Earlier this week, we invited readers to ask any questions you might have about operating a company in the downturn.
Sukhinder Singh Cassidy, a CEO-in-residence at venture capital firm, Accel Partners (pictured left), offered to personally respond to your questions.
Here are the questions that came in, along with her answers:
Question from reader Paul Spence: We are a small start-up specializing in search and registration technology which we have initially deployed as an online domain management service. Our chief strategy for countering the downturn is to forge meaningful and symbiotic global partnerships.
There are two interesting challenges facing us at present. The first is how to scale up our current online offering and the second is how to form partnerships that would leverage our technology into other industry verticals. We would like to solve the first problem by becoming a preferred provider of domain management services for large community sites such as Ning and Groups that allow profile customization and domain masking. Being geographically remote, it is difficult to connect with these service providers directly however.
The second challenge could be addressed by identifying suitable partnerships in sectors such as telecommunications, market trading platforms and bioinformatics – which we see as medium term growth stories. Feedback and advice much appreciated.
Singh Cassidy: Dear Paul, in response to your two problems, I would suggest the following:
On the issue of forging partnerships with geographically remote entities (which is the way most internet BD deals happen these days), I would suggest reaching out to your professional and personal network and trying to get a “warm” email or phone referral from someone you know into your target company for partnership. In asking for the referral from your network, make sure to arm them with all the data to make a compelling introduction. Be specific – provide a brief company overview, including your credentials, and the specific value proposition for a partnership. For me –these 2 things – getting a referral via somebody I trust, and a crisp & concise explanation of the opportunity without wasting my time before I engage – is the difference between business leads I take the time to respond to as a business development executive versus those that seem random or far-flung.
In terms of the second challenge – I would be wary of fragmenting your focus too early by establishing partnerships in other verticals before fully building out the sectors you serve today. This is even more so the case if you need to extend the technology in some way to support these longer-term verticals versus have a truly “ technology in a box” solution where the issue of scale is solely marketing/sales bandwidth. One of the key success factors in a downturn for small startups is staying exceptionally focused and proving the of a product and business model in one core sector (i.e. doing one thing exceptionally well) vs. spreading yourself too thin. The problem with global partnerships is they often bring with them lots of obligations – engineering, product, contractual and otherwise (management bandwidth) that can easily consume disproportionate resources in a constrained environment that would be better focused elsewhere first and foremost.
Question from reader Dapo:I want to thank you guys at VentureBeat for this opportunity. My question : How important is having a management team when seeking funds? I currently have a soon-to-be completed prototype with no management team.
Singh Cassidy: I think the answer to this question depends on the stage of funding you are seeking and your previous credentials as an entrepreneur and/or professional manager. Even as a first-time founder, you can raise seed funding on the back of your prototype and your own professional credibility and references. However, there is no doubt that venture funding is as much about backing a great team as it is a great idea, so you may face valuation constraints given the increased risk associated with you being the only person on-board. As you get into later stage funding rounds – Series B and beyond certainly — having the most critical 1-2 senior players in place – be it a CTO in a particularly challenging technical venture, or the head of sales in an enterprise software play for example – may well be important milestones that will help give confidence to later stage potential investors.
Question from reader Gibson Tang: Which is the better option to see additional funding? Is it better to a) Rush a bug laden prototype that proves your concept works and risk missing out on a particular wave b) Take your time to polish your product to a polished and fit for shipping state even if it means missing a certain wave?
Singh Cassidy: The question is a good one but I think the answer is a little more nuanced and depends in part on the stage of funding you are seeking. At the seed stage of funding (angel and Series A), there is an acceptance of a buggy product that provides “proof of concept” in response to current market trends/anticipated demand. As the company matures however, later stage funding is tied to expectations of a maturing customer experience and monetization model, meaning the product needs to works well and meet/exceeds its customers’ expectations.
Overall however, one of the most critical skills for a consumer high-tech company is the ability to iterate quickly on its product launch cycles, and continuously evolve the product by leveraging these rapid feedback loops. At Google our thesis was always “launch early and often” and I believe this holds true for companies of all stages. Remember –there is no better feedback than a live product (or beta release) with real customers using it and conversely no greater disappointment than the “perfectly” conceived product that never shipped.
Question from reader Regit: What advise can you give a recent college graduate who is in a corporate job but believe his true calling is being an entrepreneur? What literature (books) would you recommend on how to start the process of entrepreneurship? BTW: This is a good ideas, thanks to the people at venturebeat. I have been visiting the site now for a while.
Singh Cassidy: Dear Regit, I’m embarrassed to admit that while I consider myself an entrepreneur, I don’t recall ever reading a book on “entrepreneurship.” I think I just blindly leapt in and it was trial by fire. I can relate to your anxiety in that I had much the same feeling in my early twenties when working in London for a major media company and wanting to do something entrepreneurial but having no idea what that was and how to accomplish it. What I decided to do was to move to an “entrepreneurial environment”, trusting that if I surrounded myself with smart, entrepreneurial people, I would ultimately move closer to this goal. That calling led me to move to Silicon Valley (without a job) in early 2007 in my late twenties and set up camp here until I found my first job in a Valley startup. Two years later I became a co-founder at Yodlee.
Reading and consuming as much information as you can on entrepreneurship is great and there are many sources of this online (including VentureBeat and start-up blogs). However, as importantly, I encourage you to increasingly place yourself in entrepreneurial environments (either within your larger organization or in your side pursuits) where you get to participate/interact with and witness real-life illustrations of people pursuing their entrepreneurial desires –at whatever scale. Not only may it bring you learning on how to reach your own goal – it also “demystifies” – good and bad – what it takes to run your own show. Separately, I have pinged some of my contacts at a leading business school for their recommended reading on this subject and will get back to you shortly with their suggestions. [UPDATE: As promised, I was able to catch up over the weekend with my contacts at the Haas Business School (University of California Berkeley), and they suggested The Art of the Start by Guy Kawasaki and Founders At Work by Jessica Linvingston (gives the entrepreneur real life stories about what founders went through). In addition, the Lester Center for Entrepreneurship and Innovation at Haas also has a suggest reading list on the topic of general entrepreneurship. Good luck!]
Question from reader Chuck S: I have had 5 or 6 great ideas that I have come up with way before they were even on the map but because of my location (FL), lack of capital and trying to bootstrap, nothing became of them and eventually other companies went on to create extremely successful ventures from them. Now I have an idea for what I feel might be the next Google or Amazon but because of past experiences, I feel that this one needs to be done right, raising some capital, etc. I have been scouring the internet, looking for information as well as reading Guy Kawasaki’s book, but am still at a loss as to where to start. I think what I need is a mentor, but as of yet haven’t been able to find one in this area.
Should I just start bootstrapping this one too and hope for the best before it is too late?
Singh Cassidy: Dear Chuck, before starting in on the next idea, I think it would be helpful to debrief on what you learned and what specifically went wrong in your last several attempts, and then develop a detailed game plan based on these learnings. At what point in the process did your past ideas fail? Did they never “ship” because you didn’t have enough capital to build the product, or did you build something but couldn’t get customers to your website? Or did you not have enough time to devote to focusing on idea because of your day job? I would then try and lay out the steps between idea and launched product (many entrepreneurial books and site will lay out a process) and systematically create milestones with specific target dates attached. I’m a believer that details and methodical execution against incremental goals is often the key to progress vs. getting waylaid by daunting “big steps” that seem monumental to achieve.
In terms of a mentor, I think that is a good idea, but you should be methodical in your “search” – i.e. what are you looking to learn from someone specifically, who are the people who could meet that need, and what time commitment do you need from them. It sounds like what you really need is to learn from someone who has been through the process — even with a company in a different potential space. Write down 4 or 5 businesses that you admire (either in your area, or even online businesses), research the founder/CEO and what you like about what he/she built and how they built it, and reach out to them to ask them for time by phone or in person if possible. People are usually eager to help share what they’ve learned if a) they know what the finite time commitment is b) specifically how they can be helpful to you and c) you make it as least as easy as possible on them logistically. If you can structure that, I’m confident you can find an accessible mentor in your area or elsewhere, who can help provide support for this journey.
Reader Natraj asks: It is a great opportunity to have access to experienced business person, Sukhinder — a 100 thanks to Venturebeat. I am starting a social-networking webservice based from India. We are in stealth mode right now (so cannot reveal details), but we are close to alpha release and the beta release is a just a few months away. I have two questions
1. What are the disadvantages of incorporating a company in India? I know that many American VCs have opened Indian offices, but how is the investment distribution in the current situation. What advantages/disadvantages do we have?
2. We are self sufficient for now. We do not require external capital. However, if we gain widespread adoption, we might need some capital for infrastructural growth. We would like to bootstrap by deploying our revenue channel right through the start, but our user study shows that end users have aversion towards “advertisements”. We believe this negative sentiment could hurt our adoption rate, so we want to delay our deployment of our revenue channel. What do you suggest?
Singh Cassidy: Dear Natraj, with regards to investment/funding opportunities, most US based VC’s that have opened Indian offices have done so with a long-term focus of investing a portion of their capital there (for e.g. Accel raised a $60m early stage India fund in late 2008 and is actively investing there currently). Therefore, although there are structural differences between incorporating in India and the US, these VC firms have established investment structures to accommodate these differences and it should not affect your ability to raise capital from them. More importantly, as always, is the merit and strength of your venture, relative to all the other India based opportunities they are evaluating. The longer-term question regarding location is how to evaluate your current India presence, incorporation and HQ in the context of your growth ambitions, both from user base, and location /nexus of employees and to plan accordingly.
Regarding your question on growth – this is an age old debate for startups between early focus on usage vs. monetization and where to strike the balance. It seems like you would like to “test” monetization now, to see if it can help you drive revenues and bootstrap but are afraid of user reaction. My first thought would be to test “ads” with a very small portion of your users, which is a commonly used method for trialing new features with limited risk, and gauge live customer feedback. It is also important to think about your ads in the context of the user experience –i.e. how to make it value added/as targeted to the user’s context as possible, and how best to integrate it vs. having it be both obtrusive and superfluous to his experience. This is not an easy task, but the difference between being able to maintain a high quality consumer experience on an ad supported site, vs. one that alienates your user base long term. Resist the temptation to just “throw ads” on the site in the hopes of getting revenue quickly; it is better to invest thoughtfully in this area, and test/gauge different interfaces, ad formats and ad types as possible to find out what ads are actually conducive to your site and customer segments.
Reader David Atkinson asks: I’m currently putting the final touches on a music collaboration website that allows musicians to record with one another on the Internet. It will be officially launching in a couple of weeks (mid-May); the problem is that I need to raise $250,000 to build the right team and take the company to cash flow positive. I don’t know anybody that has that kind of money. I’ve checkout websites like GoBigNetwork and I don’t feel comfortable with releasing information about my company to someone I don’t know anything about. I went to the SBA offices and then went to banks to get an SBA loan and they won’t give one to me… Where should I turn to find an Angel Investor?
I have a great business model and an untouched market. This isn’t my first time at the rodeo, I’ve owned and still own other businesses, but this business has the potential to be HUGE and I’m just looking for a little guidance, maybe a connection. Thanks for your time.
Singh Cassidy: Dear David, there are several angel investor networks you can access, both virtually (i.e. GoBigNetwork) and also physical angel networks (e.g. www.siliconvalleyangels.net and www.sandhillangels.com are just a couple examples here in Silicon Valley); Google will bring up a good list. One of the constraints however is that you will have to share a business plan with people you don’t know in all these processes. You can reach out to some of the physical angel networks in your area to see what their process is (they often have final presentations by entrepreneurs in front of potential investors), and perhaps it will not require posting to a website, but I suspect it will mean emailing or sending in a business plan at some point early on. Also, many of the leading VC firms such as Accel and others do seed investing as part of their business and there may be opportunities going this route as well. A third source of funding is attempting to do a “friends and family” round, where you raise money in small increments from people in your personal network, which lessens disclosure risk since they are known to you. However, this depends heavily upon your comfort with asking those you know personally for money and will require significant logistical coordination by you given the number of people you will need to talk to to raise the money.
One way to get comfortable with the risk of disclosure overall is to send ahead of time a confidentiality agreement you ask the potential investors to sign and or just an executive summary of your idea. Realize that by doing this you do risk putting off potential investors by not giving them enough information or making them sign something they’re not comfortable with.
I do think that both angel networks and VC is your best bet for opening up your access to potential seed funding for your new site and wish you the best of luck.
(To stay in touch with Sukhinder, and Accel Partners, she suggests also visiting the firm’s Facebook page.)
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