It’s a good exercise for companies step outside of the box and a really take a look at their competition. It allows for a good level of intellectual honesty about one’s position in the market and how they can combat their obstacles — as the adage goes, knowledge is power. With that, for your benefit, we put together a list of four common competitive obstacles to seed VCs.
1. New Competition
This is one is a no-brainer, but it’s important to be aware of your competitive surroundings. The VC landscape is very different today, there are many more funds to compete with than there was let’s say five years ago. And although you may be sitting at the peak of your respective sector and geographic, there are many funds hungry for a piece of the action.
2. Skipping Straight to A
Some founders are able to leap past an institutional seed round and go straight to a multi-million dollar A-round where a larger VC puts in a large share of the capital. This can happen either because the founder can boost the company with his/her own resources to get further, or because the company (and team) is so captivating that a large fund can lead a series A right away. There are positive and negatives to this approach, but without a doubt, it’s becoming more prevalent in today’s startup universe.
3. Non-Institutional Leads
High-quality institutional investors may be interesting in investing in a company at fair valuation, but that doesn’t stop non-institutional investors from set terms 1.5 – 2 times higher than that valuation. Founders, more and more, are walking away from the smart money of institutional investors and settling for the same amount with less dilution.
4. Getting Crammed Down on Ownership
A threat that always besets seed funds is whether or not a promising business hits a rough patch, and ends up going through a very dilutive financing. Most seed funds have significant follow-on capital, but not to the extremity of traditional venture funds. This really becomes a problem when times are tough. If a fund decides to reserve more capital for such follow-on, they either have to invest less in the seed and have less ownership to begin with, or raise a larger fund. Of course if you invest and own less, you run the risk of getting crammed down the ownership chain. If you raise more money as a firm, the bar to return the fund is now higher because you have more capital. You either have to have bigger gains than before to get the same performance, or you have to own more of your portfolio companies, which puts you right back at the beginning.
So you ran a successful crowdfunding campaign? There’s no time to rest on your laurels, it’s time to put that capital into motion. But what do you do with it? If you are stuck thinking of cost effective ways to get your company’s voice heard, take a look at these five ways to spend your startup capital.
1. Pay for Social Media
So you can get a lot from social media for free, but boosting a post on Facebook or promoting a tweet can substantially increase your reach and bring new prospects. And you can do it for just a few hundred dollars a month.
2. Invest in Media Gimmicks
Spend some money, or give it away, to make some noise. May you can host a contest and donate to the winner’s charity. Or fly them somewhere. Perhaps host a dinner? Open bar for industry insiders? Fund a scholarship? The public is way more likely to pay attention when there’s something in it for them. If you have a good idea, you can make some waves for as little as $1,000.
3. Google Ads and Content Marketing
Many customers know what they want and what they’ll find on Google. It’s tough to get the traffic if you are a startup. But thanks to Google ads, you can get right up in the faces of your target market. There are experts–both at the websites and at independent places–who can help you get setup. For as little as $1,000 a month (for six months, for example) can really pay off in traffic and awareness for your company.
4. Conferences and Trade Shows
They can be boring and expensive, but taking part in conferences, conventions and trade shows is a fantastic way to make some waves in your industry. Your mission should be to find these events. Once you do, get a booth, or better yet, be a sponsor. The access to experts, insiders and the press is a can’t miss investment. You can make a nice splash at a local convention for a few thousands dollars.
5. Hire a Publicist or Media Relations Professional
Even the big publications need a little help finding the next big thing — that’s where a publicist comes in really handy. Experienced and reliable PR professionals could be well-versed in your market and already know the who’s who in the publishing world. Negotiate a good deal for your company but you can usually expect a big-time return in media attention for a few thousand dollars a month.
Being CEO of a startup is similar to being a new parent. Your peers see a clean and polished toddler with very proud parents. But we all know what goes on behind closed doors. Sleepless nights, constant supervision, stress, more stress and no time to attend to other relationships. You are a laden by this new creature.
When it’s all said and done, parenting is incredibly rewarding, but it’s very hard work and not for the faint of heart. And just as parenting isn’t for everyone, being a startup CEO isn’t always a good fit either.
If you are an investor looking for a CEO you can trust with your money, here are the five personal attributes you should look for:
1. Attracts Great Talent
If top talent lines up to work for someone, that person has got something worth paying attention to. Be careful though. Anyone could be CEO of super fast growing startup and attract great talent. So make sure it is the CEO who can attract talent, not just someone clinging to the fire at a hot company. As such, it’s imperative to dig into the company’s team and see what’s turning the gears.
2. Networking Genius
A good CEO can really stretch their rolodex, leading to a ton of benefits for the company. Shorten sales cycles, faster hiring times, quicker fundraising — the quicker a company scales, the quicker you get a return on your investment.
3. High Intelligence
The CEO doesn’t have to be the Albert Einstein at the office, but he needs to be in the conversation. In any startup, a certain acuity is needed to keep the respect of the office and gain the respect of customers and ultimately you as the investor. After all, the CEO drives the ship — make sure you partner someone who knows how to keep afloat.
4. Strategic Thinker
The trick with a startup is to channel all of the company’s limited resources in the best possible direction. With that, adjustments need to be made as markets dictate, so not a single moment is wasted by hesitation. This requires strategic thinking, not formulaic execution. Many executives from larger companies tend to struggle as CEOs because they have not had the opportunity to diverge from a strategy that was passed down to them from above.
5. Stamina, Energy and Productivity
The CEO needs to be all-in, no questions asked. He or she needs to be one of those soldiers that doesn’t waste a second of their day. The CEO sets the tone at a company, and that should be one of hard work, accountability and reward.
Finding capital to help lift your business off the launching pad is not an easy task, particularly if your product or service falls under a niche market. Maybe investors think your innovation as too outlandish to risk their capital. Fortunately, there’s now a well-documented alternative to conventional funding structures: crowdfunding.
But crowdfunding is no longer a radical means to startup capital, it has become a very serviceable and reliable foundation for many companies. Whether your campaign target is $50,000 or $50 Million, you need to know the game your playing. If you are looking to source capital from the public at large, here are three tips to do it right.
1. Pick the Right Product
Crowdfunding has enabled the launch of everything from virtual reality, video games, hollywood movies and energy efficient vehicles to potato salads, hip-hop clothing, locally made beer and boardgames. There is no limit to what can work with the use crowdfunding, and that’s the point. But when you are dipping into the pockets of investors, you need to be able to mollify them along the way. Be mindful that tangible products tend to perform better than services. From an investor’s point of view, you invest in a product concept and in return you get the actual product, something that you can see, hold and (in some cases) smell and taste.
2. Do Your Research
“If you build it, they will come.” Sure, this ended up working out for Kevin Costner in Field of Dreams, but as we are often reminded, real life isn’t like the movies. Market research may sound exhausting both mentally and financially, but in the world of startups, it’s imperative. Before you start your campaign, do what you can to get a sense of the demand – then you can use your campaign as means to augment the research you already have.
3. Offer a Stake
Proposed new regulations will allow businesses to offer equity in exchange for crowdfunding support. Although the legal requirements mean this option isn’t right for every startup, it does offer a more attractive alternative for backers than receiving physical rewards in the mail.