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Welcome to invespar.com - the one stop shop for start-ups. |
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Musings of a realist The hype on start-ups, venture capitalists, IPOs and such like is unbelievable. Most of the so called success stories hide and gloss over the harsh realities. Some of the favorite myths that are out there, and our take on them are : Myth: The Internet changes everything
The reality:
The Internet touches a lot of things but doesn't necessarily change things much. Sure it has had a lot of growth - but other technologies have done better. For instance, in its first 7 years, Radio was adopted by 45% of the US Public while in the same time frame Internet's penetration has been only 25% of the US Public. In countries like India, the spread has been far less spectacular. Hence, just because you are on the Net-wagon does not mean that you have a sure-fire winner. You need to have a solid business idea that actually takes advantage of the Internet to provide value to your customers and profits for your business. There are far too many ideas which are great ideas but make poor businesses. Myth : Venture capitalists fund startups The reality: Venture capitalists fund established companies. Angel investors fund startups. Although this trend is starting to change, there is still a preponderance of VC funding that goes to established companies. Too many start-ups have pretty unrealistic expectations - and get extremely disappointed when they keep meeting doors closed. Most start-ups begin with a little money from friends, family etc. This funding, usually, gets them up to the point where they are ready to go outside for money. At that point, most large VC's won't touch the idea with a barge-pole : usually that is because of the internal funding criteria that most VC's have to protect their investor's funds! We have yet to find an organization that began with a few high school kids, who went with a great idea to a large VC who funded them right from Day 0. (If you know of any, please do let us know!) Myth : I've got to perfect my business plan The reality: You only have a few seconds to attract the attention of an investor. No one is going to read all the pages of a 50 page report. You need to understand your investors and tell them exactly what they want to hear in less than 5 minutes - or to use the cliché in the time it takes an elevator to go up or down a couple of floors! In your plan and presentations about the plan, keep the emphasis on why your business and team is so unique that it demands the investor to invest in it. You need to have done a lot of homework about your business environment, the competition, the technology, the customers, the trends and such like before you can distill a short, crisp response to any question that investors ask. Remember, investors already have opinions about the business environment and the dimensions to operate successfully. You need to be able to convince the person quickly and effectively. Keep the focus on 3-4 key issues/question that the investor will ask and be sure to have a snappy, convincing answer! To get these questions ask a few people and you will soon have a list of common issues. Myth : Investors back teams The reality: Investors back returns. The Investor is in it to make money and will do everything in their power to ensure that this objective is not jeopardized. As long as your objective is to build a hugely successful and profitable business, you and the investor will be perfectly compatible. The investor does not care much about the management philosophy as long as the economic imperatives are being delivered. Another pet myth that is related is the view of entrepreneurs that outside Funding allows them to retain control. The reality is that unless the funding is from parents and the entrepreneur is the sole heir, external funding means dilution control! The investor is buying future returns and this leads to a degree of control over the present. Myth : There is more money out there than good ideas The reality: Good ideas far outnumber the money. Most investors are very careful about putting their money where their mouth is. The investor's also add to the hype by publishing lists of successful portfolio companies. What is not mentioned are the scores of unsuccessful ones and the hundreds that were not funded. Another thing, being associated with a particular investor does not guarantee success - after all remember their area of expertise is in investing. The myth that is built is that unless you get ABC venture capital funds, your business will not succeed. The true success of the business will be based more around your vision and execution than whether you got the money from ABC or XYZ venture fund. If ABC and XYZ were such good at business, they would have already started the business themselves!
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Copyright © 2000 invespar Last Update: June 15, 2000 |
