Featured photo credit: Kristin Smith
Charles / Business, Crowdfunding, Entrepreneurship, Finance, Venture Capital / Bitcoin, CEA, Consumer Electronics Assocation, cryptocurrency, internet of things, investment, mobile, payments, privacy, SaaS, Security, sensors, trends, wearables / 0 comments
Technology is one of the most attractive sectors for anyone looking to make money, however as it’s a vast field, it can be difficult figuring out the most profitable niches. Since venture capital is an extensive topic which we have covered here in multiple articles, rather than giving tips on setting up a portfolio, we’re going to dive right into the hottest technology trends for 2015 as discussed at the recent CEA Innovate event.
Internet of Things
Although many appliance and technology vendors are hyping up the Internet of Things (IoT) as the greatest thing since sliced bread, IoT is just old technology packaged in a new design. As I discussed in this answer on Quora, home automation has been around since the early 2000’s through X10 (hint: they’re the ones shilling spy cams via pop-ups on 99.999% of the internet back in their hayday). The only difference between then and now is that the capabilities have expanded and consumers are now finding valuable applications of these systems.
While IoT has many applications ranging from industrial automation down to consumer gadgets, it’s going to be hard to pick a winner until there’s a baseline standard in the market to ensure interoperability between devices. As virtually every major technology vendor is pushing their own proprietary standard for I0T communications, adoption in this space is going to be hindered for awhile.
Another old technology which is only now catching on, mobile awareness first came about when Bluetooth phones became popular. Advertising companies had the idea of sending SMS advertisements to phones as they went past Bluetooth beacons in strategic locations such as movie theaters. As you can imagine, this didn’t go over well with the public and the field was relatively dormant until now.
Now that users are more comfortable with sharing their information, location awareness is starting to take off in retail and other sectors. iBeacons are allowing companies to track user behavior within the store to improve the shopping experience, while other companies considering offering opt-in discount programs fine tuned to account for the time a user spends in different departments.
Ultimately any app which triggers a feature based on user location falls under the category of mobile awareness however the biggest thing to keep in mind is that this should always be an opt-in feature.
Sensors and Wearables
As previously discussed on this blog, although there have been many challenges to wearable technology and it has failed to live up to expectations, technology vendors are finally getting their acts together and pushing for novel uses in this field.
Healthcare is going to be a significant driver of innovation within the wearable space because the healthcare industry is in desperate need of disruption. By making it possible for doctors to monitor at-risk patients remotely, it’s possible for doctors to get a more accurate picture of a persons health than the current system which only allows 20 minutes per visit on average.
Wearables might take off in other sectors, but the key driver of innovation always will be profit. If a user isn’t going to pay the costs, then monetizing the data is a possible option. Before pursuing this route, technology vendors need to consider the privacy implications as discussed later in this article.
Payments and Money
Cryptocurrencies such as Bitcoin, Litecoin and Dogecoin are all the rage today, however there’s more to the digital payment space than these applications. For many investors, the primary focus within this area is going to be around streamlining commerce to make it easier. For example, customers paying by phone can allow bartenders to serve more drinks every night rather than constantly closing out tabs.
Ultimately the innovation in this market is likely to be dominated by the enterprise vendors because they’re the ones who already control the infrastructure powering payments. Startups can focus on building out a quality product, however even if consumers want it, it’s up to the banks, merchant processors and retailers to green light it for adoption.
Privacy and Security
With all the previously mentioned areas, having the trust of users is crucial for successful implementations. Users are fine handing over information to Google because they get a significant value from the exchange. On the other hand, when the NSA harvests information from users (probably not as much as Google), there’s a backlash due to the lack of transparency. Just like any tool, technology can be used for good or evil. It all depends on the context.
While prior generations may have been uncomfortable handing over information, most younger generations are fine as long as they feel they are not being manipulated.
In general, this segment is going to be huge for investments because companies today need to protect themselves from data breaches in order to maintain the trust of users.
As mentioned earlier in this post, before you make an investment in a company, you better make sure that your prospective portfolio company is bringing significant value to the market. Ask yourself, “Am I putting money into this company because of the industry, or is it because I believe in the entrepreneur?”
Even the greatest ideas are worthless if they have bad execution, while a bad idea can flourish if it has great execution. Ultimately these trends can help you figure out what areas to focus your search on, but it’s up to you to effectively assess the companies you invest in.
What do you think about these trends? What else do you think will be big in the years to come? Leave your thoughts in the comments!
Image source: Freedigitalphotos.net
When you have an idea for a new startup, it’s tempting to do some quick research on Google and then jump right into coding.
That’s a bad idea if you want to be sure you are on the right track. Launching a product requires a lot of effort, and it can be difficult to determine whether your idea is workable.
By following the steps below, you can greatly improve the odds of success when deciding what you should and shouldn’t pursue.
First, ask yourself these questions
Before building out any business idea, consider the following questions as you evaluate your startup idea:
These questions are just the tip of the iceberg when it comes to conducting market research for your business idea.
But if you can’t answer those fundamental questions early on, it’s a sign that your idea may not be worth pursuing.
Examine these sources of rock-solid intelligence
Postmortems and case studies
In any area of entrepreneurship, failure tends to be viewed as a rite of passage to running a successful business.
It’s true that many lessons are best learned firsthand, but by examining case studies and postmortems (analyses of failed projects), you can avoid reinventing the wheel and hitting the same roadblocks others faced. And conversely, case studies can provide a wealth of information on techniques that can help you succeed.
While a Google search will likely turn up many useful sources, you need to assess the credibility of each. Before believing everything in the reports, make sure you consider the following:
To learn more, read the rest of this article on Sitepoint
As an entrepreneur, it can be temping to focus on building out your company rather than planning your exit, but if you have any intention of actually making your time worthwhile, you need to ensure that your company has direction.
When I work with a client, one of the first things I’ll ask at the consultation before taking them on is, “what is your exit strategy?” Now, I’m not expecting a fully thought out answer, I just want to see where the entrepreneur’s mind is at.
If the business owner tells me that they’re expecting to be bought out by Google, or that they’re going to be bought out by Sequoia Capital at some ridiculous multiple – well, if this person can back those expectations with realistic facts, sure I’ll work with that, but 99.999% of the time, those responses will cause me to cut ties with the entrepreneur.
Having an exit strategy from day one is a vital element of a successful startup because it helps to keep you on track in a world filled with trillions of unknowns. While your startup will likely pivot multiple times by the time you hit rock bottom, just like your financial projections, your exit strategies are only intended to be guidelines as to how to execute your business strategy.
At a recent Angel Education Day hosted by The Soho Loft, topics covered included how to be a professional angel and how investors can improve their deal flow however one of the most important topics of the day was how entrepreneurs and investors can have a successful exit.
The Rise of the Inventreprenuer
Software has been a double edged sword for investors because while it has reduced the time it takes for innovative products to be released, it also has caused business owners to focus on inventing products for the hell of it rather than building out viable products.
The mobile application sector is home to the worst offenders. “Build it and they will come,” is the mentality of many app developers, but unless you have a solid revenue model, any smart investor will not talk to you.
Similarly while it’s novel to love your company and say that you want to have it forever, your investors are still going to need a way out. If you intend to keep your company, you need to let your investors know up front so the valuations can be adjusted accordingly.
Knowing When to Cash Out
For investors it can be difficult knowing how long you should be investing in your portfolio companies. For an angel, an exit usually occurs around four rounds since you usually can spot the failures after three rounds. Of course, sometimes outliers can take six rounds before to turn a profitable exit.
Keep in mind that the longer you follow on, the lower your returns will be, however if the valuations keep going up, you might still make a profit. Additionally you might need to follow on to instill confidence in prospective investors.
Even exits in the $5MM to $10MM range should have an investment banker or business broker to handle the auction of the company. The fees are relatively low compared to the returns. Just make sure you have connections before hand so you can get a better deal.
Opportunities are Everywhere
Contrary to popular belief, an exit is something which must be considered every day by the entrepreneur and investors because you never know who will be the right buyer for your business. Since your business is always changing, you should always be adjusting your strategy so that you are targeting the right investors.
What are your thoughts on exit strategies? When you are starting a business, what are your objectives. Leave your thoughts in the comments!
Image source: FreeDigitalPhotos.net
Building software for the web is different from many other fields because it’s possible to create a revolutionary product with nothing more than an idea, a computer and a bit of time.
You don’t need millions of dollars for real estate, permits, lawyers and other bottlenecks.
Just sit down, write your code and success will come.
Or so it seems…
As we’ve discussed previously, venture capital and entrepreneurship is a complex field where you aren’t the center of the universe.
One of the biggest traps that entrepreneurial software developers fall into is failing to factor in the opportunity costs of pursuing a misguided idea against their productive billable rate.
Put simply, if you are billing $100 an hour and you decide to spend 100 hours on a side project, you are potentially missing out on $10,000 of revenue.
The solution to this problem is simple.
Lean development teaches how to break your ideas into manageable chunks and validate each portion before moving forward with your project.
While Agile development methods have helped developers slash development times while improving quality, Lean development principles are much easier to embrace while still delivering significant benefits.
For those unfamiliar with the term, Lean principles are based on the idea that
“an imperfect something is better than a perfect nothing.”
By building a basic prototype of an idea, you can at least determine if there is a market for your product and how best to target it.
In the past, companies often went all-in on projects, spending millions of dollars to construct online stores and other ideas. While this approach made for great headlines, it ultimately led to the demise of many businesses.
Today, in an era of limited budgets, developers need to prioritize development such that they are only focusing on features which add immediate value. By focusing on constructing a “minimal viable product” (MVP), Lean principles help to cut down on uncertainty.
In Lean development, projects are built over multiple stages, and each stage is tested to ensure the project is headed in the right direction.
By only continuing with the project if there is demand for the product, you can improve your success rate while also simplifying the product development process.
Read the rest of this article at SitePoint
Private equity is a challenging field to break into because there is not a single recipe for success. It’s a field where some make their wealth from investing based on gut instinct, while others focus entirely on metrics. Some invest in groups, while others invest alone. Regardless of the approach someone takes, due-diligence always plays a significant role in whether an investment opportunity is successful.
In an ideal world it would be possible to consider all the promising opportunities which come across your desk, however time is a limited resource and the more research you conduct the narrower your deal-funnel becomes. Since success can’t be predicted ahead of time, the biggest challenge private equity investors face today is taking on enough investment opportunities without letting quality suffer.
At a recent angel investor education day hosted by The Soho Loft, the session focused around due-diligence and deal sourcing provided numerous insights on how investors can filter low quality opportunities while still leaving enough room to take on high quality opportunities.
Finding Deals Based on Investment Philosophy
One of the biggest questions investors face when putting money into a company is, “How early is too early?” As with most aspects of private equity, the answer to this question is that it depends on your investment philosophies. Getting into a company earlier provides you with a better price, however getting a return on your money will take significantly longer, and the risk will be much higher.
Most funds and investors are either thesis or stage based. A thesis investor is much more risk tolerant and is willing to jump into a company based on the entrepreneurs idea, even if they don’t have traction. Stage based investors go into deals.
When someone approaches you about an investment opportunity, look inside yourself and decide where your time is best spent. A good compromise here is to invest a small amount early on. After a set period of time, you can review the metrics from the company and then decide whether to invest in a follow-on round.
Typically the interest in a deal will vary based on the idea its self, the depth of the idea, and the knowledge of the entrepreneur. Regardless of the vertical, all opportunities you invest in should have a well defined problem space with competency by the entrepreneur, and a clear idea of economic consequences of the concept.
In most cases however, if the syndicate or investor is accepting more than 2.5% of the deals they encounter, they need to narrow their scope.
Typically it takes three touches before a company actually is eligible for investments. For example when a company is just pitching, they might be on to something but they aren’t yet ready for funding. Sometimes it pays to keep in touch with an entrepreneur and build the relationship early on, so that when the business takes off, you’ll be in a better position to invest in the venture.
Should I Stay or Should I go Now?
Follow on rounds are another challenging area for investors because it’s impossible to predict future performance. Should you cash out while you can, or is it best to stay on board for possible higher returns. While the answer to this will vary depending on the situation, you should keep a couple of considerations in mind:
Be prepared to follow on
As an angel investor, you always should have a reserve fund in place for all the deals you make so that if you have the opportunity to follow on later on, you can do so without breaking the bank. Additionally regardless of whether you choose to stay in with a company you should always reserve the right to invest in later rounds because you never know how a company will turn
One industry that stands out significantly is biotech since failure often is eminent and for the companies which succeed, further rounds require significant amounts of capital which most angel investors are unable to match.
Showing Your Support
Whether the initial investors participate in follow on rounds can play a significant role in whether venture capitalists choose to put money in your portfolio companies. While it can be tempting to cash out, as mentioned in our previous article titled What Every Angel Investor Wants You to Know, professional investors always put their money back into their endeavors. Cashing out might free up your cash, but it does not instill confidence to prospective investors regarding the performance of the company.
Ultimately if you feel you have a winner, you’re going to double down. If you feel the investment is going south, then you should not use a follow on round as a way to save your initial investment.
Follow on rounds come in different flavors, the most notable being Seed Plus and Pre A. Seed plus rounds are ones you usually should avoid at all costs because they occur when a company didn’t meet their metrics for the original seed round and are asking for capital to meet those marks for further rounds. Usually these rounds are a bad bet.
Pre A rounds are much more positive. They happen when the metrics are met, but the company wants some capital so that they can achieve a higher multiple to achieve a better valuation on the Series A investments.
If you’re doing a Pre A or Seed Plus round, remember that you can add tight contingencies on the capital being put in – usually investors will state that they will put money in on the assumption that a Series A will go through or that metrics will be met.
What are your philosophies when it comes to investing? Do you invest in what is hot, or do you try investing in sectors that are commonly overlooked. Leave your thoughts in the comments below!
Landing a seed round for your startup is one of the biggest challenges you can face as an entrepreneur. While you’re statistically more likely to be struck by lightening than you are to clear a deal, if you have the right strategy in place, you can greatly improve the chances of success.
Ultimately there’s no shortage of venture capital funds. The biggest challenge is figuring out the right people to ask, and also knowing how to position yourself in front of them.
Recently The Soho Loft held an Angel Investor education day, during which a variety of speakers shared their knowledge and expertise on how investors can be more successful.
While many of the talks were focused on the investor side of things, one of the talks titled What Every Angel Investor Wants You to Know, by Brian Cohen, provided numerous tips to aspiring angels on how to to be successful.
Walk Away from Idiots
Starting off with the obvious, angel investors don’t like idiots. Additionally, contrary to popular belief, there is a such thing as stupid questions. Cohen’s advice to investors who have to deal with entrepreneurs asking basic questions – drop them. As angel investing is well documented online. it isn’t rocket science getting an answer to those questions.
Even if an opportunity seems like it has to be done, it’s important for the investor to remember that opportunities will always come up, so they should stick to their principles and only invest in companies they feel are competent.
Don’t Confuse Investing with Mentoring
For an individual to qualify as a professional angel investor, they need to invest at least $50,000 annually to maintain a decent sized portfolio. Despite this, the average investor is an amateur because they typically view themselves as mentors rather than focusing on the formalities. According to Cohen, the term “mentor” is a bastardized term today. At most, an investor is an adviser to a company, and they need to make investments on merit rather than emotion.
When it comes to making a deal, smart money is always better than dumb money. Investments are a two way road, where most angels want to share their knowledge with the entrepreneur. Additionally, there’s no shortage of deals to be made (more on this shortly). This is why entrepreneurs and investors need to make sure that they’re a good fit for each other rather than each side simply making a deal for the hell of it. Both sides need to make sure that they’re able to bring some value to the table while still delivering a significant return.
Metrics of Professional Investments
In the investment world, $25,000 is the minimum amount of money in a round to qualify as a professional investment. Since 95% of venture capitalists hold 5% of the wealth in the private equity world, the level of profit is skewed towards the top, however it’s impossible to pick and choose winners.
While traditional wisdom states funds should expect a 5x-10x return on their investments over seven to ten years, Cohen said in his talk that investors should only invest in companies which have a 30%-35% annual return as a way to hedge against failure.
The logic being that most of the investments will fail, so you’ll need at a major victory to turn a profit. By only aiming for a low multiple, your best case scenario is less likely to help you get into the black.
In terms of the amount of due diligence to exercise on a deal, just remember that “a deal without due-diligence is like sex without a condom.” Ultimately an angel usually does seven hours or a seventeen page analysis. This shouldn’t be done yourself though as the wisdom of crowds always prevails. This is why angel syndicates often are at an advantage over individual investors when it comes to screening investment opportunities.
What do you think?
Have you pitched to investors, what were your experiences? If you’re an investor, do you agree with Cohen? Leave your thoughts and feedback in the comments!
More information can be found in Cohen’s book, What Every Angel Investor Wants You to Know: An Insider Reveals How to Get Smart Funding for Your Billion Dollar Idea
Photo source: FreeDigitalPhotos.net
In a field where everyone is trying to get money for their latest idea, it can be difficult — if not impossible — to secure outside funding for your project. In the past, your options for getting large sums of cash were primarily venture capital funds or angel investors. Today, though, crowdfunding has become a practical alternative for entrepreneurs who need funds but don’t want to sacrifice equity or go through the grueling process of being grilled by investors.
For those unfamiliar with crowdfunding campaigns, crowdfunding is a new way for entrepreneurs to raise capital by tapping the masses rather than a small pool of investors. You might have heard of a few, like Kickstarter orPozible.
Crowdfunding works by allowing virtually anyone to make relatively small contributions to a project in exchange for tangible goods, rather than having a small pool of investors risk large chunks of funds. Donation amounts vary from campaign to campaign but they typically range from $1 up to $10,000.
Crowdfunding sites originally gained notoriety in the creative and artist communities because they allowed artists to successfully raise funds even though most traditional investors wouldn’t touch their work. Crowdfunding proved to be highly successful for these groups because the rewards are practical: by offering CDs, copies of paintings and other tangible goods, the system became a way to pre-order a variety of innovative products. As crowdfunding became more popular, digital downloads emerged as a popular reward option.
Read the rest of this article at Sitepoint
Image source: FreeDigitalPhotos.net
Today on the second day of Internet Week, New York City Mayor Michael Bloomberg unveiled the launch of MappedInNY.com – an online map which showcases high tech start ups throughout the New York area. Currently the site lists 324 NYC start ups as hiring with over 1,000 engineering jobs listed. As today’s press announcement is the first significant public release regarding the map, Mayor Bloomberg explained the numbers of items on the list are expected to rise greatly over the coming days and weeks.
The Made in NY map provides a very simple to use interface for job seekers to connect with companies seeking talent, and also for investors and businesses in general to better collaborate in today’s rough economy.
For those unfamiliar with the festival, Internet Week is an annual event backed by New York City, intended to showcase the high tech talent in the area. Comprised of over 225 events and estimated attendance of over 45,000 individuals – the event is one of the most significant events in the technological industry.
Some facts of note from the conference – Bloomberg cited a report from the Center for an Urban Future which mentioned how New York City has overtaken Boston as the number two tech hub next to Silicon Valley. With over 500 start ups having been formed in the city since 2007 New York already has a solid track of embracing start ups in numerous verticals. The key differentiators between New York and Silicon Valley is simply the fact that although the Valley is filled with innovation, New York has a significantly more diverse culture.