Author Archives: rephinbar

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Entrepreneurs: Are you infected with “Founderitise”?

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Entrepreneurs: Are you infected with Founderitise?

Read below to see if you have the symptoms…In my work as a business consultant and fund raiser, I’m often called in to assess the viability of a venture and its business plan in order to establish how viable a fund raising effort would be.

In the majority of cases, there’s much work to be done on the business plan and the Private Placement Memorandum (PPM) to bring it to a point where it would attract the interest of investors.
Though common issues are with respect to Sales Forecasting, Cash Flow and Breakeven analysis, Marketing plans and so on, one issue seem to be the most significant in terms of putting investors off and it does not have much to do with the business plan or venture per se, but rather with the founders.
What I encounter most often is what I refer to as the equivalent of the common cold for entrepreneurs. I call it Founderitise. If you are an entrepreneur and have been infected by Founderitise, chances are you will be facing a tough time raising capital for your venture.
Here are some of the common symptoms for entrepreneurs infected by this ‘disease’:

  •  Unrealistic valuation. Venture founders believe their company is worth 10X (100X is not uncommon either) its realistic value. This is particularly evident in young startups where there are no customers or revenues, yet the concept alone is worth ‘millions or billions’ according to the founders.
  • Everyone is a Chief. The founder or founders have all slotted themselves with CXX titles (e.g. CEO, COO, CIO etc.). Yet, they have very little and sometimes no experience whatsoever in those roles. Don’t get me wrong – there are certainly examples of founders with no experience as CXX that turn out very successful in these roles, but those are the exception by far – not the rule.
  • The equity pie is too small to share. The founders feel very strongly about “Losing control” and the concept of splitting the equity pie as a way to attract investors or key talent is a tough pill to swallow. Let me remind you that the wealthiest entrepreneurs on the planet have ended up with a small (sometimes tiny) piece of a huge pie rather than a huge piece of a smaller pie. There are plenty of examples here from Bill Gates to the Google guys to Mark Zuckerberg of Facebook to name just a few. These billionaires were smart enough in the early days to part ways with large chunks of the equity pie in favor of smart money and key talented employees to help them turn their ideas and concepts into reality.
  •  “Do it alone” or “Lone Ranger” mindset. Founders with this attitude feel they don’t really need anyone to help them turn their ideas/concept and venture into a reality. They can do it alone, or at least that’s what they believe. The reality is simple, power comes in numbers. To put another way, no one can accomplish big ideas without some help from other talented professionals with expertise that’s usually not found in one person. Just like a venture needs an accountant and a lawyer, it needs a spectrum of expertise typically not found in one person. Those talented professionals also offer an incredible brain trust that could be used to further advance and enhance the original founders’ concept and vision. Furthermore, when investors see you have a team of professionals around you, their take is 1) Someone else believes in this venture 2) You must have some leadership skills to be able to recruit other talent and 3) If anything happens to you – there are others that can carry the torch forward.
  • Larger than life Ego. Ok, if you are Steve Jobs and have already proven your ingenuity or visionary and futuristic outlook then go ahead – you are entitled to one. (Although that doesn’t necessarily make you a better or nice person so I would still advocate against it even if are hugely successful). But seriously, a huge ego means it’s all about YOU, rather than it being about the venture. And when investors get a sense that YOU are more important than the venture in hand – they run for the hills. Large ego also implies ‘qualities’ like stubbornness, close-mindless and centralistic (dictatorship style) approach to leadership – these all spell one thing to investors: someone that’s difficult to work with, that’s tough to work under and that’s not open to input and advice from the board and key shareholders. In other words, a high risk scenario.

If any of these resonate with you as you read them – you most likely have Founderitise. In that case, a dramatic shift to your perception can mean the difference between seeing your venture idea and concept come to life, or not.

Our company can help you if you have Founderitise. First, we’ll diagnose you for a reality check. Then we’ll offer some treatment plans.
It’s never too late.


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9 Steps To Consider When Valuing Your Startup

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Determining your startup’s worth is one of the hardest parts of the fundraising process. There is no magic formula that will spit out a valuation, namely because the number is highly subjective. The entrepreneur, for example, anticipates huge potential and may therefore put a high valuation on his company. The investor, on the other hand sees a company that needs capital to grow and may fail without it, so he may set a low valuation. To help the process, we’ve devised a few considerations to help value your company.

1. What You Need

Before you set a valuation, you’ll need to calculate the money needed for both immediate and long-term success. Once you have identified the general range of capital that will help you maintain and grow, you can focus on other factors that determine your company’s worth.

2. Equity

No one likes to sacrifice a piece of his company, but there should be a range you feel comfortable offering up to potential investors. You need to find a balance though. Don’t give up too much and lose control of your company or dilute its value, but don’t be stingy either, thereby rendering your company unattractive to investors. Planning 10-20% equity for seed investments is a safe range for startups.

3. Intellectual Property

Having a lot of intellectual property could push up the valuation of your company. Your IP might be a patent, a copyright, a design or even a website code. If your IP will give you a competitive advantage, you should assign it a higher value. Look to other companies with similar IP and see what they placed as its value.

4. Other Assets

You may have purchased assets or created some other value while building your startup, for example, a domain name, servers, equipment or property. It is much easier to assign a value to a tangible asset, but be sure not to overlook intangibles when adding up the overall value.

5. Barrier to Entry

You need to consider the time it would take for someone to copy your idea. Simple ideas often have low barriers to entry; they’ll have to fight off “me-too” companies very quickly – for example, Groupon and other “deal of the day” sites. Startups with high barriers to entry present complex ideas that may require a lot of time, money and effort, and therefore face less competition. However, high barrier to entry (longer first-to-market exclusivity) may be more attractive, and therefore more valuable, to potential investors.

6. Future Value

Estimating the value of your company’s future potential is probably the hardest and most subjective step, especially when it’s only at seed stage level. The momentum enjoyed by late-stage companies shows future growth potential, but early-stage startups have less tangible results and fewer concrete scenarios for success. It is important to not underestimate the potential value, however, by presenting enough data to back up your valuation. A solid business plan and avenues for growth will solidify your valuation to potential investors.

7. Traction

Investors like to see traction. They’ll be more willing to sign a check when they can see that others have used your product or service. If you have customers, calculate a lifetime value for each, and factor that figure into your overall valuation. As an early-stage company, you may wish to provide free services in order to gain traction, and then use it as a means to increase your company value.

8. Hype

Have you or your business concept been mentioned in the press? Has your concept gained recognition for its uniqueness or its cool factor? Is that coverage bringing in unsolicited potential investors who are interested in your company? Use this as part of the valuation. Again, dollar amount is subjective, but the fact that people are seeking you out should push your valuation higher.

9. Market

Just like every other commodity, valuation relates to supply and demand. If your concept is new, first-to-market and fills a customer need, you can raise the valuation. Alternatively, if the market is depressed or saturated with similar, established products, investors might foresee a lower valuation for your company. The market constantly changes, however, so watch the landscape for an appropriate time to raise capital. It may mean shifting your product, concept or target market, but if the tweak allows for a higher valuation, it may be worth it.

By using these components as a starting point in determining your startup valuation, you’ll be closer to a more accurate number, one an investor views as fair and equitable. It’s important to clearly outline the reasons your company is worth what you’re pitching to potential investors. Your confidence will go far by building their trust in your leadership and your ultimate business success.


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“THE BEST BUSINESS ADVICE I EVER GOT”

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“THE BEST BUSINESS ADVICE I EVER GOT”

Planning & Strategy

“Paraphrasing Thomas Edison: Focus on how the end-user customers perceive the impact of your innovation – rather than on how you, the innovators, perceive it.”
—Taylor, San Diego, CA

“Startup success is not about the product, or the technology, or even the management. It is about picking the right market at the right time – and then having the product, technology and management to ride the market wave. Time is everything in life, and in entrepreneurship.”
—Allen, Portland, OR

“Getting your business launched and your first product onto the market will take you twice as long, and cost you twice as much, as you think it will.”
—Dave, Toronto, ON

“Eisenhower’s observation about preparing for battle applies remarkably well for us as entrepreneurs: “’I have always found plans are useless, but planning is indispensable.’”
—Alejandra, San Juan, PR

Management & Decision-Making
“Never confuse activity with progress.”
—Ty, Boston, MA

“If you don’t like the rules, change them.”
—Michelle, Ann Arbor, MI

“Focus. It’s so easy to say, ‘With our fantastic new approach or technology, we can solve problems everywhere.’ But if you do that, your efforts will be diluted. Instead, by first focusing on a market niche you can become truly great at addressing, your startup has the best shot at success.”
—Jan, Durham, NC

“Cash is more important than your mother.”
—Grace, Shanghai, China

“The customer is always right—even when they’re wrong. As entrepreneurs, we’re agents of change. And we inevitably learn more about a particular market space than many of our customers, and feel that it’s appropriate for us to explain to our target customers what’s best for them and how they should behave. But what we think doesn’t matter. The only thing that matters is what customers say – even if we, as entrepreneurs, think they’re dead wrong.”
—Kurt, San Francisco, CA

“A company defines itself by what it says ‘no’ to. Translation: A startup’s success, and its very character, are defined by the clarity and focus of its mission, and then by how well the business’s leaders stay true to that focus and steer clear of distractions. Corollary: The devil always arrives carrying cash. Translation: The things that can distract startups away from their originally-intended mission are often business deals that tempt the management team with short-term cash.”
—Miguel, Albuquerque, NM

Mentorship, Coaching & Support
“The best advice I received when I bought my first company was: Get lots of advice. Surround yourself with great advisors, and a great network. Don’t be afraid to ask lots of questions, and be willing to pay for good advice.”
—Rick, Seattle, WA

“Wear your ignorance on your sleeve. It’s the easiest place from which to brush it off.”
—Cristina, Miami, FL

“Hire a great attorney from the beginning – someone who knows how to set up your company correctly. Also engage a startup-savvy accountant, and team up with a banker who understands early-stage businesses. Early on, these are the three people you need to rely on and trust the most.”
—Ben, Rochester, NY

“The most telling coaching I received while trying to finance my first restaurant was from my spouse, who repeatedly reassured me, ‘It is not a question of if [you achieve your goal], it is simply a question of when.’”
—Ed, San Rafael, CA

“As a first-time CEO, I was advised by a seasoned entrepreneur, ‘Never ask your Board of Directors to help you solve a problem. Instead, always articulate your plan to solve a pending issue, and then listen to their reactions and advice.” This advice has worked well over the years, and helped avoid tons of distracting conversations, while at the same time helping me demonstrate leadership.
—Charlotte, New York, NY

Building a Winning Team

“Always look for people smarter than you, and surround yourself with people who can challenge and inspire you.”
—Doug, Redwood City, CA

“When you’re hiring key outside contractors for your support team – a lawyer, an accountant, a marketing agency, a PR agency, and so on – look for individuals and firms for whom your business will be extremely important. Don’t go for the big-name firms, because your little startup won’t represent big billings to them and once they’ve landed your account, the partner will disappear and you’ll be assigned to a junior associate who’s under pressure to maximize billings. ”
—Steve, Boston, MA


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15 Ways To Kill A Deal

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FIFTEEN WAYS TO KILL A DEAL
1. Engage in extensive negotiations over the first Non Disclosure Agreement. Don’t go to the mat on fine details of the NDA that will bring them to the table. It can be superceded later, after they’re hooked.
2. Send “corrected” financials. Never give out financials until you are sure they are what you want to send and/or they contain footnotes and explanation.
3. Prove that you are the only one who understand the business. Demonstrate that a complete, functioning, harmonious management team is in place and that you are superfluous.
4. Leave verbal agreements un-documented. Write-up those handshake stock options, the lease on your cousin’s building, etc. Oral contracts make people nervous.
5. Leave business and personal transactions comingled. Get rid of loans between company and shareholders, jointly owned property, shared insurance policies, etc.
6. Send a sloppy investment memorandum. Don’t release the “book” with errors or omissions. Make it high-quality-less vs. low-quality-more. Have new eyes involved, if not in charge.
7. Prolong the preparation of the “book”. Start early, make assignments, establish final authority, set deadlines, limit the number of editors, don’t waste time re-writing minutia…
8. Try to make the LOI the definitive agreement. Keep it at 30,000 feet. It’s
the only the engagement. The wedding comes later.
9. Use the family lawyer/accountant/consultant. Use professionals who have done it before or you may end up with a “deal-out-of-hell”.
10. Shortchange responses to data requests. If everything asked for isn’t available, explain why and when it will be; and don’t let open items fall between the cracks.
11. Be unable to produce material documents. Before the process starts, locate originals of all share certificates, paid promissory notes, titles, deeds, leases, minutes, etc.
12. Disappear for more than a few days. Be available, or else have a good reason and a deputy left in charge. This is not the time for a Safari or South Seas cruise.
13. Start playing hard to get. Don’t convey that you are renegotiating what’s been agreed-to or are changing your mind mid-process. Know the early symptoms of Seller’s remorse.
14. “There’s something else I forgot to tell you”. Pre-assemble the important facts and communicate them as appropriate, not as an afterthought. Doing the “book” helps surface them, even if they aren’t all in it.
15. Get advice from your friend and relatives. Canvas your friends and loved ones before making a decision to proceed. After that, stick with the professionals.