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Carbonwolf Energy | AdVenture Capital Advice
AdVenture Capital is the art of raising the right amount of capital and administering at the right time. This Advice Blog is specifically designed to provide actionable intelligence for companies raising capital and the investors who seek them. It contains practical, relevant and dynamic solutions to pervasive issues. However, it is not meant to replace your own legal and professional counsel.
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Pulling the Trigger
By Marty Aquino
20 APR 12
Bootstrapping startup entrepreneurs should be prepared to deal with an insidious but unavoidable obstacle. This obstacle is rarely talked about because it’s assumed –and therefore not a topic discussed openly. “Taking the leap” when the time comes is an overlooked tactical error that most startups cannot afford to ignore. In any successful startup, the time will come to execute, hold or withdraw when an investor offer is presented. Unfortunately, if you make don’t make that decision beforehand it could lead to an irreparable rift in your management team. Or worse, your company could cease to make forward progress. To compound matters, in the funding world, you’re generally less attractive the second time around.
The Startup “Get ‘er Done” Mindset
Startup companies are a dynamic and exciting group of motivated individuals. Usually grossly underfunded, they do what they can to “make it happen” and “get it done.” It’s this tenacity, vision and “bulldoggedness” that's highly appealing to a venture capital or investment group. Startups commonly beg and borrow their way through existence until they can be made ready to be taken seriously by an investor group. During this period, the whole team sacrifices minor and major comforts like posh office spaces, flying coach instead of first-class and paying employees with initially-worthless equity instead of “cash is king” money. New companies should be admired for this amount of dedication and commitment. And, in most circles they are. However, when the startup is ready to move to the next level of play this mindset can backfire.
Too Much Time in the Trenches
Each win at a startup is hard-fought for. Whether the win is raising money or selling a large order, each victory usually involves a metaphorical “hand-to-hand” combat where you may get bumps, bruises and scars in the process. For example, as an entrepreneur you may slave away working on your company’s product or process for months or years before you’re able to win your first bona fide order. And, during that period of time you risk many things including: sacrificing your personal health by working too much, unforeseen market changes and losing close personal relationships. It is precisely this type of experience and single-mindedness that makes you invaluable to the team.
However, it can be detrimental if you’ve been “in the fight” too long. In an extreme case, for example, Hiroo Onoda was a Japanese soldier during World War II in the Philippine theatre. He was sent there on 17 December 1944 and was stationed on a small island to lead his garrison in guerilla warfare. The following February, the Allied forces easily overtook the garrison’s defenses. Onoda split the remaining soldiers into two groups and fled deep into the dense jungle to regroup and continue the guerilla offensive. These men survived by eating coconuts, green bananas and the occasional local cows. It was the killing of the cows that prompted the farmers to leave strategically placed notes: “The war ended August 15. Please come down from the mountains!”
The Japanese soldiers were not deterred. The war-entrenched soldiers believed the notes to be an elaborate Allies' ruse. The Allies (over the next few years) would drop via plane: fliers, newspapers and even notes from relatives to no avail. These men simply would not believe that dramatic change had taken place. It would be 29 years before Onoda, the last surviving soldier, would surrender to the Philippine President Marcos in 1974, after being found and finally convinced by a "myth-hunting" Japanese college student. He and his guerrilla soldiers were responsible for killing some thirty people and wounding about a hundred others –unnecessarily. Onoda’s faith was invincible and admirable. Onoda’s ability to “notice the signs” of opportunity and change, however, was less than perfect. Onoda would return to Japan to a hero's welcome. However, he would find that he was so out of touch with reality at that point that he was unable to adjust to modern life.
Many startups act the way Onoda did.They become so enveloped by their initial mission they fail to recognize change and the opportunities that accompany them. As a result, they continue to "slug-it-out" unnecessarily only adding to their own existing stresses and challenges.
Success Means Risk Exposure
There are largely three kinds of individuals:
- Those who thrive on change (risk)
- Those who avoid change
- Those who want change, but do not want to do anything remotely risky to achieve it.
This third-type, is intellectually sophisticated and enjoy novelty, yet they hinder initiatives with indecision and procrastination. Repeatedly and predictably they reject new ideas as relentlessly as they express concern that too much has stayed the same. Hiroo Onoda was this third-type. He yearned for the war to be over, but did not pay attention to the changes and opportunities to actually “realize that result” on a more timely basis.
The French writer and Nobel Laureate, Andre Gide sums it up best, “Man cannot discover new oceans unless he has the courage to lose sight of the shore.” Success means getting out of your comfort zone and taking action when the other guy isn’t. So, the next time an investor comes knocking at your door (after you've vetted them) realize that there's no such thing as a perfect offer: Make the best plan you can. Execute. Notice the changes and opportunities presented. Adjust. Execute. But don't be like Onoda, continuing to do the same thing repeatedly could cost you more of your life than you'd care to spend -and not actually get anywhere.
Common Startup-Founder Failures
By Marty Aquino
06 APR 12
As a founder or co-founder of a startup company, you’re plagued with many problems. These problems can vary from the trivial to the self-destructive kind. Most founder dilemmas are not-so-obvious and are downright insidious. This entrapment is often caused by the general unwillingness of the founding team to ask the hard questions early-on. Nearly all startups begin with wide-eyed enthusiasm thinking things like: "because my co-founder is a very good friend –all will work itself out." The reality and statistics of startup teams, however, paint an entirely different picture.
The all-too-common founder failure list below has been excerpted from Noam Wasserman’s “The Founder’s Dilemmas.” Noam Wasserman is a professor of entrepreneurial management at Harvard Business School and has focused over 10 years of research on “make or break” founders’ early decisions. In 2011, his course was named one of the top entrepreneurship courses in the U.S. by Inc. Magazine. The bottom line is: his research is worth reading. And, if you’re part of a startup founding team his research is worthy heeding.
The Facts About Founders:
- In 73% of founder-CEO replacements, the founder was fired rather than voluntarily stepping down.
- Founders feel like Lewis and Clark: Rough idea of where to go, but don't see a clear road ahead or upcoming pitfalls.
- Founding-team turnover increases dramatically when the startup raises its first round of financing.
- Unfortunate but true: If entrepreneurship is a battle, most casualties stem from friendly-fire or self-inflicted wounds
- The chances of founder-CEO succession rise with each new round of financing.
- 65% of startups fail due to problems within the management team.
- Feel like a "people decision" is a no-brainer? You may be in for a nasty surprise later on. Decide rather than default.
- A dirty little secret of entrep: Many decisions along the journey push a Rich-and-King outcome further out of reach.
- Each additional social relationship within the founding team increases the likelihood of cofounder departure by 30%.
- Friend/family cofounders are often the least likely to tackle the elephants in the room (Relationships, Roles, Rewards)
- Playing with Fire by cofounding with friends and family? Carefully construct firewalls and discuss worst-case scenarios
- After a 6-month honeymoon period, teams with prior social relationships are the least stable.
- Founders often fail to realize when they are about to make a fateful decision.
- Examine the motivations of your potential cofounder to see if they are compatible with your own motivations.
- Motivational compatibility does not guarantee success, but incompatibility is asking for trouble.
- Founders often describe their equity-split negotiations as "war," "exasperating," or "stressful."
- Is pivoting a possibility? So why do more than 50% of teams split equity without allowing for adjustments?
- 73% of teams split equity within a month of founding: amazing given the big uncertainties they face.
- The Founder Discount: A labor of love can become a trap in which you're paid less than an equivalent non-founder.
- Within each of the 3Rs (Relationships, Roles, Rewards), the most common choices are often the most fraught with peril.
- The trial by fire of founding a startup often burns a team rather than forging a stronger team.
- Neglect the 3 Rs (Relationships, Roles, Rewards) at your peril. Misaligned 3Rs cause tension, dissension, and blow ups.
- Rich founders should be making very different investor choices than King founders; understand your core motivations!
- A founder-CEO's success at leading a fast-growing startup can accelerate his or her own obsolescence and replacement.
- 52% of founders are replaced as CEO by the time the startup raises its third round of financing
- Firing yourself as founder-CEO enables you to remain more involved with your startup after you're replaced.
What Makes Your Project Fundable?
By Marty Aquino
29 MAR 12
Think your project is ready to change the world? Don’t let anyone stop you… But, if you need external investment dollars, consider beefing-up the following key areas:
Kill Pain
Your idea must kill pain. As mentioned in “The 36-Point Business Plan Analysis Guide,” it is fundamental to your funding-appeal. Your customers want solutions not band-aids to their problems. People pay close attention to how well something solves a need. It’s also important to note that the need can be real or perceived. Having only a slight advantage over your competition is boring from your customer’s point-of-view. On the other hand, if you obliterate their pain with your product, where the competition only medicates it, you will be the clear choice.
Industry, Industry, Industry
Investors are keen on what industries are “hot” and which ones are “cooling-off.” Your industry should also have the “Goldilocks” appeal -not too big and not too small. Investors like trends because it gives them options. And, options generally mean more profitability. For example, many green-energy sectors are becoming “hot,” as such investors are more likely to infuse capital into those industries because there are other venture capital and private equity firms to sell and co-invest with, thereby mitigating their overall risk. More investors equal more opportunities to get you fully funded.
The Inner Circle
Your executive team is hyper-critical to securing funding. The team will individually and collectively be scrutinized. Investors prefer teams that “argue effectively” with one another over ones that are comprised of peacekeepers that hesitate to acknowledge issues. Your management team sets the tone for the rest of your company and your success trajectory. Weak unseasoned leaders are likely to achieve similar results. At the end of the day, the bulk of your company’s success will be driven by your team. Make sure everyone pulls more than their own weight. You are, after all, trying to beat (not keep up) with your competition, right?
Business Collateral
In many cases, the first impression of your business to prospective venture capitalists will be given through your business plan. Your business plan is the snapshot-in-time of what you believe your company will do and what it has done already. It is the aggregation of key data, supporting arguments and market projections focused through your company’s overwhelming clarity of purpose. Many business plans are sub-par. And, an equal amount of plans are thrown in the recycle bin for the very same reason. Your business plan is your company’s spokesperson when you’re not in the room. Everything you’ve said can either be fortified or destroyed by this set of “seemingly harmless” company documents.
Strong and compelling business plans will get you funded. Conversely, weak and unfinished business plans will get you laughed out of a meeting. Do it right. It’s that important.
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- What Is AdVenture Capital?
- 36-Point Business Plan Analysis Guide
- Financial Planning and Business Owners
- International Marketing Strategy Concepts
- What Would Motivate Business Investment?
- The Complications of Running a Small Business
- A Checklist for a Small Start-up Business
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