Last week I had a conversation with an eager young first time entrepreneur (let’s call him Joey) just out of school who was looking for funding. If desire equaled fundability, this guy would have raised $50mm already. I try to make it a point to always respond, even though the bulk of those responses will be a “I’m not interested, here’s why, and here’s a thought for what might be good to do.” In his case, I had to roll out the “tough love” speech, and tell him that he simply didn’t have sufficient credibility with me yet to persuade me to invest time or money. He was annoyed. “How can I build a prototype if I don’t have any money?” he asked. To me, that was the tell-tale sign that he didn’t (at least yet) have the right stuff. As is often told to wannabe entrepreneurs, but more often is not heard, you don’t need money to build credibility and traction. Here’s some of what I told Joey, and I’ll contrast his credibility with that of another new college graduate–Jon Fischer of Speedbump, who is doing all of the right things on his way to getting some funding, as well as that of Sravish Sridhar of Kinvey, a killer startup who not only got funding from me but raised more than $1mm from Atlas Venture and others.
As is often said, ideas are a dime a dozen, it’s execution that creates the milestones which de-risk a company and increase a valuation. Here are the first three milestones I’ll look at, assuming that the market and the problem to be solved seem significantly large.
Team: Who besides yourself is committed? It’s understandable that the earliest ventures may not have assembled much of a team, but if you haven’t talked any future colleagues into leaving their jobs and joining with you, why should an investor? The ability to recruit a solid team is even more important for a CEO than the ability to raise money. Companies can be bootstrapped without much money, but they can never grow without great people. The student who wanted to start a game-related company had no coding experience and had yet to find a technical co-founder. He thought he needed money to hire people…but as far as I thought, if he can’t sell his vision so that he can find the right partner to come in, (in the classic “hustler and hacker” 2 person combo,) something is wrong.
Contrast his status with that of Jon Fischer of Speedbump. Jon isn’t a hacker and he hasn’t yet settled on a technical co-founder, yet he was able to assemble an informal group of advisors behind him, including me, the head of the business program at his college, and a few others in his local community. Jon may not have the team yet to make me want to write a check, but he’s on the way. He’s just moved to Boston, and he’s checking out the local hackathon scene as he looks to expand. Not quite there, but a work in progress.
And in the “Nailed It” category, look at Kinvey. Prior to raising money, they put together a team of hackers and designers who individually have put together millions of applications used by consumers. That’s a great start and creates substantial credibility. The CEO, Sravish, has worked at startups and has developed some serious technical chops and managerial experience. (BTW, I was 44 when I started my company. It’s not only for college dropout wunderkind.) He brought in two other co-founders each of whom also had written software used by millions of people. That team has already proven its staying power by working together for months without paychecks to get to where they are–no small feat.
What’s my advice for Joey? First, get immersed in the network. Since he’s in Boston, he should check out DartBoston, hit all the MassChallenge networking events, go to Mobile Mondays, Tech Tuesdays, Open Coffee at Voltage Cafe on Wednesday, all of the meetups and events constantly going on to meet other people interested in startups. This stuff is around everywhere. In Vermont there is the Vermont Growth Company Meetup, Vermont Venture Network, Vermont Investors Forum, Vermont Software Developers Association, Vermont Biosciences Alliance, Champlain College’s Speaking from Experience series, you get the picture.
Next, start hanging out at some hackathons, and maybe even try to teach himself basic coding, even if it’s nothing more than setting up websites. How else is he going to be able to find and recognize a technical co-founder or two?
And while he’s at it, think about soliciting that Advisory Board. Start as high as you can dream, and ask. When you land that Advisor, they should be able to steer you towards good opportunities and provide that mentoring you’re looking for.
Prototype: Joey, of course, doesn’t have a prototype. He’s read all about Eric Ries and minimum viable product, but until he builds something and tries it out, it’s just an abstract experience. As they say, “If wishes were horses, then beggars would ride.” JFDI and build something, or persuade someone else to build it for you. We know it is only a start…but even Apple launched the iPhone without features like cut and paste, a working app store model, etc.
Here’s where Speedbump is solid–they’ve built a prototype application that uses Android phones to monitor teenage driving habits (not just speeding, but also texting or talking while driving.)
Likewise with Kinvey. They are building out an entire suite of cloud-based back end support for applications, and they have plenty of features they plan to add eventually. However, right now they have built a scalable base, and it is super-robust.
Customers/Data: The last product-related checkpoint I’m looking for is beta customer feedback–even better if I can experience the product as a beta tester or customer myself (see CardMunch story.) Here’s a key problem for Speedbump: they have a product, but it hasn’t really been tested much, with very little customer feedback on this version. (They did have a previous, hardware-based version that became obsolete when smart phones started offering GPS.) While Jon needs to develop a customer acquisition strategy, what he needs most for credibility is proof that his product works. My suggestion–give it away for awhile to local high school students or PTAs so he can find out what works and what doesn’t, and what’s needed. Then he’ll be able to come back with data on the device’s effectiveness, as well as user feedback.
Kinvey, once again, has nailed the execution once again–they developed an MVP, and they went after user feedback–not just free users, but paid users, who are more demanding. They gave themselves a goal of getting 30 customers (in their case, app developers) by the end of the three month TechStars program–and before the program was over they had exceeded their goal many times over, with dozens of phone apps now up and running on their platform. Working their hacker connections, they are testing everything from features to pricing while they continue to build out their product Clearly, these guys haven’t just read about lean product development, agile software development, all of the other trendy theories–they are putting them to practice, getting customer feedback, and constantly improving not just the product but their whole approach. It’s textbook execution, and investors and customers alike can’t get enough.
Next Steps for Joey:
What other pearls of wisdom did I cast down from on high to Joey? While I felt that he believed I wasn’t giving him a chance to tell me all about his plans for the product, I really am trying to help.
First, since he already stated that he needed to either get funding right away or get a job to pay off loans, I suggest that he get a job in something as close as possible to what he is trying to do. Even better if it can be at a well-respected startup or market leader. You want to do something in games? How about trying to get into Zynga Boston, or one of the many smaller companies focusing on gamification–there are plenty. Getting some experience somewhere else in his case isn’t going to slow him down, but rather improve his odds: the race is not to whomever starts first, but rather the person that executes best along the way. Acquire some chops and wisdom.
Second, he needs to figure out how fund-raising works by hanging out with investors: go to any of the lectures put on by VCs, accounting firms, incubators, etc., and see if you can talk your way into one of the angel groups as a volunteer to take notes, coordinate schedules, and communicate meeting minutes to members. You’ll quickly learn what kind of companies can easily raise money, and which can’t.
Third, get totally immersed in the community. Joey’s figuring this out already–I met him at a function sponsored by The Capital Network, which is an organization dedicated to helping out first-time entrepreneurs learn the ropes. Check out their upcoming events here. Virtually everyone in the network is an angel, and all have experience in startups. No better investor than someone who has seen you via mentoring. I’d hit every meetup, lecture, event on the circuit. In Boston, there are calendars or events posted via GreenHorn Connect, DartBoston, BostInnovation, Boston.com, meetup.com–each city has its own center of gravity and activity. Read the Young Hustlers series featuring Gen Yers like @evanish and @janetaronica.
Fourth, spend an hour a day getting smarter about startup stuff. There’s a load of links on my authors and resources pages, see which ones speak to you. And here’s a recent video from @naval from @venturehacks you might like.
Finally, show me you can excel at something. People I want to back are successful at lots of things–that’s why they are excel-lent people to back in a startup–they EXCEL. Wow me. Not with your idea, but with you. And to do that, you need to be able to tell a good story. Take every chance to speak, to pitch, to try things out with everyone. And as you practice, you’ll improve, and as you improve, you gain credibility. The companies which are at TechStars, where I met Kinvey and Evertrue, two companies I’m investing in, gained great credibility with me and other investors by making it through the <2% odds of getting selected…but as good as they already were, they practiced their pitch every day on everyone who came through the door–and it showed on Demo Day, when they wowed the investment world. So why should you do less? (BTW, companies can get great mileage out of putting a killer pitch onto video; here’s part of the pitch that Kinvey enclosed in their TechStars application at the beginning of the year. Low tech, almost no cost, but thoroughly effective.)
Joey, good luck, and go get ’em. I hope to see you again on the circuit, undaunted and positive, and I look forward to seeing your progress. And I hope I haven’t embarrassed Kinvey and Speedbump–thanks for letting me use you for comparative purposes.
By the way–credibility goes both ways. Any entrepreneurs having advice for me (other than write more checks), I’m totally open to hearing your comments.