Tag Archives: funding

How can market signals contribute to public startup funding?

Coinvest-by-ramonsuarez-piggybanks

The EU Commission has invited me to participate in a series of very interesting discussions about how to help tech entrepreneurs in the EU. The conversations have been very interesting and have given me the opportunity to exchange with entrepreneurs, universities, public and private organizations, and experts that support the development of startups in Europe.

One of the things that we discussed is how should to ensure that public funding on early stage startups does not bias the market, incentivising “good” ideas that nobody really cares about and ignoring others that are more needed.

My proposal, shared by other participants, is to follow market signals, so that it is the market that chooses and the public sector only reenforces those choices.

But the question is, which market signals?

Coinvesting is a good way to follow the market lead, but it should be investment from private investors, not from guarantee funds or banks (there are already mechanisms for that). They have a higher commitment to the success of the company, after all they’ve bet some of their own money in it. 

The selection of the startups by a group of investors and entrepreneurs to participate in accelerator programs is also a good signal. They usually invest based on the quality of the team of people joining. It is not a school, they have very limited seats available and they work hard to help the startups grow quick. They have some skin in the choice (but are not fully committed.) The equity parts of these programmes are usually passive, they don’t take part in the . They just wait for 5 or more years for a possible exit or buyout. To really make a difference they should also put their own money in the startups, commit themselves, not just distribute somebody else’s funds.

These are some example of accelerator programs and of a public investment scheme to promote web entrepreneurship. 

  • Enterprise Ireland: €50 000 for new startups and €250 000 in coinvestment, companies have to setup shop in Ireland and 10% of the company goes to EI. 
  • Y-combinator: acts as a fund on top of accelerating a very select group of startups. Investments of up to US$80 000 for the next batch in exchange of 2-10% participation. 
  • TechStars: US$18 000 to the selected participant startups plus a convertible loan of US$100 000, in exchange of +- 6% equity.
  • Wayra: US$ 50 000 in exchange of 5-10% of the equity.

Sales would be too tricky to take into consideration, with a lot of different schemes and most of the startups would be to early in their development to have any sales at all. 

In my view, it would be even more interesting to incentivate the investment with a tax-shelter for early stage investment. There are already mechanisms like this in France and the UK where what the tax-shelters are doing is taking out part of the risk. One way to do this could be to create a European fund that would give part of the money back in case of a failure, but the investment has to fall within the scope and be registered when it is done, not after.

How would you do it?

Betagroup Presentation Template to Pitch to Investors

Tomorrow is the preselection for the Betapitch, a special Betagroup event hosted at the Betacowork where startups will pitch to a panel of investors that can invest from €20.000 to €5.000.000 . 
This is the template for the presentation that Jean has sent, which may also help you if you are pitching to investors at any other moment: 
Timing: 5 minutes sharp (there will be a countdown and an alarm after 5 minutes) + Q&A
 
Slides template: all the participants will present the same 10 slides (inspired by Guy Kawasaki)
Slide 1 – Team
Slide 2 – Problem that you are tackling
Slide 3 – Your solution
Slide 4 – Business model
Slide 5 – Underlying magic/technology
Slide 6 – Marketing and sales
Slide 7 – Competition
Slide 8 -Projections and milestones
Slide 9 -Pre-invest value + money needed (only 2 figures for this important slide)
Slide 10 – How do you plan to spend the money that you raise

There will be a workshop to help the teams with their presentations hosted by Gilbert West.

 

Beta Group’s Internet Entrepreneurship Links

Thanks to Jean Derely for improving this list on and on.

In case you do not know about it, the Beta Group is the largest Internet & Tech entrepreneurship networking event in Belgium, with about 350 attendees in each of its monthly meetups. The event consists of a pitch slam with six startups showcasing their products, short requests and announcements from the audience (the live tweets), and lots of networking over free warm beer. A must.

Disclosure: I am a member of the Beta Group’s council, and proud of it!

Fred Destin’s Workshop on Hacking Venture Capital

LIFT10: Workshop on Hacking Venture Capital

This morning at the excellent LIFT Conference I gave a two hour workshop on “Hacking Venture Capital” designed to give entrepreneurs a hands-on experience of (a) pitching and (b) negotiating with detailed debrief and tricks of the trade.  As promised I wanted to share the material and presentations, with my thanks to @venturehacks for a good part of the content.

First off the two prezis and then the case study material (i used ERPLY as inspiration).

 

I only wish there was a video of this presentation.

Three things you should never tell a VC when fundraising – Fred Destin

Three things you should never tell a VC when fundraising

Disclosure is a good thing.  Early disclosure of thorny issues is a very good thing (such as, “I am embroiled in a legal dispute with my co-founder over ownership of the company and here is why”).  That does NOT mean, however, that you should be totally transparent during fundraising. 

In particular, there are three things you should be extremely selective in disclosing:

  • How much cash you have and when you are running out of money.  The answer should ALWAYS be along the lines of: “we are well funded for now and our investors are supportive” no matter how desperate for cash you are.  Or “we have a very low burn rate and can sustain ourselves for the time being”.   Not: “we are out of money on two months and getting desperate”.  There are other ways to create a forcing function and admitting you are going bust or telling investors when you will be is no way to optimise your outcome.  ADD: You should clearly talk about your financial profile and how much you are burning per month, I just do no think it is wise to provide the VC with the exact date from which any lowball offer will become hard for you to turn down…
  • Other investors you are talking to.  I always ask, and I always get a very detailed response: well, Index has done two meetings and Atomico is close to term-sheet etc etc.  Why ??? I don’t exploit that information except to pace myself but how many stories have you heard of VC’s ganging up to avoid competing with each other ?  The management of KDS agreed to collapse us into the Accel Partners term-sheet when we invested there, but it was their decision.  The other issue you face is that VC’s may say “if you get Investor X to lead I will join them” or you get top tier VCs (say the mysterious Investor X) thinking “well investor Y and Z are really crap and if they are interested it cannot be that good”.  Sounds stupid, but I have seen this happen.
  • Your detailed cap table and your last round valuation.  You are telling me now (a) which investors I should be influencing to win the deal and (b) how much upside I should give them, and that may not be in your best interest.  Management ownership matters but be coy and don’t reveal more than you need to.

You should keep your cards close to your chest, maintain information asymmetry.  The key is to do this without seeming to be secretive or pretentious, but with confidence: “we are talking to a few select investors, strong brands, and are currently making good progress towards a close”.

Some VCs spend their entire time talking to others and asking them forcefully “whether they are looking at company Y and what they think of it and should we not do this together”.

The question to ask yourself is: “is this information relevant to the VC’s assesment of whether they do or do not want to invest in my business and at what price”.  If it’s not and it helps the other party’s negotiation leverage, you do not have an obligation to answer.

Trust me on this, and always keep your options open.

UPDATE: to be clearer, I am suggesting that this information is valuable and important and that you should be “selective” in disclosing it.  Yes, it gets subtle.  For example, a VC should be able to put the outline of an offer together without knowing your detailed cap table.  However, he won’t be able to write you a detailed term-sheet without the full details (voting thresholds and board composition, to take two examples, depend on it).  I thought I would clarify after noting this comment by pg on Hacker News.  In any event, 100% transparency all the time is not the way to go.  This post should have been entitled “Information you should be careful with when talking to VCs”.  Not catchy, me no like.  

UPDATE II: I think we should drop my last point on cap table.  I had a specific instance in mind where this was important when writing this, but it’s far from universal.  I would not necessarily comment early on last round price when it was very LOW, as this can set the bar too low for the current round of negotiation.  If your last round was overpriced, well this is something you need to address preferably before you are talking to new investors to get existing shareholders aligned.  I invite you to read Eileen for the counter and Reid Curley for a balanced view.

A great peace of advice from a seasoned venture capitalist. Read in full.

Fred Destin is a VC I follow since I saw his brilliant participation in this roundtable at Plugg in Brussels:

VC Panel: Where’s The Money Gone? from Plugg Conference on Vimeo.

He was completely detached at the beginning, but thanks to the arts of Matthäus Krzykowski he ended up getting fully into it and providing for one of the best moments of the conference.

Investors: Venture Capitalists and Business Angels list in BetaGroup

Investors – VC & Angels

Jean Derely is doing a great job rallying the Belgian Web Entrepreneur scene and acting as a network multiplier in Brussels.

Among the services he provides to the community he has collected a very interesting selection of links to make the life of entrepreneurs easier, among which is this list of investors (venture capitalists and business angels). Check the BetaGroups website for more.