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Since 1st.September this year we have introduced over 150 tech startups to various forms of early stage investor. This has given us a very strong viewpoint on the current startup funding scene. There is a clear need to develop new sources of funding to fill a growing  gap between £150K and £1M.

The good news is that the UK Government has stimulated investment at the lower end of the market. A combination of the SEIS tax break, a boom in accelerators and the take-up of crowdfunding has made it easier to find funding below £150K.  There is also plenty of choice for high quality startups, looking for over £1M and with plenty of traction. Funding at this level comes from the major tech VCs that are mostly either remaining static or moving up in their funding rounds. This is despite the fact that many suggest that they are investing early-stage. There are exceptions to this but they are few and far between.

These two factors have resulted in a gap between £150K and £1M. The UK Government has recognised the issue by backing the new London Co-Investment Fund which will contribute funds to investments by 6 partner companies. This initiative will not be enough on it’s own, so there is a need to bring new money into the market. Normally a startup seeking investment in the gap range will have no alternative but to syndicate angels. This involves pooling funds from a range of sources;

  • Known tech investors – These are the ideal investors for tech startups. However, there simply are not enough to go around. Many already have a large portfolio and have moved into harvesting mode. They are unable to make new investments until some of their existing portfolio provides an exit.
  • Traditional investors with little knowledge of tech – These investors may have been attracted by the SEIS/EIS tax breaks but don’t really know where to start with sophisticated (and risky tech investments).
  • Overseas investors – These may be impressed by London’s booming tech scene and want a slice of the action. There is a lot of Russian, Chinese and Indian capital available. This could be invested in tech if the eco-system were to be more supportive.
  • First time smart investors – Typically entrepreneurs who have made their money in tech are a huge asset to any funding round. They can bring their experience and act as the lead investors that the rest of the syndicate will trust. They can also add value to the startup beyond simply providing money.

We are addressing the funding gap by building the most comprehensive database of all these angel types and linking them to the best startup talent in Europe. As well as strengthening our on-line capability through the Dreamstake platform we are launching an exclusive investment club in January. We will develop these initiatives to provide a structure that will make it easier and less risky for new money to engage in the tech startup scene. We will reinforce this by strengthening our rating algorithm and curating deal-flow.

If you are thinking about investing in early stage tech during 2015 we would like to hear from you. We are also operating a bounty scheme so please introduce your friends.

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]

 

 

Building a successful tech startup is extremely hard.  There are millions of apps out there and even if you have an amazing product it is hard to get discovered. The secret is; use your unfair advantage!

Unfair advantages come in many forms. You may have a particular skill such as being the world expert in image recognition. This skill will allow you to come up with something unique and will make it extremely hard for others to copy.  Or you may have a massive following as a fashion blogger or have some unique contacts in your chosen industry. For example, celebrity endorsement can be the fast way to success.  Imagine having a pop -star pushing your music app or an ‘A’ lister pushing your film app. These contacts are worth their weight in gold.  Without them you will simply get lost in the noise.

Another type of unfair advantage is having done it before. Second time entrepreneurs have a great advantage. They know the ropes and find it easier to get investment.

Unfair advantages are often called USP’s or Unique Selling Points. I would go as far as saying that if you don’t have a USP don’t start in the first place. Creating a successful business is largely about exploiting our unfair advantages to tackle a problem or create an opportunity. However, if we search hard enough we will often find an unfair advantage that we can use to get our idea out there.

Dreamstake provides end-to-end support for entrepreneurs wishing to get a startup funded in the shortest possible time. The startup rating system allows entrepreneurs and investors to monitor progress.Dreamstake Academy provides guidance on how to create a successful startup. Dreamstake will link startups with suitable mentors and professional advisors.
Startups that have successfully achieved an acceptable rating will be given the opportunity to feature at monthly demo days and investor pitching events.

In designing the Dreamstake on-line accelerator we gave a lot of thought to how best deliver value to the startups on the platform. Although founders usually put funding top of their agenda, no-one will fund a startup that they don’t believe in.

The sad fact is that tech startups normally fail.  This is a hard to stomach but it is impossible to deny. Whilst, I would be the last person to discourage anyone from following their startup dream, I would prefer to challenge them harshly than let them create yet another failure. Tough love comes in many forms but it often starts with a question from the founder of a ‘hot’ new startup. ‘What do you think of my idea?’.  The worst thing to do at this point is to get too over-enthusiastic. This doesn’t help anyone. There are a whole lot of questions that will help shape the eventual offer and make sure the founder keeps on track;

  1. How are you going to make money?
  2. What problem are you solving?
  3. Do you have a team capable of delivering it?
  4. Is the market large enough?
  5. What have you done about it so far?
  6. What will you do next?
  7. Has anyone signed up?
  8. Isn’t someone already doing that?
  9. What’s different about your offer?
  10. Why are you the best person to deliver this?

These will all seem very harsh questions. However, they should be asked at every opportunity. They rarely do harm. Any founder who gives up without putting a robust argument is probably not cut out to be an entrepreneur. If they can’t answer all the questions they need to go away and figure it out.

Dreamstake provides end-to-end support for entrepreneurs wishing to get a startup funded in the shortest possible time. The startup rating system allows entrepreneurs and investors to monitor progress. Dreamstake Academy provides guidance on how to create a successful startup. Dreamstake will link startups with suitable mentors and professional advisors.

Startups that have successfully achieved an acceptable rating will be given the opportunity to feature at monthly demo days and investor pitching events.

moneyMost early stage tech startups require seed funding at some point. This usually takes the form of angel investment or crowdfunding. Either of these two options will take considerable time and effort to achieve a successful conclusion. This presents a risk as the founding team can easily lose focus. Dreamstake provide funding support throughout the entire funding process:

Preparation – Startups need to reach a certain level of maturity before seeking investment. Dreamstake Academy provides the basic knowledge required to launch a successful tech business. The syllabus covers business modelling, business planning, product development, legal and commercial and a range of other topics.

  1. Loans – Some businesses will require a small injection of capital to build a prototype or produce marketing material. Dreamstake can provide Government backed Startup Loans.
  2. Communications – Many funding rounds fail because startup team is unable to communicate their proposition. Dreamstake provides pitch training and a platform to showcase each new venture.
  3. Mentoring – It is essential to find mentors that clearly understand the tech startup process and can add value with specific domain experience. It is also useful for the founding team to be able to tap into deal making skills.
  4. Connecting with investors – The whole tech funding scene is very opaque. There are investors who do not wish to be identified and advisors who will pretend to have money to win clients. Dreamstake is building a database of ‘real’ investors and provide them with validated opportunities. We are able to introduce startup founders to investors one-to-one or at monthly funding forums.
  5. Tracking progress – The Dreamstake platform automatically tracks startup progress with a unique rating algorithm.  This helps identify what has to be done to prepare the business for funding and flags when investment ready.

Raising funding is a complicated and time consuming activity. Accelerators and incubators have proliferated but are highly selective and expect founder and team to give up their day job. Dreamstake democratizes the process by providing a platform to a broader audience and nurturing on a larger scale. We believe this approach to be unique and welcome new members to give it a try.

Dreamstake provides end-to-end support for entrepreneurs wishing to get a startup funded in the shortest possible time. The startup rating system allows entrepreneurs and investor to monitor progress.Dreamstake Academy provides guidance on how to create a successful startup. Dreamstake will link startups with suitable mentors and professional advisors.

Startups that have successfully achieved an acceptable rating will be given the opportunity to feature at monthly demo days and investor pitching events.

Over the last year in the UK new funding options have emerged. The Startup Loan scheme provides loans of up to £10K to individuals based in England. However, there have been questions about how suitable loans are for early stage businesses.

Loans have to be offered responsibly because unlike grants or angel investment they have to be paid back whether or not the startup succeeds. The key steps to avoid problems are:

  1. Quality over quantity – Providers should avoid being driven by targets. Marketing the scheme should be handled in an intelligent way, hence over-aggressive marketing must be avoided at all costs. Hyping the scheme and dealing with applications en-mass is dangerous.
  2. Understand startups -All applicants should be vetted one-to-one by individuals who have the knowledge to make professional judgements about the business plan and the individual. Responsible decisions should be based on the validity of the idea and the individual’s ability to repay the loan.
  3. Link loans to outcomes – Loans should be linked to achieving specific milestones. A £10K loan will often be enough for a prototype to be built that is necessary to achieve revenues or attract follow-on investment.
  4. Provide professional backup – Early stage businesses have a very high failure rate. A strong platform should be provided to give continuous support throughout the early stages of the new venture.

In summary, Startup Loans are a viable option for early stage businesses.  However, applicants should go into the scheme with both eyes open and the intention to make repayments on time. Providers should act responsibly and avoid hyping the scheme and should always put the interests of the individual first.

Dreamstake provides end-to-end support for entrepreneurs wishing to get a startup funded in the shortest possible time. The startup rating system allows entrepreneurs and investor to monitor progress.Dreamstake Academy provides guidance on how to create a successful startup. Dreamstake will link startups with suitable mentors and professional advisors.

Startups that have successfully achieved an acceptable rating will be given the opportunity to feature at monthly demo days and investor pitching events.

 

 

 

There is a lot going on in the world of startup funding. The traditional early stage investment model is being shaken up by a combination of equity and non-equity crowdfunding, Y-combinator type accelerators and matching engines such as Angel.co. An online accelerator combines elements of each of these models to provide end-to-end support throughout the startup lifecycle. It is highly disruptive for a number of positive reasons;

  1. It extends the eco-system – the strength of clusters such as Silicon Valley is the proximity of all the resources needed to grow a startup in one place. In the old model investors would not invest in companies more than an hours drive away. This led to small tightly-knit communities where the rolodex was king. The internet is opening this up by connecting startups with investors, team members and mentors online. This will create a global startup market.
  2. It democratises the startup world – Silicon Valley has been very effective at creating a massive funnel of startups over a very long period. It is basically a numbers game. The more startups entering the funnel at the top end, the more successes that dropout of the bottom. However, it has always been a winner takes all mentality and other clusters have been unable to replicate the sheer volume of startup activity. Funding platforms are democratic by nature. They are open to large numbers of founders and attract large numbers of investors.
  3. It cannibalises existing business models – The model recognises that startups don’t have money. Dreamstake is a free platform, offering free startup seminars, free demo and pitching days. The platform even provides a skillswap function which allows founders to access resources without hiring or wage costs.

Founders now have a range of options when launching their tech startup.  However, very few of these options can provide free hands-on support from inception to exit in the way that the Dreamstake online accelerator does.

Dreamstake provides end-to-end support for entrepreneurs wishing to get a startup funded in the shortest possible time. The startup rating system allows entrepreneurs and investor to monitor progress.Dreamstake Academy provides guidance on how to create a successful startup.
Startups that have successfully achieved an acceptable rating will be given the opportunity to feature at monthly demo days and investor pitching events.

After joining DreamStake I noticed their free academy where sponsors offer training for free on various aspects of running a startup. My first event was on legal issues for startups, hosted by Guy Wilmot from Russell Cooke Solicitors.

The session covered:

  •  Business Vehicle – Sole Trader versus Private Limited Companies.
  • Legalities of raising finance.
  • Share holder agreements.
  • The basics of Intellectual Property
  • Employees and contractors.
  • Liability.

 

Business Vehicle

In general – the best type of company to establish is a Private Limited Company. There are some basic requirements for this type of company, like needing at least one director. You also need to report to companies house details of share holders, annual returns and such.

The problem with a LTD is the directors duties. These are owed to the company, not the share holders. The main being: ‘to act in the best interest of the company’, ‘to act with care’ and ‘not to be under a conflict of interest’. Breach of duties at an early stage can come back to haunt you if you sell a company. The buyer of a company might (for instance) argue that you have a conflict of interest and pursue you for liabilities. This means it is usually best to form new companies rather than merging companies when you take a break from one to work on another. The worrying part is that this obligation can be persued retrospectively against the directors after a sale. This point was something new to me and worth remembering as a company director.

 

Raising Capital

One of the first things you need to know about when you are founding a startup is that as a founder you can invest your cash into your startup as a loan. This has a number of tax benefits. This is was a mistake that I personally made. Not only does it mean you can take your cash back out of the company later on, without paying tax, you can also expect to earn modest interest! As almost every founder ends up floating a company with personal cash, this is probably relevant to anyone starting a company.

As with ‘high net worth’ individuals, you can also raise cash from friends and family under the SEIS program – which offers significant tax incentives to the investor. The incentives under SEIS make it a no brainer.

Raising capital from angels can make a big difference but usually comes with significant contractual obligations. Some angels have been known to require majority control. I have personally heard from a number of founders that have been asked to vest their own shares – leaving the investor as the controlling share holder. Obviously it does depend on the ‘angel’, but it can be some of the most expensive money you can raise.

 

Company Articles and Shareholders Agreement

As part of your company setup you need to create the company articles which set out the limitations of powers of directors, rules for meetings and voting rights. This document is publicly available and probably the best place to lay out any exceptional items. The tricky thing with the company artilces is that you set them out before you really know what you may need to include.

Another important document is the shareholders agreement. You may have to have one due to the requirements of an investor. For simple cases though, you can state share transfer rights in your articles without needing a shareholders agreement. Soem other things you might include in your share holders agreement are exit cases for death, voting restrictions, deadlock resolution and requirements for consent. One of the really important parts of the share holders agreement is the model for payment of dividends and retained working capital requirements.

There are a number of other clauses like the right to maintain a certain percentage under dilution – you usually don’t want them unless an angel forces them to be included (think Facebook); note that they have to buy the shares at the same rate as the investor; drag rights offer majority shareholders the option to force them to sell; tag rights are for a minority share holder to participate in the sale. Drag rights are vital if you want to be able to sell otherwise a minority share holder could block the acquisition of the company.

 

Patents, Trademark and Copyright

Patents – an old favourite of mine – cover the protection of practical aspects of an invention. For software projects it is possible to get around this but it can be very hard for a software or process.

At an early stage, investing large amounts of time on patenting could mean you spend a lot of time only doing patenting, in some cases before you have even confirmed whether your invention is valuable. For me this is the key weakness of a patent – it won’t protect you from someone innovating on top of your work to create something which is significantly different. As many startups don’t know what their ultimate product will look like it is hard to anticipate even your own innovation. Obviously, you cold spend all of your time patenting ideas as you go; this doesn’t sound like the primary focus of a startup to me. Isn’t the point supposed to be to spend your time improving your product and finding a market as rapidly as possible?

Patents are more easy to obtain in the US. The bottom line though is that even if you get a patent granted you still need to be able to defend it. Obviously for a startup this could be a real problem. My personal take on this is that if you are innovating fast enough as a startup (if you are not then are you really a startup?) that copycats can’t keep up.

Trade Marks are a lot more useful as they allow you to protect your brand. In the UK this will cost you a couple of hundred pounds. The IPO government web site lets you search for prior art trade marks. Your trade mark has to be distinctive and not be too similar to trade marks that are already registered.

Copyright is automatically applied when you create a new creative work. It doesn’t take much to be unique. It can’t protect a concept or idea though, only the textual content. Crucially this also applies to computer code.

One interesting points to be aware of is that if you employ contractors, unless otherwise agreed, the contractor owns the rights on the content they produce. As the payer of the contractor you have a licence to use their works only in the way that was intended. This means if you use their work for a new purpose you need to get the permission of the contractor. This could be an issue when a startup creates something that is re-used in a different way. Conversly, this means your contractors could potentially sell anything they create to a competitor.

 

The Rest of The Talk

Guy covered a number of other subjects which were equally useful. Why not sign up to the next DreamStake academy from Guy Wilmot from Russell Cooke LLP.

 

About the Author

Damien is the founder of SiteMorph, a London based startup. SiteMorph is a collection of web apps that show site owners how to make more money using ideas for marketing, customer engagement and conversion rate optimisation.

 

Note: These notes are a personal take on the DreamStake Accademy event provided by Guy Wilmot from Russell-Cooke solicitors. This post does not constitute a recommendation of Russell-Cooke. This post is also purely for information and does not constitute legal advice.

excuses-greater-than-your-dreams-1

It is suddenly hot to be involved with startups.  Entrepreneurs are the new rock stars or film stars. Film stars, singers and models are the new entrepreneurs. Jessica Alba is doing a startup, Natalia Vlodianova talks at Le Web.

However, it is a mistake to believe you are an entrepreneur just because you attend networking events and hang out with the startup crowd. Launching a startup is risky and it’s therefore easy to prevaricate and find excuses not to start.  Here are a few of the most common reasons for not starting a startup and some ideas on how to overcome them:

  1. I don’t have an idea – it is easy to imagine that all the good ideas have already been taken. However, it is wrong to obsess on finding an idea. Think in terms of either solving a problem that you encounter in real-life and doing it ‘quicker, smarter,cheaper’ or develop a vision of something you want to change in the world. Don’t overwork the idea at first. Get a co-founder and work it out together – it’s sure to change a lot on the way.
  2. I don’t have any money – this can often mean uncertainty about the idea! There is little doubt that there is high financial risk in getting involved in a startup. At the early stage it is always a case of beg or borrow. However, the situation has got a lot better over the past few years with Startup Loans and Crowd-funding. Don’t use lack of money as an excuse if you truly believe in your idea.
  3. I can’t find a co-founder – If you can’t find a co-founder it usually means that either you are not networking enough, you are not convincing enough or you are unrealistic in what you want to offer your co-founder. Think very carefully what gap in your skill set are you trying to fill, hone the way you communicate your idea and make the deal attractive. if you can’t immediately attract a co-founder, try using contractors, part-timers or swap skills.
  4. I don’t have enough experience – It is often a mistake to believe that it is necessary to study further or take a corporate job to build experience. Many great startups have been built by college dropouts or people with limited experience. Jumping off the corporate ladder at a later stage is very hard. If you have a great idea and want to do a startup, do it as soon as possible.  There is plenty of free help out there from startup academies and mentors.
  5. I don’t have time – This is one that can’t be overcome easily.  Startups require 100% commitment or they fail. In the early days it is sometimes possible to burn the mid-night oil on your startup, whilst doing a corporate job or contracting during the day. However, it normally comes down to quitting the day job and working full time on your passion.

Creating a startup is one of the most satisfying activities to get involved in.  It is a massive learning curve for anyone but the buzz is indescribable. It takes true bravery and commitment.  There will be ups and downs. However, you can’t pretend to be an entrepreneur and retain any credibility.  It is binary, you are either fully committed to making your dream happen or you are not.

So the message is, don’t hang about – the market won’t wait for you!

Dreamstake www.dreamstake.com is Europe’s fastest growing platform for early stage internet startups. Our objective is to help build robust new businesses by providing access to knowledge, resources and funding. We run weekly Dreamstake Academy workshops as well as larger networking events at Google Campus. We also provide Startup Loans and access to angel investment.
We are keen to help European startups to get noticed by potential users, investors and the press.  We help by offering guest slots at our ‘startup stories’ events and welcome suggestions for guest blogs. Our unique rating system allows others to track progress of startups as they emerge.

 

Startups have specific challenges that relate to the lack of funding. The sharing economy is growing rapidly but does not really directly address these problems. Bootstrapping has become popular but basically involves begging for free stuff. To evolve as a sustainable model there needs to be something in it for all parties.  There are two models that both work well;

1) Bartering – This involves swapping skills or goods that have value to each party.  A business oriented founder may want to swap his skills for a UX designer.  We have introduced a skillswap feature on Dreamstake that allows bartering skills based on members linkedin profiles. This approach avoids both recruitment fees and wage costs.

2) Robin Hood – This model is more prevalent.  It involves the provision of free services to hard-up startups made possible by the patronage of more wealthy organisations looking for future clients. Dreamstake provides a free platform, education and events and many other services with the kind support of sponsors. This model is highly beneficial to all parties.  The startups get free support while the sponsors gain access to a large community of emerging startups

Both these two models reduce startup costs significantly and represent the future model for company launch. When combined with other trends such as crowdfunding it is clear to see we are on the verge of a startup revolution.

Dreamstake www.dreamstake.com is Europe’s fastest growing platform for early stage internet startups. Our objective is to help build robust new businesses by providing access to knowledge, resources and funding. We run weekly Dreamstake Academy workshops as well as larger networking events at Google Campus. We also provide Startup Loans and access to angel investment.
We are keen to help European startups to get noticed by potential users, investors and the press.  We help by offering guest slots at our ‘startup stories’ events and welcome suggestions for guest blogs. Our unique rating system allows others to track progress of startups as they emerge.

 

risk-miscalculation

Creating a successful startup is incredibly difficult. It may well be one of the most satisfying activities known to man, but the the chances of failure are high. Aspiring founders should increase their chance of success by following a few simple rules:

  1. If you can’t accept risk, don’t even start - do you have a vision and are you prepared to follow it through to the bitter end? Creating an internet startup will involve risk and will also involve hard work. Have no doubt about it. It is not a soft option. It requires 100% commitment over an extended period.
  2. Don’t try and do it all yourself – founders are often talented people who have multiple skills and a desire to try everything. They also often have a tendency to want to avoid sharing the rewards of their success. This is a big mistake. Nearly all great internet startups were formed by teams. Investors know this and will not fund single founder startups.
  3. Follow established startup processes – lean startup methodologies have provided a framework for success. It is not the only process but it does avoid inventing the wheel with every new startup. The process also avoids launching products that no-one wants and provides a way of limiting capital risk to bite sized pieces.
  4. Don’t get bigger, get better – in the early days, obsess about product. Keep making it better. Ensure that even a small number of people can’t do without it. Don’t scale until you are certain that you have product/market fit.  This comes a lot later than most founders will acknowledge. The temptation is to hype the product through PR and social media before product/market fit has been achieved. This simply results in a spike in engagement that cannot be sustained.
  5. Don’t be fooled by vanity metrics – new members or site visits may well be meaningless. Work out which metrics are crucial to your startup and focus all efforts on achieving them. The pirate metrics are a useful guide.
  6. Accept advice wherever you can get it – but remember no-one knows your startup like you do. You will have to listen to a range of opinions and then select which to adopt. You are the boss!

So have fun creating a startup. Don’t do it because you simply think it cool to be a startup entrepreneur.  Do it because you want to solve a problem or wish to create something new and of value. Go in with your eyes open and anticipate risk. Follow established rules but don’t be afraid to innovate. Be prepared to fail fast rather than spend years chasing impossible dreams. Follow-on startups are often the best.

Dreamstake www.dreamstake.com is Europe’s fastest growing platform for early stage internet startups. Our objective is to help build robust new businesses by providing access to knowledge, resources and funding. We run weekly Dreamstake Academy workshops as well as larger networking events at Google Campus. We also provide Startup Loans and access to angel investment.
We are keen to help European startups to get noticed by potential users, investors and the press.  We help by offering guest slots at our ‘startup stories’ events and welcome suggestions for guest blogs. Our unique rating system allows others to track progress of startups as they emerge.