Oregonstartups.com Blog

Find out on March 30, 4pm, at OTBC, when we’ll pose questions about common start-up legal issues, and compare your answers with the answers of two Perkins Coie attorneys, Neil Nathanson and Jeff Bock.  Learn more and register at this link.

A Business Week post by Scott Shane with Case Western Reserve University describes his research that shows how angel groups’ deal funnel got tougher from 2007 to 2009. When entrepreneurs apply to a venture group, there’s an initial screening that weeks out many, followed by a pitch, then more due diligence, and then, for a few, an investment. At each stage, companies are weeded out.

In 2009 compared to 2007 and 2008, half as many companies survived the initial screening, and less than half as many survived the due diligence process. Check out the post to see a graph of how the funnel has shifted.

Yet more evidence that yes, indeed, the start-up investment climate is getting tougher.

A recent Venture Beat post from Will Herman raises a question that has crossed my mind more than once: Why do entrepreneurs flock to loudmouths as mentors? A worthwhile question to consider if you’re starting a company. I agree with Will’s suggestions: recognize that you’re your only savior, access many mentors, and learn about what each prospective mentor has actually done.

And keep in mind that you’ll get contradictory advice from mentors – you’re the one that gets to decide what’s the right advice for you. That is, I think, a corollary to “access many mentors”.

And find mentors that have “the ability to communicate they way that works best for you”. Not to contradict Will, but if high volume is what works for you, well, maybe a loudmouth is the right strategy.

A Venture Beat post, Ask the Attorney: What issues do I need to consider when forming a start-up? has a good summary of the issues that founders should be thinking about very early on. At OTBC, we frequently see start-ups making mistakes relating to these subjects – mistakes that may not be fatal, but that take a lot of time and effort (and pain) to go back and fix. These are important! If you’re starting a company, read the Venture Beat post.

In a recent post “A VC” Fred Wilson explains How To Calculate A Return On Investment – because he has seen multiple cases of financial projections from entrepreneurs who don’t quite understand ROI. As Fred points out “You don’t need to get a finance MBA to be able to do this kind of thing.” Read his post, and you’ll be one of those who gets it.

At OTBC, we meet with a lot of entrepreneurs who want to raise venture capital to fund their idea. If they haven’t raised venture capital before, they tend to underestimate how difficult it is and how long it takes. One way to increase the odds of getting funded is to understand what VCs look for in an entrepreneur. (Of course, it also takes an investible business concept and enough headway to reduce the risk – but that’s a different story.)

Mark Suster, a partner with venture fund GRP Partners, made 3 posts to cover his list of “10 skills I look for before writing a check”. He cheated a little, and actually listed 12. Still, it’s a good list of traits that are important for a start-up entrepreneur. You can find the list in these three posts:

1. Part 1
2. Part 2
3. Part 3

The short version is:

1. Tenacity
2. Street smarts
3. Ability to pivot
4. Resiliency
5. Inspiration
6. Perspiration
7. Appetite for risk
8. Detail orientation
9. Competitiveness
10. Decisiveness
11. Domain Experience
12. Integrity

It’s hard to argue with the list. The only thing that surprised me is that Integrity came as almost an afterthought, at the end of the list. I know investors who would put that at the top. But all in all, it’s good food for thought. If you’re launching a company, I suggest you read all three of Mark’s posts.

Dharmesh Shah published a great post with 50 Three-word phrases that can make your start-up a success. And I agree with (almost) all of them. The only one that makes me a little nervous is the one about “avoid business plans”. But I actually believe in effective business planning more than business plans (I’ve seen a lot of bad business plans that clearly were not the result of good planning…), so I can even go along with that one. This would be a list for entrepreneurs to post above their desks for a daily reminder of the basics – all in nice, digestible 3-word phrases.

You may recognize the George Bernard Shaw quote. The rest of it is: the unreasonable one persists in trying to adapt the world to himself. Therefore, all progress depends on the unreasonable man.

From WSJ.com: Venture Capital Dispatch Turning Unreasonable Ideas Into Reality

It started with 284 unreasonable ideas. Those were whittled down to 42 unreasonable ideas. In the end, 25 such ideas may become a reality thanks to the Unreasonable Institute – a 10-week incubator for entrepreneurs who aim to make a difference in society.

The project of Rafael Smith, whose idea is to produce emergency shelters that provide humane living conditions to refugees. Smith is one of 42 finalists for the Unreasonable Institute’s 10-week incubator program.

The incubator’s name, which carries an adjective that might usually turn investors away, is inspired by the George Bernard Shaw quote, ‘The reasonable man adapts himself to the world; the unreasonable one persists in trying to adapt the world to himself. Therefore, all progress depends on the unreasonable man.’

The Unreasonable Institute will unite 25 entrepreneurs from around the world to attend an intensive 10-week summer training program. Among the 42 finalists, announced today, are a computer engineer from Brazil creating devices that will make blind people more marketable for jobs and an MIT graduate from Pakistan working to create heat saving insulation for shanty town homes, thus reducing indoor air pollution and money spent on heating for their poor inhabitants.

At the end of the 10 weeks, the entrepreneurs are connected with socially responsible venture firms that might be interested in investing. One firm, Atlanta-based Gray Ghost Ventures, which invests in business that improve low-income communities, is setting aside $150,000 for a fund with a twist. The 25 entrepreneurs will decide which companies, up to four of them, will get the money from the “Unreasonable Village Fund.”,

Imagine that – the entrepreneurs decide which, out of 25, will receive an investment from Gray Ghost Ventures. OK, I suppose that seems like an appropriately liberal approach given the social-good orientation of the Unreasonable Institute’s mission.

But it’s interesting food for thought. Would a group of entrepreneurs make better investment decisions than a VC firm or angel group? Would 25 entrepreneurs choose to “vote” against themselves, if there could be only 4 winners? And would entrepreneurs make good investment decisions? Hard to say – group dynamics sometimes lead to surprisingly rational decision-making.

But what am I thinking – entrepreneurs making investment decisions for angel groups and professional venture capitalists? The tail wagging the dog? That’s clearly unreasonable.

I’ve often heard it said (and for that matter, I’ve often said myself) that when starting a growth company (one that’s likely to be looking for investment capital from angels or VCs) the entrepreneur’s concept has to be compelling – not just a “want” but a “need” – a “must have” as opposed to a “nice to have”. But I have to admit, I occasionally have second thoughts about “need” versus “want”.

Then today I ran across VC Don Rainey’s blog post: 6 Easy Steps to a Great Idea (Or one that turns out great. Don talks about figuring out what people currently (or will) want, as opposed to what they need:

This is distinctly different than something people currently or will need. People need healthy food but any hour long drive down any Interstate highway in the United States should convince you they “want” crappy fast food. Maybe they “should” want something but that doesn’t mean they ever will want it. They want $3 oily, bitter coffee from Starbucks because it is conveniently offered whenever and wherever they want it.

So I had to revisit this whole question of want versus need, and the more I think about it, the more I think Don is right. An iPhone is not a “must have”. My old Treo worked just fine. But I decided I wanted an iPhone enough to buy one (and enough to buy a second one when the first one started having problems 2 months after the warranty expired.) And I don’t think the sub-woofer I bought a couple of months ago was a “must have” either – but I sure like the way the floor vibrates when the T-Rex footsteps send ripples through the coffee cup in Jurasic Park.

The word “compelling” still works for me. I decided that both the iPhone and the sub-woofer were compelling, albeit for different reasons. So in the future, I’ll shy away from the “must have” label, and stick with the need for identifying a compelling need.

And with that, it’s time to read another post on the new iPad. I have to decide just how compelling that latest tech toy is…

A recent Guy Kawasaki How to Change the World post linked to a 6 minute video by Lewis Howes on 8 ways to use social media. A quick summary:

1. Be yourself
2. Get active on at least Facebook Twitter and LinkedIn
3. Provide awesome content
4. Be smart with your time
5. Be consistent
6. Promote others
7. Connect face to face
8. Thank others

Lewis’ video adds a lot more detail, so check it out. (I think I’m still working on 2 through 8…)