Writing for B5 Media – Come on over to Startup Spark

Hello all, just wanted to let you know that I have been offered an opportunity to write for a great blog on the B5 Media Network.

The blog is called Startup Spark and is similar to Venture Files but is a broader version on all types of entrepreneurship.

I invite you to check it out and subscribe. This blog will continue but in the coming months I will be focusing this blog more on innovation topics and will be unveiling a new design.

So keep reading Venture Files and add Startup Spark to your feed reader and your daily viewing.

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Business Plan Series: Part 1 – Framing your plan

First, let me start by saying that by the time you are done with your business plan your first draft will look completely different than the one you share with everyone.

There are a few different forms that your business plan will take:

Business Plan Type #1 – Business Plan for You
Essentially a data dump with headings, this is the one that gathers your thoughts and gives you peace of mind if you are a “J” on the Myers Briggs. I always think that these should be written first because it is essentially a knowledge dump and since there is no audience but you there are no limitations.

Page Range: NONE

Business Plan Type #2 – Business Plan for Internal Strategy and Operations
I call this type of plan the “roadmap plan”. Think of this a providing your company and board with a look inside your brain and the brains of your management team. This type of plan is about alignment and communication of vision. It goes into deeper depth of product roadmaps, long term operations and greater performance planning. This means that the products and services section along with the competitive and operations sections will go a level deeper.

Page Range: About 60 pages but it depends on the maturity of the business so it could be longer.

Business Plan Type #3 – Business Plan for Investors and Raising Capital
This plan is what I call the “money plan” and many VC’s will say that they don’t read them, most see the value in them and all say that the exercise is necessary and important to address any issues that may arise in due diligence. Just because investors may not read them doesn’t mean you don’t have to do them. While this may be true for more experienced investors and an executive summary is good enough, you can bet that those on the the committee who need to be convinced to approve the investment will want to read it and the associates at the firm will be reviewing it in detail and putting their “quant jock” hats to run the numbers to see if something weird pops up.

Granted, this type of business plan is half sales pitch/half business strategy and it must communicate that not only is there a market for your products/services but that there is a HUGE need for your product, it is scalable with the right investment, you have an A-team to execute and that you will be able to exit for a large amount that will see a double digit return on their investment.

Page Range: About 15-30 pages depending on how developed the business is and how complex the product/service offering is that you are providing.

SO WHAT SECTION DO YOU START WITH?
Because each version of the plan has a different audience you will want to start it differently. Granted, the Executive Summary comes first but for an operational business plan it is good to start with the company summary to establish the vision and mission for internal reader. They want to have context and see how you are going to execute on the vision and plan you have placed in front of them.

For investor focused business plans you need to start with the problem which means that you need to talk about the market and the analysis you have done to conclude there are problems which will lead to the next section about how you will solve them. So start with Market Analysis. You might need to educate some investors on your market so don’t assume they know your business or sector.

WHAT ELSE GOES IN THERE?
There are many different books and resources with their own format, I don’t prescribe to one but I would include, not in any particular order, the following to start with:

  • Market Analysis
  • Management Team
  • Competitive Analysis
  • Operations
  • Implementation Plan
  • Products and Services
  • Marketing and Sales Strategy
  • Technology and R&D
  • Financial Plan and Projections
  • Funding Requirements and Exit Strategy

Making this a team exercise
I have found personally that when you are a lone entrepreneur, you have no one to do this with but yourself. As you add people to the management team and advisors get more involved they become critical to bring in different expertise and perspectives to make the plan complete and presentable. If the team is established, I find that this is the best way to have an off-site strategy meeting. You should have each one of your management team take a crack at writing the plan or improving on the previous one. Publish an outline they have to stick to but other than that, they are on their own. It will be interesting to share and extract the points that everyone likes and can debate about. You are the ultimate and final decision make but this is far better than having people work in a vacuum in their departmental silo.

Also, hire a third party to run the session, gather notes and lead the session. You don’t want to be doing two jobs and participating is far more important than managing the meeting.

NEXT TIME: We discuss “Market Analysis”. Most plans need to detail the situation, the problems and the market potential.

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New Series: Practical Advice for writing a Business Plan

I have been thinking a lot about how many entrepreneur’s ask “should I write a business plan?” and regardless of what you think should go in one or what format it may take, the answer is essentially yes.

Then I started to look at all my previous business plans and those I have advised on and reviewed for feedback. Most were written for the purpose of presenting to investors with varying degrees of success. The others were operational and an exercise in strategy and vision to ensure that everyone understand where the company is going so there is proper execution.

Now there are many people that are WAY MORE knowledgeable about writing these types of documents and many have written good blog posts on “writing business plans“. What I would like to do is take a look at this document and provide all of my readers out there with some real practical lessons and how it should be written if it is an internal use document or one for investors.

Look for this start next week and I will do about a section a week. For those of you out there with experiences to share, comment away. For those of you who have written them I hope to make you laugh and I look forward to your perspective and anecdotes.

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FOWA Presentation on Venture Capital

I saw this presentation that Ben Holmes of Index Ventures gave at the FOWA Conference in London “Everything you need to know about Venture Capital“…
He put his slides on slideshare so take a look. (BTW, Slideshare rocks)

Here is an entrepreneur’s take on the slideshow:

Think of this as liner notes if an entrepreneur was giving this….

Slide 5 – “How the VC makes money” – This is great. It gives an entrepreneur an understanding on two levels. First, the VC has people they answer to, the Limited Partners, and must make money for them. Second, should an entrepreneur think that their investment should be part of the portfolio, know that they are more likely to be a part of the failure list and that they need to have a big play to help the VC make their numbers based on the failure rate.

Slide 6 – “Stages of Investment” – Many entrepreneur’s ask about what type of investment is right. This is usually when they are going out for the first time and looking at angel vs. series A.

Slide 7 – “What a good VC will add” – This is what so many claim yet so few deliver. This should be a list of requirements and a test against any VC firm. He actually included case studies so they put their money where their mouth is – literally.

Slide 10 – “Typical Deal Terms” – Every entrepreneur that is looking for VC should make no mistake that they are in this to make money. They may like you but they like how much money the company could make even better. This means putting certain terms in place to ensure their investment.

Slide 13 – “When NOT to raise VC” – If you take one slide away this is the one. Everyone looks at VC as the way to get to the finish line but most of the time a company is not a candidate. If you are any of these three or close to it, rethink your plan or find other ways to finance.

Slide 18 – “Sharing relevant information” – You can see from this slide that it is important to have documents but not the 100 page business plan in the beginning. In the end it will be about them checking on you, those interested in buying from you and the who and how of execution.

In the end this presentation has a bottom line – This is a partnership and there must be alignment on all sides in order to make it work. It is about relationships, communication and execution. If any one of those three are missing you will fail.

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As an entrepreneur, "NO" from a VC is a good thing

In the blogosphere, there is some buzz as to why VC’s don’t say no. There has been early writing on this topic, but Stu Phillips of Ridgelift Ventures and his entry, Getting to NO!, is getting a lot of buzz.

I would like to add the entrepreneur’s perspective on the conversation.

In my experience, the VC’s I have presented to and met with for the most part think of themselves as risk takers or the “rebels of the investment world”. My perspective is that while this might have held true in the early days when people where investing in Apple and those first Internet startups, now it is mostly follow the leader.

This is one of the reasons many a clone of YouTube or MySpace to appear on the web and generate the froth in yet another new wave of startups. VC money for the most part does not chase true innovation, many pursue later stage with a clear exit or if it is early stage, they chasing deals with what I call “parallel potential” that emulate the successful pioneer.

This is why many companies getting funding sound very much like variations on the original (i.e. “this is MySpace for Retired People” or “this is YouTube for music videos” or “Google for vertical markets”) there is a reason this happens. First, VC’s who didn’t get in on MySpace or YouTube believe they invest in one with similar features and have a good exit if its positioning makes it stand out. Enabling this co-dependent investment relationship are the entrepreneur’s who are not really innovating and just see a niche that they can capitalize on and hope the VC is interested.

I look at a VC as a combination of Movie Producer and Casting Director. You are the actor/actress and winning the part is the equivalent to getting the investment. This means that you as the actor need to audition for the right parts and your company must match their type of portfolio investment or you are just wasting your time.

The value of a VC, a good VC that is, is to do as many “no harm/no foul” meetings to explore a potential investment. Many entrepreneurs think this is a YES/NO meeting. It is not. Think of it like a first round audition to see if your company fits their portfolio. If there is interest, you move to the next round.

I have experienced this first hand and for many investors, the real opportunities are ones that disrupt what exists on the market today or innovates in an area that can be marketed to a number of industries ensuring a safety net to reduce its risk relying on one sector or business model. Ironically, many VC’s when they first see these deals are apprehensive to jump and say “Yes”, but they will never say “No”.

Most investors might have a no harm/no foul meeting with an entrepreneur, they are reticent to say no because they like what they are seeing but maybe the customers aren’t there yet or they want the market to reach the idea and prove its viability. This is why you get the typical responses:

  • “If you find a lead, give me a call”
  • “It is a great concept, if you get a few key beta customers, come back and let’s talk”
  • For more of these little “nuggets”, I direct you to Guy Kawasaki’s “Top 10 Lies of Venture Capitalists“.

If you are getting these kinds responses your frustration level is high and I know how you feel. You must look at this as – NO, NOT RIGHT AT THIS MOMENT. But why don’t they tell you “NO”? It is because they want to stay in the game in case you do reach those milestones or other VC’s begin to get interested and want you. Does this not remind you of high school and trying to be popular? Yeah, I thought so too.

For you entrepreneurs that read this blog, understand that for a VC, saying ‘No’ shuts them out of a future potential deal, but hearing NO can be good for both of you. Hearing “No” let’s you focus on those VC’s that either say “YES, let’s continue” or “Not right now, but when you do X, let’s move forward”.

So here is my plea to the VC’s that subscribe to the blog – BE HONEST. TELL US NO AND TELL US WHY NO. If we know why, we are happy to move on or update you later and come back to TURN THAT NO INTO A YES.

What is interesting is that this is not uncommon in other countries and is a standard way of doing business. Business etiquette in many countries do not use “NO” in their negotiations. China is a prime example of this where “Maybe” is as close as you are going to get and negotiations are always happening right up until the contract is signed.

What I recommend to you my fellow entrepreneurs is not to focus your business on making it a VC play. If you are building a good business, build a good business. True, some have amazing potential but a limited time window to execute so VC or angel investment is necessary to grow. If this is the case, the opportunity will present itself and the relationships you build will be there when you are ready.

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Bubble, Bubble, Bubble. – In Private Equity not Web 2.0

Being a serial entrepreneur I have been through many business cycles, but the Internet boom of the late 1990’s was an extremely heady time. People were so enamored with what the Internet could do, every one really believed that the old rules didn’t apply.

The reality was that those rules applied more than ever and with the crash in the early part of the century we have tried to learn our lesson.

With these new companies deemed Web 2.0, everyone is expecting another bubble. So many of the same types of companies have been funded so there are bound to be consolidation and just plain failure.

According to Michael Arrington, his entry “Bubble, Bubble, Bubble“, the despite the fact that some companies are failing, the sky is not falling.

In fact I would call this time around the ol’ startup track “saner, saner, saner”.

Despite many of these companies basing their success on being an aftermarket for Google, the smart ones I think many people know that you have to be in this to create a real enterprise and one that makes money. It is not so much about the VC’s but about the ability to use the low cost and barrier of entry to innovate.

But the DEAD POOL is not cool .

I think that the blog A VC gets it right his counter points on “Building It Up and Then Knocking It Down” are right. He says “over hyping young companies where people are working their butts off and then throwing them overboard quickly into a “dead pool” when they fail is not healthy.

I believe it is dead wrong to put this up there. It just feeds the fire for the chicken little’s of the world. Mike Arrington has known successes when he co-founded helped flip Achex and sold it to First data. I don’t know if he has experienced building a company from scratch and having it fail, many times from circumstances out of your control.

BUT THERE IS A BUBBLE DEVELOPING and not where you think…..

The bubble is not with companies it is in the private equity market itself. The model of funding and the way people are evaluating companies is changing. The way investors look at companies is not based on a fast IPO but aligning it to be a sweet acquisition target.

This is helped in no small part since most VC’s invest like they are teenage girls. “Oooo, you invested in a video sharing site, I want one too! You put $5 million into social networking for eco-friendly baby boomers? Find me one so I can get one too!!

HERE IS HOW I GOT THERE:

  1. The amount of money chasing deals have lightening strike twice to find that repeat of unrepeatable past returns is growing rapidly
  2. The number of opportunities are declining and there are too many copycats plus the cheap money is pouring out to fund them.
  3. Not enough VC’s to serve on boards effectively and make the existing investments get to a proper exit
  4. IPO market is still not there and there is and there are only so many acquisition partners
    Higher prices of entry and lower returns

WHAT I DON’T KNOW:

  1. When the IPO market might be friendly to tech stocks
  2. If investors will broaden their portfolio choices to get their money working in unique ways
  3. If funds might start giving their money back

Only time will tell if this comes to pass. If you have a good idea, the money is out there but might not be for very much longer.

Crystal Ball? 2-3 years or mid-2008 this is gonna come to a head. Only time will prove me right or wrong.

Bubble, Bubble, Bubble. – In Private Equity not Web 2.0

Being a serial entrepreneur I have been through many business cycles, but the Internet boom of the late 1990’s was an extremely heady time. People were so enamored with what the Internet could do, every one really believed that the old rules didn’t apply.

The reality was that those rules applied more than ever and with the crash in the early part of the century we have tried to learn our lesson.

With these new companies deemed Web 2.0, everyone is expecting another bubble. So many of the same types of companies have been funded so there are bound to be consolidation and just plain failure.

According to Michael Arrington, his entry “Bubble, Bubble, Bubble“, the despite the fact that some companies are failing, the sky is not falling.

In fact I would call this time around the ol’ startup track “saner, saner, saner”.

Despite many of these companies basing their success on being an aftermarket for Google, the smart ones I think many people know that you have to be in this to create a real enterprise and one that makes money. It is not so much about the VC’s but about the ability to use the low cost and barrier of entry to innovate.

But the DEAD POOL is not cool .

I think that the blog A VC gets it right his counter points on “Building It Up and Then Knocking It Down” are right. He says “over hyping young companies where people are working their butts off and then throwing them overboard quickly into a “dead pool” when they fail is not healthy.

I believe it is dead wrong to put this up there. It just feeds the fire for the chicken little’s of the world. Mike Arrington has known successes when he co-founded helped flip Achex and sold it to First data. I don’t know if he has experienced building a company from scratch and having it fail, many times from circumstances out of your control.

BUT THERE IS A BUBBLE DEVELOPING and not where you think…..

The bubble is not with companies it is in the private equity market itself. The model of funding and the way people are evaluating companies is changing. The way investors look at companies is not based on a fast IPO but aligning it to be a sweet acquisition target.

This is helped in no small part since most VC’s invest like they are teenage girls. “Oooo, you invested in a video sharing site, I want one too! You put $5 million into social networking for eco-friendly baby boomers? Find me one so I can get one too!!

HERE IS HOW I GOT THERE:

  1. The amount of money chasing deals have lightening strike twice to find that repeat of unrepeatable past returns is growing rapidly
  2. The number of opportunities are declining and there are too many copycats plus the cheap money is pouring out to fund them.
    Not enough VC’s to serve on boards effectively and make the existing investments get to a proper exit
    IPO market is still not there and there is and there are only so many acquisition partners
    Higher prices of entry and lower returns

WHAT I DON’T KNOW:

  1. When the IPO market might be friendly to tech stocks
  2. If investors will broaden their portfolio choices to get their money working in unique ways
  3. If funds might start giving their money back

Only time will tell if this comes to pass. If you have a good idea, the money is out there but might not be for very much longer.

Crystal Ball? 2-3 years or mid-2008 this is gonna come to a head. Only time will prove me right or wrong.

2007 Predictions – Apple

There are tons of blogs doing predictions and Macworld rumor control.

Macworld and the reactivation of the reality distortion field (RDF) will be in full effect in a few days.

I take an approach that is different and looks more at obvious trends than wild guesses.

To sum it up: Last year for Apple was the “Year of Intel”. I believe that this the “Year of The Living Room”.

Here is my short list for the year:

iPhone – I would usually believe Kevin Rose because he nailed the nano. This has become the “Tech Industry unicorn”. Unless it can let you call God, it will not be good enough because of all the hype. I still like having a phone and an iPod.
Mac Pro 8-Core – This is inevitable but I think they will still keep the older Mac Pro to create a more entry level professional system.
iTV – Details at Macworld. Available in March. I think this sucker is gonna be the new Mac Mini and have hard drive capability. It can’t just be a video Airport. Why don’t these guys just buy Tivo and Netflix to make the holy trinity of video entertainment.
Google+Apple – This will link to the iTV and I think there will be a YouTube front page for the iTV. Can’t resist saying portal here.
Leopard – Lots of features I am not even able to imagine. However, it will have more virtualization capability like Parallels. Macs have the potential to be the tri-wizard, I mean tri-OS, hardware of choice. Imagine, Mac OS X at the center with Windows apps and Linux Ubuntu running select apps. This means limitless power. It might be at this point that we can reveal ourselves to the Jedi…
Displays – This is a gimme. No updates in 2 years, iSights are out of stock. I will go even further that they will have a 42 and 50 inch TV to go along with the iTV announcement.
iPods – Upgrade in storage at Macworld. Separate announcement later in spring for Video iPod. This will coincide with the iTV revolution they will claim. They need to move HD movies into the living room to make money.
Announcements – More studios, new video editing capabilities with their recent acquisitions.

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2007 Predictions-VC Market

As I get back in swing of blogging after a few months off, starting the new year with a predictions entry is a good way to start.

I thought I might do this topically to keep things organized. This is also going to be separate into easier digestible posts. Let’s get started with my outside looking in thoughts on the VC market.

Overall Venture Capital Markets
Deal flow will be steady but not bubble like. Increase and investment will grow at a steady 5-10% amount on average. As many VC’s continue to invest with a herd mentality, look for lots of “green investments” in clean technologies. Software will increase but media will be the darling after the YouTube exit. I believe that trends in social networking like Social Shopping, Social Search and Social Commerce will take it to the next level. Funding and M&A activity will be heavy.

More funds will go international. The amount of deal flow in the US is fine but those looking to make great strides will be going to India and China. This is supported by the NVCA survey (downloads pdf file) courtesy of the VentureBeat site.

The Carlyle Model becomes more popular. There are only so many companies that Google, Yahoo and Microsoft will want to buy. Carlyle Group has made a name for itself as a conglomerate and there will be more of a “Keiretsu revival” where instead of in the 90’s when people invested and then tried to tie them together, companies will form in order to buy established companies that will work well together. Why try and create another Yahoo when you can buy 15 companies that together make an even better one?

The IPO market will be almost back in full swing. The housing market will continue to crap out so people will be looking to put their money in the market again. This means IPOs but it doesn’t mean bubbles. People are smarter these days and companies will have to really be making money and have a real plan otherwise they should hope to be acquired by Google or a Hedge Fund.

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