Archives for category: corporate finance

Ace 5

 

TL:DR Large corporates really struggle to innovate. Meanwhile startups eat their lunch.

Corporate venturing and accelerators can solve the issue and create a win-win.

If you are a corporate CEO you are probably frustrated by the inability of your company to innovate like a startup. You almost certainly employ some of the brightest people around and may have huge departments looking at innovation or R&D. However, your industry is almost certainly being disrupted by tiny teams of startup founders with new business models and a grasp for frontier technologies such as artificial intelligence and virtual reality.

Corporate executives shouldn’t beat themselves up too much. The odds are weighted against them. It is almost impossible to innovate within the existing corporate structure. Most truly innovative ideas will cannibalise existing business models, change the structure of the company and redeploy the workforce at the very least. It is therefore, extremely difficult for internal departments to gain acceptance from the rest of the company. In addition, risk is a fundimental component of all radical change. Who wants to fail fast in a corporate environment? Yet it is enshrined in startup culture.

The most effective way for corporates to access startup innovation is to buy into it. This can involve either buying early stage startups outright, investing in them or running accelerator programmes. In all cases, there can be huge advantages from having third party involvement. The key is to take a relatively hands-off approach to stop corporate interference which invariably kills the innovation that you are searching for.

Accelerator programmes illustrate this well. A corporate working with a third party can immediately invest relatively small amounts of capital into a small portfolio of interesting early stage businesses. They can provide an environment conducive to growth by giving access to essential corporate assets such as sales channels, engineering resources and other mentors.

At a later stage corporates can invest in more mature startups with a corporate venturing approach. This involves scouting for winners and making individual investments. The challenge is picking the winners and a company like Dreamstake Ventures can help cut through the noise and reduce risk.

Corporate investment in startups, through programmes or individually creates a win-win. The corporate accesses innovation quickly and efficiently, whilst the startup gains resources and support for growth. Corporates need to embrace the startup culture and take their businesses to new heights.

Blog by Paul Dowling — Co-Founder of Dreamstake the world’s first tech accelerator platform focusing entirely on taking startups from inception to Series A. Dreamstake identifies promising startups from universities and other accelerators and provides them with access to the resources they need to achieve later stage success. This is achieved through a large programme run out of Google Campus in London and our own network of experts and investors. We run corporate accelerators on behalf of clients and have recently supported Just Eat with a Foodtech accelerator.

FailsWe all make mistakes, especially when trying to do something for the first time. In fact, I think I have probably made all of these startup fails at some time or other.

The startup world is constantly evolving. However, most of these fails are not new. I would really like other entrepreneurs to learn from my mistakes. Avoiding these simple fails will increase your chance of building a successful startup and reduce the time it takes you to get there.

Don’t build before you are certain there is a burning need

Probably the most common mistake for founders to make is to build an MVP before establishing a need. You may have read articles that suggest that it is important to get an MVP out as quickly as possible. Right, but not before you can verify that there is a burning need for what you are about to build. It is easy to test demand for your product using pen and paper and open questioning. Check that you are solving a real problem and that there are no valid alternatives that the user might use. Obsess at this stage and do not move forward until you are absolutely certain that your solution will address the issue in question. If you do build an MVP without validation of the problem you will find engagement to be slow or non-existant and total reluctance from investors to get involved.

Don’t do it alone

Building a tech startup is a team activity. A single founder will never have the full set of capabilities or bandwidth to launch a startup on their own. At early stage there is very little else, apart from the team, for investors to judge the startup on. As well as the core team, surround yourself with experts. Persuading an advisory board to support you is good way to get validation for what you are doing. If they won’t come in, they probably don’t have confidence that you will make it. Listen to what they say and tweak your proposition if it makes sense.

Don’t be closed-minded

Although founders are expected to be strong, driven individuals, close-mindedness is a red flag to investors (and probably to clients and employees). It is important to listen to advice and decide what to act upon. Select advisors with relevant knowledge; either existing successful founders or individuals with deep sector experience. Don’t look for yes-men. It is much more valuable to find people who will give blunt feedback. Learn how to take tough love.

Don’t misjudge timing

It’s easy to be either to early or too late with an idea. A lot of what you read is hot is from a Venture Capital perspective. However, by the time you have got your startup off the ground the VCs will be exploring the next big thing. If what you are working on seems too familiar then you are probably too late. Many consumer apps are in this category. If you are coming in late, make sure that you can improve on whats already out there and be totally sure that users will switch from what they have become familiar with. It is also possible to be too early. Think Google Glass or the first iterations of tablets. Remember there is a difference between pure research and being a first mover in a commercial marketplace.

Don’t under-estimate how long it takes to raise capital

Raising capital is much more difficult than first-time founders ever imagine. It is also important to remember that it is not just the first round of funding to take into consideration. There is nothing worse than raising a simple seed round only to find that you can’t get VCs (or anyone else) interested, once you have burned through the cash. Work backwards from the VC round and estimate how much you need to raise at the seed stage to get there. Venture Capital firms are moving upwards and this has created a nasty gap, sometimes calling for a bridge round. In building the first seed round, find a lead investor and build around this individual. They will bring confidence and attract other investors. Allow 6 months for each round and make sure that you are investment ready before starting the process.

Blog by Paul Dowling — Co-Founder of Dreamstake the world’s first tech accelerator platform focusing entirely on taking startups from inception to Series A. Dreamstake identifies promising startups from universities and accelerators and provides them with access to the resources they need to achieve later stage success. This is achieved through a large programme run out of Google Campus in London and our own network of experts and investors.

Me

You have identified a large and growing market, built an MVP and acquired a few customers. You believe that you will have a business that will be attractive to VCs in 12–18 months but you need £250K to hit the metrics that they demand. Everyone is telling you that you need to find an angel investor or more likely a group of angels. However, finding them is easier said than done.

I was chatting to a Russian investor yesterday. He has made investments in London, Silicon Valley and Tel Aviv and put forward the view that early stage investment was often controlled by a small group of insiders. In the Valley, for example, the best startup investment opportunities are never put out to the broader investor community. He is sometimes asked whether he would like to ‘join’ an investment opportunity as if it is a special privilege.

It got me thinking about the London investor scene and whether something similar exists here. I believe it does, but it is much smaller and therefore even more difficult to penetrate.

Some of you will be familiar with those lists of investors that have circulated on groups like London Startups on Facebook. Well, surprise, surprise, these are not reliable. The VCs are usually accurate because they are easy to identify simply through their websites. However, the angels are either already invested out, were never investors at all, are in the wrong territory etc.

I started to think how best to build the ‘real’ list and realised how important it is to identify the movers and shakers. These are the guys who have been there and done it before. The founders of startups such as Just Eat, Transferwise, Shutl, Songkick, Love Film and the likes. In addition to these there are small numbers of potential tech investors embedded in the main angel networks plus a group of newbies who have the money but not experience. These are good to build a round behind the lead investors.

I have ended up with a list of 100 influencers. These are people that I believe can make a round happen by bringing a combination of expertise and capital. I am meeting as many as possible and inviting them to review the startups on our platform. I have learned that building a round is very strategic. Founders need to be well prepared and pitching at the right level. They don’t get many bites of the cherry, exactly because it is a small community of investors.

Blog by Paul Dowling — Co-Founder of Dreamstake the world’s first tech startup platform to match over 16,000 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 create profiles on the platform and get curated introductions to investors. We are constantly looking for great early stage tech startups. Investors please contact [email protected]

MeWe would like to wish all our investor friends a great summer holiday period. It is a good time to reflect on the Brexit decision and make an assessment of the implications before the next HoxTech Angels event at the end of September.

London has an extremely strong tech scene which will continue to boom over the next few years.  Tech Angel investing delivers extremely high annualised IRR in relation to most other asset classes so long as investors act responsibly and diversify risk across portfolios of quality startups. Our mission at Hoxtech Angels is to identify the best tech startups from over 1,500 on the Dreamstake platform and curate them into selected angel investors.

I would suggest that the startup investment scene was already changing before Brexit.  European tech investors had been responding to fluffiness in Silicon Valley valuations by focusing on more tangible propositions, addressing real problems and with more proof points. The Brexit decision has simply reinforced this.  Expect to see less angel investment in social and consumer apps and more going into sectors like Fintech, Healthtech and Edtech.  As far as technologies are concerned, we are on the cusp of a revolution, with the UK in a great position to exploit leadership in areas such as Artificial Intelligence, Machine Learning, Virtual and Augmented Reality.  We can also expect to see demands from investors to see high levels of traction and lower valuations. However, to repeat a common cliché, great startups will always attract the capital they need to grow.

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 month.

Although 2015 was an amazing year for startups, there is still plenty more to come from the year we are just getting into. We are entering a period of unprecedented changes as internet technology matures and we begin a phase where we all reap the benefits created by the early pioneers. Some of these changes will be surprising and may present challenges to our current way of thinking. My top predictions include;

The rise of the multipreneur - Early startup founders had little choice but to focus all their energy into single startups. The high failure rate and complexity of creating a startup dictated that pioneers such as Mark Zuckerberg had a this single startup mentality. However, we are now seeing entrepreneurs such as Elon Musk who are able to build several world changing business ideas in parallel. Jack Dorsey and Will.i.am are other examples of this approach which has come about because the process for creating a startup is now better understood and to some degree simplified. Books such as The Lean Startup allow founders to follow a more predictable path. The next 5 years will see an increase in the number of these multifaceted entrepreneurs.

Tech startups become democratised - Until 5 years ago there was only one place to build a tech startup; Silicon Valley. Then other clusters sprung up across the globe. We saw increased activity in New York, London, Tel Aviv and Berlin. Now we are seeing accelerator programmes being launched in all five continents. For the first time ever, a strong founder in Africa or Asia can launch a global startup to rival the best that Silicon Valley can produce. Startups such as M-Pesa have proven that emerging nations can provide the climate to leapfrog existing players. This democratisation will lead to a massive increase in startup activity from all regions which ultimately the possibility of reducing poverty through greatly increased economic activity.

Startups get serious – The past 5 years has been the era of the consumer internet startup. Much of the growth has come from social networking, marketplaces and similar consumer applications. How many more location based drinking/dating apps do we need? Although we often refer to the current crop of startups as world changing, this is only the start. The next 5 years will see massive growth in sectors such as HealthTech, FinTech and other technologies that really improve our quality of life.

Enterprises eventually get it - Corporations have long been frustrated by their inability to innovate.  There has been a growing recognition that they face disruption from nimble and efficient startups. Corporations are waking up to the need to adopt startup thinking to their own businesses. This can either be an openness to accepting new processes or the adoption of innovative technologies. Products such as Slack will transform the ways that enterprises work and some will finally figure out how to work with the startup world.

Tech takes over – We all face immense challenges as artificial intelligence, machine learning and big data change our lives. We will see a widening gap between those that understand how to leverage these technologies and those that don’t.  Industries that have traditionally relied on professionals will be decimated as machines take over many activities. Big data will predict our behaviour and provide us with tailored on-demand services. Society will have to deal with increased leisure time and a reduction in skilled jobs.

I am looking forward to 2016.  It will be great to see what all the inspiring entrepreneurs on our platform will come with. I hope that between us we will be able to address some real problems and use technology to build a better future.

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 month.

 

drinkersTo build and scale great product startup founders need access to substantial funding.  However, building a funding round can take 6 months and this assumes that the startup is investment ready. On the other side of the table investors are sitting on a huge pile of decks and can’t see the wood for the trees. At later stage, this is not such a problem because the founders can afford to pay trusted third parties to get involved and make introductions and even take a strategic deal-making role. Their involvement cuts the process and brings investment ready startups to the attention of the most appropriate source of investment. At early stage it is difficult for third parties to undertake this role because the founders have no money to pay for such a hands-on approach. Platforms such as www.dreamstake.net bring down the cost of each fund-raising transaction and can therefore support the founder in a more efficient way.

Corporate Finance houses normally get involved in funding rounds at around about £1m -£2m or when founders have enough money to pay a substantial retainer. Although founders may find the retainer a deterrent it focuses the advisor on putting resource into the task of getting the startup funded. It is rare that any startup is 100% ready for funding and the role of the advisor is to work with the founder to refine the deck (and the proposition) to the point where it is ready. The next step is to match the startup with the most appropriate form of funding. VCs are invariably sector and stage oriented and therefore a ‘spray and pray’ approach to distributing decks rarely works.

The beauty of platforms, is that they radically bring down the cost to serve. Look at how Airbnb and Uber are transforming their sectors. They do this by building efficient markets where consumers are matchedwith providers at a fraction of the cost. We have brought the same principles to funding startups and use algorithms to sort the deal-flow and match with the most appropriate form of investor. We can therefore, engage with earlier stage startup founders on a performance fee only basis or later stage at a greatly reduced retainer cost.

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 month.