We have been told our entire lives that there is no such thing as a stupid question. It is the way we learn, it is the way we grow, it is the way we understand the world and it is the way we become entrepreneurs. There’s an old saying that “If you ask a question it makes you look stupid for 5 minutes – but if you don’t ask – you stay stupid for fifty years.” Eric Schmidt, CEO of Google, said, “We run this company on questions, not answers.” The successful entrepreneurs are those people who never stop asking questions. They ask their friends, their customers and they ask their mentors so that they can continue to improve their product, solve problems and remain competitive.
The web site Quora introduces mentors from all over the world to help entrepreneurs be successful. People from all walks of life can ask a question about any subject, which is then distributed to a vast network of people, from experts and authorities to regular folks with relevant knowledge. The answers are then archived and organized so they can be accessed by anyone else with the same question. Each week, this site will post some of those questions and link to some of the best answers. It’s like having a mentor in a box.
To navigate the articles, simply click on a question below and you will be linked to a mentor and their answer.
As first time entrepreneurs what part of the process are people often completely blind to?
- An idea is not a design
A design is not a prototype
A prototype is not a program
A program is not a product
A product is not a business
A business is not profits
Profits are not an exit
And an exit is not happiness.
(from Mike Sellers’s answer)
- Copying and improving on existing ideas is far easier and sometimes more fun than trying something unique and novel.
- A startup can be more emotionally draining than most other endeavours.
- Do due diligence on your co-founders – a sour relationship can kill an otherwise great startup.
- The law is a minefield, and any legal complications get worse and worse the longer they are left. Set up a vesting schedule and untangle IP issues early.
- Despite the high level of activity on Quora, Hacker News, Techcrunch, etc, starting a business is an uncommon thing for people to do. You may find that you become a minority amongst your friends and family, and the loss of stability compared to a regular job can be daunting
- Taking money from Friends, Family, and Fools hurts the most if you lose it.
- A complex share registry can harm your chances of securing later rounds of funding.
- Not all money is good money.
- Technical experience is no substitute for startup experience.
- Youthful ambition is no substitute for technical experience.
- Hire people who complement existing capabilities in your team. Duplicating talent is great for your bus number, but often an unnecessary drain on the resources of an early stage startup.
- Hire generalists early. Hire Specialist later.
- Marketing strategy is more important than building something awesome.
- Product/market fit can be understood without writing a single line of code.
- Fundraising is a full-time job.
- Startup progress happens when people are paying you, not when you are paying them.
- Clients don’t always pay on time. You can’t pay your bills or salaries until the promised money reaches your account. Be prepared.
- You will lose your friends and loved ones if you don’t regularly disconnect from business mode to laugh and love.
How do I get seed funding without giving away the idea?
Author, Captivology; Venture Capitalist; ex-Mashable
Why would you think this is a good idea?
Imagine you’re an investor. And a founder came to you and asked you for $100,000. But refused to answer any questions about the business, how it functions, how you’re going to execute the plan and why it’s better than what’s on market? Why would ANYONE give you money?
The biggest mistake rookies make is not talking about their idea with everybody they know. This is how you improve your idea, your product, your process. Friends and investors can tell you who else has attempted your idea (trust me — you’re not the first). They can suggest potential partners and introductions. They can give you feedback.
Ideas are cheap; execution is valuable. Stop being a rookie.
How does venture funding work?
Blogger, author, social media, investor, wall street and easiest to ask on Tw…
WHAT IS VENTURE FUNDING?
I will take a simple example and from this you will be able to figure out all the ins and outs of venture funding.
Imagine you want to set up a lemonade stand. Your company is going to attempt to sell lemonade to all the people who pass by.
Your fixed costs are:
Your table: $30
A sign and some paint: $40
Your variable costs are the amount of lemonade you will need because it will depend on demand. But you figure you will be profitable from the first week.
You figure you will need $10 worth of lemonade and that will generate 10 cups of $2 each so you will make $20 in revenues.
Which means gross profit will be $10, which you may choose to reinvest in more lemonade (if demand is high) or more signs (to create more demand).
So how much money do you need. You need at least your fixed costs ($70) plus some money for lemonade. Since you think you will be profitable in your first week you will need $10 more to buy the lemonade.
So you need $80.
You don’t have it.
So you make a business plan.
– You need $80 for all of the reasons above.
– you have vast experience helping your cousin last year run a successful lemonade stand
– 100 people a weekend will walk by your lemonade stand (you counted last weekend) and at least 10% will buy (according to how your cousin’s stand weekend) and at least 10% will buy (according to how your cousin’s stand worked last year) so you will make $10 a week in gross profit (see above)
That means you will make $500 a year in gross profit (you live in Florida so it’s hot all year round).
In other words: if you can implement your business plan, there’s $500 in profits that can be shared or reinvested (perhaps you will open up other lemonade stands and hire other kids to run them).
All is good except for the fact that you need $80.
You approach your daddy and ask for “venture funding”. It’s “venture” because you are a venture. It’s like an adventure that needs money.
It’s “funding” because he will provide the money.
Your daddy drives a hard bargain.
He says, “I will give you $80 but I need 50% of the company”.
This means one of two things initially:
– if you have profits in the company and want to take them out of the company then you have give him 50% of all the profits.
– if you sell the lemonade stand to your neighbor (because he would rather buy your lemonade stand than build one himself) then 50% of the proceeds go to you and 50% go to your father.
But now your father throws in some other terms.
Up until now your company has just had “common stock”. You had 100% of the common stock. Don’t worry about how many shares that means. Just know that you had 100% until this moment.
Your daddy says, “if you sell the company for less than it takes for me to make my money back, then I am the first money out.”
This means his stock is now “preferred” and yours is “common”.
This means if you sell your company for $160 he gets $80 and you get $80.
But if you sell your company for $150, then he gets $80 (the first money out) and you get $70.
If you sell your company for $60, he gets all $60 and you get $0 and probably feel bad.
He also says, “if you raise any more money then I can keep my 50% of the company by putting in more money also.” This is called anti-dilution rights.
He also says, “if you leave the company, then I get all my money back first.” Meaning, if you let your neighbor take over the lemonade stand, your daddy doesn’t necessarily trust your neighbor so you have to figure out how to get him his money back.
This is roughly a “change of control provision”.
He also says “if you insult the customers, then I get to fire you.” This is a gross negligence provision.
He may also say that no major decision involving more than $50 can made without both of you approving.
Ok,” you say, and you agree to everything and take in the $80. You just got venture funding and now there are two “classes” of stock: common (your stock) and “Preferred A” (your daddy’s stock).
Let’s say a week goes by and only 5 people bought lemonade for $2 a cup. So you ran out of lemonade and have no profits.
You need to raise another $10. You go to Daddy and he says “NO!”
Now you go to Mommy. She does more distressed venture funding.
She agrees to the $10 but she says two things.
– “I am the first $10 out if you sell the lemonade stand”. So now she is making her stock “Preferred B” which has more rights than “Preferred A” or Common stock.
In other words, if you sell the lemonade stand for $15, she gets her full $10 back. Your daddy only gets $5 back of the $80 he put in. And you get $0.
She also says she wants 50% of the company for her $10. She’s what’s called a “vulture capitalist” behind her back.
This means that if the company is sold, she gets 50% of the company, your daddy gets 25% and you get 25%. Same as if you distribute profits: 50% / 25% / 25%.
So, even in this simple example you have to make sure of several things:
you measure demand correctly (not so easy)
– you measure what your fixed costs are correctly
– you measure what your variable costs are correctly
– you determine what your selling points are about yourself
– you try to foresee how much of the company you are willing to give up so that it’s still worth it to you.
– you understand everything a venture capitalist might ask for that maybe you can negotiate.
For instance, maybe you could’ve have said to Daddy that since you were going to make $500 a year in profits maybe it would be unfair to give him 50% of the company for $80. He could say “Screw you” but then you can go to your best friend’s dad and show him the same business plan and get more than one venture funder to consider funding your lemonade stand.
Always good to diversify the people go to for venture funding.
Now, I will answer your second question. I hope the above was helpful.
HOW MUCH VENTURE FUNDING CAN YOU GET?
I indirectly answered this above but I will add a little more color here.
Having just an idea will get you nothing. Chances are you need to have a sense of demand. If you are in an old-fashioned business (lemonade stand, laundromat, McDonalds franchise, etc) then this is easier.
If you are in a business that has never been done before then answer these questions:
– Urgency: how urgent is the need for the product you would like to create
– Unique: is anyone else doing it and why is yours better
Useful: Does this solve a real problem
– Ultra-specific: How does your solution work
– User-Friendly: What does the venture capitalist get for his money. You want to make it easy for him or her to say yes.
– Unquestionable Proof: proof that your product is as good as you say it is.
If you haven’t created the product yet and have no customers then that final “U” is going to be very difficult. Then you aren’t being very “user-friendly”, i.e. you are making it difficult for the venture funder to say “yes”. And without a product, in a brand-new industry, you will have a hard time measuring the urgency (demand) of that product.
And if you haven’t created the product you might have a hard time understanding what the fixed and variable costs are. Making it difficult to make a business plan, making it even more difficult for a venture capitalist to say yes.
This answers half of your question. If you can do the above then you are starting to be in a position where you can ask for money.
But how much?
This is more art than science. If it were science, everyone would be filthy rich.
But most people go broke investing in ventures.
Once you have a sense of all of the above you can use the same math as in the lemonade stand example to determine what your company is worth.
Ultimately a company is worth ONLY the amount of cash it will generate from now until the end of time.
But it’s hard to predict the future.
Typically, a company will attempt to predict three or four years in the future how much profit it could generate and then discount that by anywhere from 50% to 75% or more in order to give the venture capitalist a reasonable deal, given that you can’t really predict the future.
Often, though, companies are not profitable in the first three years.
So even though the only way to value a company is on the basis of its future (but unpredictable) cash flows, there is another way you can try to convince venture capitalists to invest.
You look at similar companies and how much money they raised when they were at your similar state.
For instance, your cousin’s lemonade stand might’ve gotten $200 for 30% of the company.
And your daddy can say, “but his corner was twice as busy”.
And you can say, “but I have higher quality lemonade”.
And so on. That’s a negotiation. Which is another topic.
– build a product. Even if you have to do it over years while at a full time job so you are only working on the side.
– get customers
– get feedback on your product.
– try to scale and get more customers.
This gets you a sense of demand, gives you experience on the costs, and lets you build a product people can see instead of just imagine.
How should I raise a 12-year old girl to be a successful entrepreneur?
I’m a serial entrepreneur and active angel investor, based in New York. As an inveterate startup guy, I’ve founded half a dozen companies since my first at age 10, and as ‘super angel’ technology investor, I have funded over 100 others. I am the founder and CEO of Gust, the entrepreneurial finance industry’s infrastructure platform; author of Angel Investing: The Gust Guide to Making Money & Having Fun Investing in Startups; founder and Chairman Emeritus of New York Angels, one of the leading angel groups on the East Coast; Managing Principal of
What a laudable goal. My own daughter, at 12, came to me and announced definitively that, having lived her whole life with an entrepreneur for a father, the very last thing she was ever going to do was to become an entrepreneur, because it was just too insanely painful and risky! She was therefore setting her sights on becoming a corporate lawyer with a nice, secure job.
Fast forward six years, and she goes off to spend her freshman year at college in England. Deciding that we weren’t sending her enough pocket money, she started doing some part time tutoring. Being a smart and self-starting kid, she printed up some business cards. And put up some posters. And started a word-of-mouth campaign. Soon, she had more clients than she could handle. So she enlisted some of her friends to help with the tutoring. Things continued to expand. She had to get more qualified tutors. So she began posting recruiting ads, setting up proficiency tests and background checks. Things continued to expand.
By the end of the school year, she had a staff of 13 tutors, was at an annualized revenue run rate of $100K, was selected as the local Young Entrepreneur of the Year…and sold her business to a professor at the college when she returned to the US for her sophomore year.
As I told her smugly when she got back, “You can run, but you can’t hide!” 🙂
Which brings me to the advice-giving section of this answer: by FAR the best thing you can do is be a great role model! Show your sister that girls CAN be entrepreneurs! That being an entrepreneur is cool! That entrepreneurs live larger lives, have a greater impact on society and basically have more fun, than anyone else on the planet! Tell her stories of Mary Kay Ash and Anita Roddick, of Esther Dyson and Heidi Roizen, of Martha Stewart and Oprah Winfrey (actor)…and of yourself!
Take her to your local tech meetups, to Take Your Sister To Work Day, and to see movies about startups. Hang out with the cool girl entrepreneurs, analyze everything she likes from the perspective of a business owner…whenever you see an interesting story about startups, discuss it with her. The next thing you know, YOU will be her role model, and the world will have another super-entrepreneur!
Tim Berry, Founder and Chairman of Palo Alto Software (www.paloalto.com), founder of bplans.com. Conceptual author of author of software including Business Plan Pro (www.businessplanpro.com) and LivePlan (ht… (more)Loading…
Founder and Chairman of Palo Alto Software (www.paloalto.com), founder of bplans.com. Conceptual author of author of software including Business Plan Pro (www.businessplanpro.com) and LivePlan (http://www.liveplan.com); and books including Lean Business Planning and The Plan-As-You-Go Business Plan (planasyougo.com), published by Entrepreneur Press. Stanford MBA degree and degrees with honors from the University of Oregon and the University of Notre Dame. Consulting about business plans at timberry.com. Co-founder in social media business at http://havepresence.com. Angel investor member of Willamette Angel Conference | Oregon Investment for Startups
I really like the David S. Rose answer here, but as father of four grown-up daughters, all of whom have at least tried to start at least one business, several of whom are quite successful as entrepreneurs, I really want to add some more to that (originally posted on my blog at Do You Want Your Daughter to be a Successful Entrepreneur?)
- Do everything you can, as a parent, to promote and encourage academic education in whatever your daughter likes. For every successful entrepreneur who dropped out of college there are thousands more, maybe tens or hundreds of thousands, who didn’t drop out. Life and entrepreneurship are easier with a college degree.
- Fight the stereotype: Don’t let your daughter swallow the stupid and obsolete idea that boys do math and science and technology and girls don’t. That unfortunately is a self-perpetuating myth. It’s dangerous.
- Don’t, however — please — be that parent pushing the poor kid towards specific educational directions. Drop that agenda fast. The more you push for a specific path (business, entrepreneurship, high tech, for example) the less likely you are to really help your daughter. It’s her life, not yours. For the record, I know many more successful entrepreneurs with degrees in liberal arts than with degrees in business or entrepreneurship or computer science.
- Give her as much technology as she wants. That means — within reason of course — the computer, the laptop, broadband, smart phone, etc. And of course you have to be careful, as a parent, because there are those well-known dangers. My daughters grew up with computers. I gave them domain names as birthday gifts when they were as young as 10 years old.
- All of them had laptops for school. One of them liked computer games, so I got her all the games she wanted.
- Don’t push your definition of success on her. Help her find her success. It’s her life, not yours.
I have to add something related to point #5 here, and the qualifier “successful” entrepreneur. That’s a dangerous concept. What we want, as parents, is for them to end up happy, which usually means productive, economically self sufficient, and independent. Is it dangerous that we’re in the context of “successful” entrepreneur instead of entrepreneur? And is a successful entrepreneur happier than than an unsuccessful one, or a professional, or middle manager? Especially where your daughter is involved, always pause to question your assumptions.
I am creating the next Facebook and need funding. What steps should I take next?
Gary Rowe, Angel Investor, entrepreneur, technology executive
Your title prompted my responding to this question. I posted a piece several years ago about the top 10 things not to do when seeking funding and number 1 on the list was not saying “we are the next Facebook”. The link is here: Entrepreneur’s Top 10 List of what NOT to do when seeking funding Claims that are unsubstantiated or look more like dreams than reality will discredit you quickly. The bottom line is that (as several have stated) you have to demonstrate how you are different, why you will succeed, why there is value in what you are producing, why your team is unique, emphasize your strengths…For example if you have patents or protection, if you have substantive partnerships, if you have core technology that really is better, if your business model is innovative, something that shows that you can get above the noise. It is also really valuable to define exactly what your funding needs are, how you will use the money and what your long-term capital needs are.
That said, you can claim to be in the space that Facebook is in and show how you are different, better, innovative in some way. For example, in the technology research business the biggest player is Gartner. Gartner effectively defined the research and advisory services space, much like Facebook does in social media. I was president of company in the technology research space (Burton Group) for many years. We would never say we were the next Gartner, but positioned ourselves as more technical, more architecture focused, research was more in-depth, more pragmatic, action oriented… We also had a different pricing and packaging model. It worked as Gartner ultimately bought our company and it is the basis for much of the more technical research and services that Gartner now covers.
Gyan Parida, Venture capital and Startup advisory since 1999
If you have almost done developing, then you don’t need funding right now- just wait. You need to test the waters.
1) In any case, it is impossible to get funding, unless you are repeat/serial entrepreneur. If so, then your past investors are your best bet.
2) You should start an Alpha/Beta testing, in selected geographic area and selected/targeted demographic and get some traction.
3) Have a plan for server space, if it becomes an instant hit – Amazon web service can do the trick,
4) Try to reach out to some tech bloggers, to test your product and get them to write about you. If you can get PanDao daily or Tech Crunch to write, you are golden.
5) Create a Facebook page, and start promoting it and get some traction.
6) Write to Robert Scoble, he has more than 800K followers, u never know.
7) Write to influential people, personally to test your product.
8) Put it on product hunt and try your luck
9) There is no playbook to create a successful social-media company.
10) Try everything, be a cockroach, and don’t allow your product to die. Eventually you will succeed.
11) Traction is the key, how you get there, doesn’t matter. No two successful companies used the same technique. You have to get creative.
12) If you are still out of luck, try to get into one of the top accelerators like Y-combinator,