"approaching venture capitalists", part 4.2 of the series six steps to ventture capital

at the 2nd round meeting it goes along the same lines as on the first round. know your pitch, stick to your talking time. know who answers which questions. do not correct each other giving answers.

now it is time to hand out your references. and again: set up the schedule (yes or no, negotiation schedule, term sheet, final contract signing-closing). this tests the real interest of the vc, namely through assigning resources for the evaluation. having mastered the 2nd meeting, this either leads to a „no“ or a jump directly into the negotiation part. this will be the next part of the series.

having reached the 3rd round brings one positive problem: the vc´s approached until now were form the b-list. the leanings form the presentations and meetings will pay off, through refining the approach, the pitch. based on this, it is then time to go ahead on a-venture firms. keeping the b-vc as back up can be helpful.
following the same procedure as outlined above it is about making it to the 3rd round with two a-vc. the main difference now being, not to learn & to improve but getting qualified a investors.

there remain some side topic on approaching vc, which are worth looking at: timeframe, lawyers, costs, consultants and exclusivity.

as a general time frame, 6 month from the start of approaching vc until closing an investment are a reasonable timeframe for europe. 4 month are more seen in the anglo-saxon world.

lawyers are generally only necessary after drafting the term sheet. until then common sense suffices as singning anything which would cause obligations on the start.ups side are not necessary.

until a term sheet is signed, no costs of any kind should be accepted from the start.up by a credible investor.

if any kind of corporate finance/m&a,... -consultants which promise to bring investors to the start.up are involved, special care is required. upfront payments may sound plausible but as cash is a scare resource, only success fees should be accepted, based on real cash inflow on the start.ups account. generally start.ups have more then sufficient capabilities to acquire vc interest - if they do their homework. and paying a consultant just to be told to do the homework could be seen a waste of money. the combination of a compelling idea with preferences (see part 3) opens vc doors without the help of others.

recommendation: 1) approach 3 b-vc, 2) follow up after one week, 3) fix 1. meeting/conference call, 4) be prepared, 5)push for go/no + next meeting, 6) reach 2. & 3. meeting. 7) watch timeframe, lawyers, costs, consultants and exclusivity.

how to succeed in the negotiations with the investor will be the focus on the 5th part of the "six steps to venture capital" guide. that much can already be said: the aim is, that both parties are unhappy but still want to close the deal.

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"approaching venture capitalists", part 4.1 of the series six steps to venture capital

„giving and taking“ is the name of the game now. start.ups have bright ideas but no money, investors have, well, money and the need to earn profits. so both parties have a mutual interest to find to each other. therefore mutual respect should be the basis of the interaction on both sides.

this is the 4th part of the "six steps to venture capital" guide, where the systematic approach to acquire venture capital for a start.ups is discussed.

after the motivation got sorted out in step 1, the a-b list of potential investors in part 2 (part 1, part 2) got filled and the battleground got prepared in step 3 now it is time to approach the potential investors.

first thing to do is to contact three venture capitalists from the b-list (as laid out in part 3).

the best way to contact is through references (see here on general discussion of references in the context of venture capital). if that is not possible, it is worth to investigate on how to get in touch best with the respective firms. there has been an interesting discussion on that topic also at web2.0 berlin 2009, see here.

in case of doubt, just call the vc firm and ask which way of contact they prefer. when calling though, be prepared for the (unlikely) event, that you get put through directly to a vc partner or his associate. in this case, either just ask how to forward your project or use the opportunity to try the already prepared (and peer group tested!) 2 minute telephone pitch. depending on the latter, the executive summary could be looked with more or less care at the first screening.

having found out the way to contact, send the executive summary and announce to get in touch personally one week after.

follow up after one week as said. use whatever way fits best, e.g. by using an open approach like, „any questions, additional information wanted“. key is to find out if they interested or not. it is not worth to run after a vc for 2 month. reading the executive summary takes 10 minutes.
2nd thing to find out is how to set up the next step. be it a personal meeting or a online presentation/telephone conference. know how the time frame for meeting will be and who will attend.

when succeeding to get the 1st meeting/online presentation prepare the team: ceo and cfo are sufficient. prepare the pitch and stick to the time frame. decide who answers on which questions beforehand.
also the start.up has to have the questions to the investors prepared. a start.up which has no questions to the vc did not prepare.

at the end it is all about fixing the next steps. when - if not directly - to get an answer for go/no-go and about discussing the timeline for a follow up meeting.

if an invitation for a 2nd round discussion got nailed down, it is a ll about making it to the 3rd found. the basic idea is the same as for the first encounter. ahead of the talk, fix time frame, fix topics, check on participants (investor, start.up). additionally prepare references, have the non disclosure agreement (nda) cleared out in the meantime (so that legal stuff does not waste scare meeting time and legal topics potentially poison the spirit, long story short, that often leads to accept the nda of the vc).

handling the 2nd round meeting comes up at the second part of "approaching venture capitalists", part 4.2 of the series six steps to venture capital.

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interview with Andraž Tori of zemanta: part 2/2

this is the second part of the interview with Andraž Tori of zemanta. the first part can be found here.

Andraž, what does seedcamp and pitching mean for your company?

pitching is a fabulous experience of explaining your idea and trying to inspire other people. pitching is one of the best things, when you have a start.up.

seedcamp was a great experience, because it gives start.ups a chance. that's very important for early stage start.ups. having the possibility to present your idea to somebody that matters can help you to move your idea forward.

seedcamp was a very fortunate event as the timing was exactly right for us. this is the part of the start.up life that you can not plan for. you need to work hard as hell, but at the end you also need to have a bit of luck.

you have already left some tracks in your personal career, informatics olympiad medal winner, co-founder, open source developer and now zemanta. what`s next?

well [laughing], i do like to do cool stuff that interests me, that helps people and has some impact on the world. that's what i am going to do for a long time. but first and foremost we have to make zemanta a big success.

bostjan spetic and your are the founders of zemanta. ales septic, the ceo of your company was not among the founders. how was it to have a non-founder becoming the ceo?
it is an interesting experience. we already worked with ales before and we rely on the good sides of everybody in the team. handing over control was not really a big topic, as we were always running the company very consensually. there is always disagreement about certain topics but it is important to find a proper consensus and then honour the decisions.

semantic technologies are hard to tackle. how do you trade between a very domain specific vs. a more generic approach for your product?
we started with a very generic approach from the beginning. it is just now that we start to add specific things that are required for special areas of application. that is not the usual thinking but that helped us.

anything else you would like to talk recommend new start.ups for the beginning?
be very clear from the beginning of what kind of value you provide and to whom.

the other thing is, just do it. it is not perfect in the first iteration ever. just put something out, see what others say and how they use it. learn on that and create a new thing. it is not a bad thing to be wrong sometimes. then go ahead and improve – you sometimes fail and you just improve again.
that is probably what we haven't still completely consumed from the silicon valley type of entrepreneurship [in Europe]. failing is just part of succeeding. failure is still a failure but it is not the end of the world. it is as good experience to learn and do it better next time.

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interview with Andraž Tori of zemanta: part 1/2

inspired by jessica livingston´s highly recommended book, founders at work, interviews with local start.ups will become part of the regular start.up blog entries. the interviews will be split up in two parts. while the first will focus on general start.up topics, the second will look deeper into the company in focus.

the first company in line is zemanta. founded by Andraž Tori and Boštjan Špetič, zemata provides an intelligent blog extension which automatically generates context sensitive proposals for pictures, links & tags. their firefox plug in can be downloaded here. a live demo can be tried here. winning seedcamp brought zemanta wide media attention as well as reputable vc funding. the interview took place at this year's web2.0expo berlin with Andraž Tori.

Andraž, tell me about the (three) most exciting things about start.ing up your company?
first it was really exciting to see that we had something not many people in the world were doing. the second great thing was winning seedcamp. this was a big achievement, since there are not many start.ups in slovenia.
finally it is great to do stuff that usually can only be done in silicon valley. to do something which is really for the whole world and to see that we here in europe are on the same level [as silicon valley]. that is exciting.

what about the most unfortunate things about start.ing up?
we did not have any big misfortunes. there were hard bits, like getting calls in the middle of the night, when the service [of zemanta] went down and not getting to sleep all the night fixing stuff.

on the business side there are long negotiations about funding. you are of course not happy with all the conditions you get.

there are times when it is hard and tiresome. it is exciting, but not just fun.

what are your lessons learned until now about technology?
prepare to re-do things. you will create solutions to problems, learn that you misjudged things and rebuild. and you have to listen to other people. the collective intelligence of people is always better then a single mind. one has to be persisted and stubborn, but just in the right amount.

when you hear the words "exit" and "shut down", what comes to your mind?
that's t the life of a start.up.

how do handle private life vs. work?
i put a lot of myself in zemanta, but i enjoy it. you have to observe and listen to yourself. when you are over-investing yourself just step back a little. sometimes you have to push to the maximum, but you can not always work in that mode.

this was the fist part of the interview with Andraž Tori. stay tuned for the 2nd part, where a closer look on zemanta will be taken.

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"preparing the battleground ", part 3 of the series: six steps to venture capital

this is the 3nd part of the "six steps to venture capital" guide, where the systematic approach to get venture capital for a start.ups is discussed.

after the motivation got sorted out in step 1 and in step 2 the a-b list of potential investors (part 1, part 2) got started, it is time to "prepare the battleground".

it would not be wise, to contact the top 3 vc on the a-b list to start with. even after the excitement of achieving a list after quite some work, this would be a bad thing to do. first, because the potentially best investors should be kept for later, when a routine in pitching was developed. secondly because what would happen if a contacted (still potential) investor directly calls back and ask for the executive summary and you do not have one yet? and no, sending out something that was just compiled in a couple of hours, is not a good idea. not even for the bottom three vc from your a-b list.

following the advise of general sun zi (read more about sun zi, moltke & douglas adams für start.ups here) you should only go into a battle when you know that you will win. therefore preparation before contacting future financiers is key. there are four things that have to be in place:
1) investor picht slides (30-20-10),
2) an executive summary (2 pages, includes financials),
3) business plan (20 pages total, including all attatchments & 1 page financial summary),
4) references.
the best way now is to work through the list top - down.

plan to spend around one week on preparing your investor presentation and executive summary. follow 30 (minimum font size) - 20 (time of presentation) - 10 (number of slides) guideline from guy kawasaki. stick to this rule, do not try to improve it, it only reduces the chances of funding.
use the following headlines, kawasaki again: 1) problem, 2) solution, 3) business model, 4) underlying magic, 5) marketing and sales, 6) competition, 7) projections, 8) team & 9) status & time line.

the structure is the same for the investor presentation as well as for executive summary. for more details, read "the art of the start", or "reality check" from guy kawasaki.
the executive summary shall not succeed more then two pages. and that includes a summary of the financials (projections for revenues, number of customers contracts, personnel & other costs, number of employees, total cash requirements, sources of funds).

focusing that much requires a clear focus of the aim of the start.up and how to achieve it. if two pages are not enough, more thoughts have to be spent on the start.up.

based on the presentation and executive summary the business plan can be compiled. sticking to a readable 20 pages is key again. no vc will read a 60 page manifesto. after the focusing work was done in the executive summary, filling in the prosa can be done in 2 days. if not, going back to thinking for the exec. summary is imminent.

having followed the chronological order of the "battleground" preparation it is time to think about the start.up's references.
first, who can be the references? choose from former employers, colleagues which already made it, customers, former investors, well connected lawyers, reputable professors. whoever can give valuable, connected reference can make sense. a similar procedure as compiling the a-b list can be applied. not everyone which is known by the members of the start.up is a valuable reference for potential investors though.
as the executive summary is ready by now, it will be easier to get 2-3 references on board, using the key pitch topics is the thoroughly prepared "ammunition" at hand.

being prepared with all the materials required and the investor targets identified, it is time for approaching the investors. this will be the next part of the series, six steps to venture capital.

recommendation: while preparing the a-b vc list, create 1) pitch slides (30-20-10), 2) an executive summary (2 pages including financials), , 3) business plan (20 pages total, attachments & 1 page financial summary included), 4) prepare 2 to 3 references.

six steps to venture capital: part 2.2/6 fund selection

this is the 2nd part of the "six steps to venture capital" guide, where the systematic approach to get venture capital money for start.ups is discussed.

part 1 covered "motivation" and can be found here. part 2 deals with the selection of potential funds. the fist section covered fund selection according to investment period, geography and focus. to complete the criteria, let's look at the remaining important criteria:

4) experience
does the potential investor understand your technology, your business model, your market? or would an investment be the “pilot-investment” for a fund e.g. in semantic technologies? if so, a lot of missionary work has to be done with the investor (so b-list). not too much support market and business wise can be expected after investment as well.
smart money, as often described when talking about venture capital, which means that on top of the money from the investor comes a lot of business contacts or business advices, is often promised but seldom delivered. check with reference calls.

on a daily business, it is not “the fund” though, which a start.up is going to interact after investment. it will be a partner and an investment manager. so besides valuing their investment history and their personal background (technology or finance, entrepreneur or big corporate, number of successful relevant exits), it is absolutely necessary, to be able to consider the gut-feeling after a first meeting with them. A start.up should ask themselves the questions: do we like this person? can we work with her also in hard times? If not, then even a otherwise perfect match is useless (lower b-list).

5) cash available for investment
finding out how much cash a fund can invest is vital. if a start.up requires 2 million € and that is all the money a fund has left, that’ b-list of even worse. regular start.ups need more money then they expect, often twice as much as projected. if the fund which did the first investment can not put in additional money the start.up might run out of cash maybe just three month before taking off. finding a new investor without the first round investor putting any additional cash on the table will be very difficult (this is often seen as: the first investor does not believe in the company any more).

6) fund exit horizon
when will the fund close? some funds run for 10 years, some are evergreens.
A ten year fund invests for five years and spends the next five to sell his investments. at the end of the 10th year, the fund has to pay the money to his investors. evergreen have no determined duration. And are therefore a-list candidates. Other funds within their investment period as well.

7) references.
references are important. venture funds will check the references of their potential project – so should start.ups. fund recommendations from fellow entrepreneurs, reference contacts given by funds and even cold calls are possible. only funds with three positive references make it on an a-list place.

recommendation: prepare ranking “a-b list” of potential funds according to 1) investment period, 2) geography, 3) focus, 4) experience, 5) cash available for investment, 6) fund exit horizon and 7) references.

coming up in the next step of "six steps to venture capital" is all about preparing the "battleground".

web2expo berlin start-up lessions review by fabian topfstedt

fabian topfstedt, freelance developer and start.up co-founder just recently posted his impressions from this year's web2.0expo berlin.

fabian attended business as well as developer tracks and especially for the latter, takes a closer look at rest, oath and the like. to read the full story, visit his website webiste.

the most important thing besides all the inputs from the conference fabinan concludes - after all and never to be forgotten - is to "Have fun!".