Archives for the month of: January, 2015

There is an old saying that the VC’s in Silicon Valley will only invest in companies less than an hours drive from their office. This highlights the personal nature of the startup investment world. Investors want to be very hands-on with their portfolio companies. This is a model that has been replicated all over the globe. However, the internet is transforming every industry and it is slightly ironic that the investment community has been slow to embrace the technology they invest in. Platforms are starting to have a profound effect as they dis-intermediate some of the current players.

Venture Capital funds are under pressure from investors due to their high management fees and lack of accountability. Investors in VC funds are only in a position to judge performance after an extended period of up to 10 years. Such funds are becoming more vulnerable to competition. VCs are increasingly moving later stage with each new fund they raise. As funds grow larger, their managing partners gravitate towards making a smaller number of investments. This allows them to deploy their resources more efficiently over a a manageable number of portfolio companies. This is opening up a gap below Series A which will increasingly be filled by platforms.

At the lower end of the scale, Crowd-funding platforms are already having a major impact. In some countries such as the UK this is combined with strong government incentives for smart angels to invest on an individual basis. This provides an alternative to the friends and family round. At slightly later seed rounds, professional funding platforms such as Dreamstake are nibbling at the VC space by facilitating syndication. This is already transforming the industry, with Angellist raising over $100 million for startups on their platform in the last year.

Naval Ravikant, the founder of Angellist is not going to stop at simply syndicating angels. He has his eyes on the larger institutional investors that cannot currently invest in early stage startups because the transaction costs are too high. However, platforms can effectively manage portfolios on behalf of these global giants.

Platforms have the potential to reduce transaction costs and bring efficiencies into the market. They allow startups to attract individual investors directly into online deal-rooms with standard term sheets. This simplifies the investment process and avoids heavy management fees.

To summarise, VC funds face competition from individual angels investing in syndicates on platforms and from larger institutional investors who will use the same platforms to reduce transaction fees and make investing in high growth opportunities more accessible to them.

Blog by Paul Dowling – Co-Founder of Dreamstake  the world’s first tech startup platform to match founders with the most appropriate investors using a unique startup rating system. This allows entrepreneurs and investors to monitor startup progress and inject capital and support when most needed. Startup founders can create profiles on the platform and get direct introductions to investors. We are constantly looking for great early stage tech startups. Investors please contact [email protected]

We have also recently launched an exclusive tech angel investment club in partnership with The Hoxton. HoxTech Angels will run invitation only angel investment evenings every last Monday of the month.

I have met over 500 startup teams over the past year and it strikes me how important the personality of the founder is to the success of a tech startup. There is a strong link between the quality of the founder and their ability to attract other team members and to ultimately attract investment from angels or VCs. Founders come in many forms. Some are geeky techies, others are business people with amazing ideas. However, there are a number of key characteristics that I would highlight as essential to the ultimate success of the startup;

Passion – All great founders have a vision and a passion to fulfill it. Let’s face it, if you don’t believe in your idea, you can be sure that no one else will. Passion will normally come from the fact that you are solving a real problem that other people also face. Passion is infectious and will drive the business ahead through the difficult times that you will definitely face on occasions.

Hard working – I was recently told by a VC that they notice the times when their entrepreneurs are working. Brent Hoberman, founder of Lastminute.com would send emails at all times night and day. There is no getting around it. Founding a startup is not a 9-5 job and there is no such thing as work/life balance. There is a direct relationship between the level of work put in and the results achieved.

Attention to detail – The devil is in the detail. Successful founders have a eye for detail. It doesn’t matter whether it is the quality of the branding or the integrity of their code, good founders will always be striving for improvement. They will not accept second best and can be very demanding.

Willing to take risks – Founding a startup is a risky business. It normally involves giving up full-time employment and devoting 100% of your work-life to the new venture. If you have secured funding you will be facing a burn-rate and have a team to retain. There will be times when the situation looks totally bleak. Founders need to be prepared from the outset, to risk everything. It rarely works to mitigate risk by having one foot in a day-job and the other in a startup. Failing fast is an integral part of the startup process. Founders often have to be prepared to let go of their initial ideas, brush themselves off and start again.

Rational – Creating a startup is not simply about having a good idea. It is about following a series of logical steps. The Lean Startup by Eric Ries is the best guide to follow. A good founder will recognize how important it is to test that there is an appetite for their solution at each stage. Does it solve a real problem and will people pay to use it.

Open-minded to advice -Probably the number one issue. Defensiveness is a massive turn-off for investors. Founders will receive helpful feedback from investors, mentors or team members. This feedback is not designed to test your ability to handle objections. It is meant to test your openness to suggestion. Take this advice and decide whether it is valid or not. Be careful not to under-estimate the person giving feedback.

Strong-minded – The other side of the coin is that founders should not change direction with every last piece of advice they receive. They should be able to take advice from a range of sources and decide which to take on board. The buck stops with them.

Realistic – A lot of founders fail by over-valuing their own value and under-valuing others. It’s important to understand that your idea has little value. The value comes from your ability to engage with others to execute. The value of co-founders has to be recognized and rewarded accordingly.

Flexible – It is vital to respond to change. You may be facing competition or a new market conditions. You may have tested your product and hit a brick wall. It has been proven that startup founders who have pivoted a few times are more successful than those refusing to change.

If you are thinking about embarking on the journey to become a tech entrepreneur I would recommend checking that you are able to develop these characteristics. Launching a tech business can be amazingly rewarding but it is not for the faint-hearted.

Blog by Paul Dowling – Co-Founder of Dreamstake  the world’s first tech startup platform to match founders with the most appropriate investors using a unique startup rating system. This allows entrepreneurs and investors to monitor startup progress and inject capital and support when most needed. Startup founders can create profiles on the platform and get direct introductions to investors. We are constantly looking for great early stage tech startups. Investors please contact [email protected]

We have also recently launched an exclusive tech angel investment club in partnership with The Hoxton. HoxTech Angels will run invitation only angel investment evenings every last Monday of the month.

 

 

 

We are spending a lot of time with investors and building a big database of tech angels with a view to getting some of the startups on the Dreamstake platform funded. I have blogged a lot about the funding gap below VC level which I believe can only be filled by angel investment. Angels are private individuals who have access to enough wealth to put into startups and are willing to do so. Tech angels are a particularly rare breed. They may have sold a tech business or may simply be excited by the sector and willing to take a small gamble. However, there are a lot of myths about tech angels and it is important to understand the real situation or it can be extremely hard to secure funding by this route.

They know what they like – Tech angels are usually bright people who have achieved a high degree of success in their lives. They understand business and often know what they want to invest in. More specifically they know what they don’t want to invest in. It cannot be assumed that they will invest in the sector in which they made their money. They often know it too well and would prefer to look at new sectors. Angel investors will tend to look at broad areas such as B2B, consumer or fashion. It’s important to listen to what interests them and not sell too hard. If they say they are not interested they probably mean it. Prepare well for the meeting by researching past investments.

They want to spread their risk – Angel investors are simply people with a lot of money to invest. However, it is important to understand that they will only invest a very small percentage of their wealth into tech startups. It is a risky investment for them and will normally only represent 10%-20% of their overall portfolio. They will spread this portion of their investments over as many as 20 startups over the period in which they invest. Do the sums and be realistic about how much to ask for from each angel.

They invest in packs – Although you may occasionally come across lone wolves, angels generally invest in packs. This is because they want to spread their risk as much as possible and investing in groups means they can make a lot more smaller investments. A startup may be looking for £200K. Given that the average investment may typically be approximately £25K, the total round would involve 8-10 angels working together. Don’t expect to find too many angels investing upwards of £100K on a single startup.

They respect each others opinions – Tech angels may want to take the lead or follow an angel that they respect. The lead angel will often be a ‘smart’ investor who either understands the sector or simply has a track record of investing in tech. This is a useful dynamic to understand. Find a respected lead angel and they will recommend your startup to their friends.

They are not just in it for the money – Tech investors are rarely investing just for a return on their investment. They get a buzz from keeping their hand in and helping the entrepreneur to make a success of the venture. They can bring a huge amount of experience and contacts. They are usually looking for founders who are open-minded to advice. They will only work with people that they can get on with. Listen to what your angel is saying and avoid being defensive at all times.

They are not easy to spot - People with money to invest, do not shout about it. On the other hand there are plenty of people with no money who find it useful to pretend to be investors. They will end up selling you consulting or service. Real angels are spread over multiple networks or simply stay hidden. Dreamstake is building a strong network of angels from across all networks.

In summary, it is important to understand that founders will not normally find individual angels to fund anything other than very early stage businesses. It’s a bit of a numbers game. You may have to find as many as 20 angels to invest in a single funding round. These angels may belong to several networks or may work alone. It is useful to get a commitment from one or two smart investors and get their help in introducing others. Be realistic about the individual investment size and build the total commitment in small chunks. If necessary take part of the total round and continue fundraising until the total is reached.

Blog by Paul Dowling – Co-Founder of Dreamstake  the world’s first tech startup platform to match founders with the most appropriate investors using a unique startup rating system. This allows entrepreneurs and investors to monitor startup progress and inject capital and support when most needed. Startup founders can create profiles on the platform and get direct introductions to investors. We are constantly looking for great early stage tech startups. Investors please contact [email protected]

We have also recently launched an exclusive tech angel investment club in partnership with The Hoxton. HoxTech Angels will run invitation only angel investment evenings every last Monday of the month.