate potential new investments.

coming up in the next post (six steps to venture capital: part 2.2) are the relevance of fund and investment manager experience, why cash matters and checking out the investors.

six steps to venture capital: part 1

recently established self financed start.ups have tight cash restrictions. sooner then later, further financing will become a main issue. in order to approach the financing process in a sustainable and therefore successful way, founders shall consider the following six steps.

1) funding motivation
2) fund selection (part 2.1, part 2.2)
3) preparing the battleground
4) approach (part 4.1, part 4.2)
5) negotiate (part 5.1, part 5.2)
6) survive after investment

each single step will be discussed in upcoming posts and brief recommendations will be given about how to handle them best. let’s start with number one:

1) funding motivation

before getting on the roller coaster-one way road to venture capital (vc), start.ups should take a short break and think about the motivation to get risk capital for early stage companies. why looking for vc money, besides the pure cash-requirements?

when the initial enthusiasm of a start.up is gone, cash is running out in some months, bug-fix lists are growing, market feedback is slow and long nights start to take their toll it is time to discuss some real basics. where should the company go? developers sometimes loose motivation, after the proofed they can do it - not everyone likes to upscale until finally becoming a legacy application. marketers and sales people might struggle hard to find first and paying customers, after the initial marketing bravo wore off.

there are three main paths after all: a) full steam up the hill or into the wall, b) bootstrap, bootstrap & bootstrap or c) stop it right there.

in a situation like this, and every start.up goes through that now or then, it is time for the whole team to sit down and discuss. at the end of the process one of the paths will be taken.

those who do not fully support the decision better leave then, so the company can move ahead united and focused. there is nothing worse then a company funded with millions of vc money, which actually does not really want to grow the fastest possible and (in reality) hand over control to the investors. and this is true for the founders, co-workers, customers and the investors.

recommendation:
- match growing ambitions with sources of fund: vc for j-curve, bootstrap for the rest.
- make sure all the founders and the core team support the direction of the company. those who do not, should leave the company. make a written note of the meeting and let everyone sign it.

having cleared the basic strategy of the company's direction strongly determines the next step in acquiring vc money. assuming that risk capital is the right choice, then the next action point is fund selection. this will be discussed in part 2 of ”six steps to venture capital".

ignite session at web2.0expo berlin

there is not only a slot about "how to pitch" as recently reported at this years web2.0expo berlin. also a "start.up ignite web2.0 epxo europe" (this name is a bit long, but well...) session is announced. the time line is rather tight though: 10th of oct. to apply.

pitching "how to" session at web2.0expo berlin

events coming in at a steady pace now: web2.0epxo berlin pitch camp x.0 - how to pitch your company for fame and fortune. 21. oct. 2008, berlin. techcrunch moderated.