Thursday, October 20, 2016

How to Increase your Startup’s Chances to Raise Money

Perhaps the most critical and challenging element in building a startup company is securing its funding. The number one cause of premature death of startup companies is running out of money.

Therefore, startups CEOs spend a big chunk of their time on fundraising. It is their highest priority, and seems like a never ending task.

So far, I’ve been on the leadership teams of six technology startup companies, two of them as CEO. I’ve experienced firsthand the challenges and difficulties of raising money. I’ve also met many other CEOs and founders, and learned of their struggles to raise funding for their companies.

Also, in the last three years, I’ve been a part in a great program called A3I. This is the world’s first startup accelerator that is solely dedicated to improving the lives of people with disabilities.

I serve this program as a member of its steering committee, as well as a mentor and advisor to the entrepreneurs. These so-called social businesses have an even harder time when it comes to attracting investors and raising money for their ventures.

The above experiences have taught me much about raising money, and have provided me with great lessons on how a company can increase its chances to get funded. I want to share with you a few valuable tips that I think you’ll find useful.

  1. Before you even start.
    To attract the right investors you need to have the three pillars of a great startup: a compelling value proposition (idea), a solid business model, and above all, a strong team. Unless you’re an entrepreneur that has already had several significant exits, trying to raise money before you have all three will be extremely difficult.

  2. Identify the right investors.
    By now you’ve all heard the term “product-market fit”, and how critical it is for a startup to achieve it. I would like to introduce a new term: “venture-investor fit”. It is equally critical for you to find the right investors for your company.

    Investors can generally be segmented according to three factors: stage of investment, areas of focus (i.e. markets, industries, technologies), and amount of investment. That is true for VCs, as well as private investors, or corporate venture funds. Based on your company’s target market (or core technology), stage of life (round of investment), and required amount of investment, you need to identify the investors that best fit these criteria (i.e. your target investors).

    There is no point in running after every investor you know, or have been referred to. It would be a major waste of your time and theirs. Moreover, you might come across as been unprofessional and unprepared.

    The best approach is to create a list of investors that fit your company’s current status (market, stage, amount), and go only after them. This is more effective, and far more efficient in terms of energy and time.

  3. Raise only what you need to get you to your next milestone.
    Raising $100K is easier and takes less time than raising $500K. The same is true for raising $2M vs. $10M. Therefore, prepare a detailed work plan of what you need to do to get your company to its next major milestone (e.g. PoC, first MVP, Beta release, sales growth, etc.). Calculate the amount of money you’ll need to execute this plan. Now multiply that by 1.5, since we’re all too optimistic in our planning, and experience has taught us that many things can go wrong. The result is the amount you should aim to raise.

  4. Be open to feedback and changes
    I found that from every meeting with an investor you can learn something. You can receive valuable feedback about your value proposition, business model, or presentation. You can learn which messages are effective, and which are not. Therefore, listen actively, and be open to make changes to your idea, plan, and presentation material.

    And yet, changing your idea or business model after every meeting is also not a good approach. My suggestion is to use the following 1-2-3 method. When you hear a certain feedback once you simply register it (write it down on your feedback list). When you hear it a second time (from a different source), move it to a short list of higher priority feedback items. When it comes up a third time, you should take action. That typically means you should investigate further the feedback’s subject matter, and decide if and what changes are required. Don’t ignore it.

  5. Remember, time is of the essence.
    While it’s important to raise enough money to reach your next milestone, it’s also critical to move your venture forward in a timely manner. Your window of opportunity is not endless.

    Therefore, at times it’s better to raise less money and move forward faster, than to wait until you’re able to raise the entire amount you think you need. If you wait too long you’re actually reducing your chances to raise money. Investors will start questioning why it’s been taking you so long to raise funding; perhaps there are issues that they are not aware of. Also, while you may not be aware of them, competitors are not sitting idle while you are raising money. Being first to market has many advantages.

    Even if you raise less money than you would have liked, there is always a way to make real progress towards your next milestone. You can change your plan to adjust to the actual funding you’ve raised. You can look for bootstrapping opportunities to generate some of the funds that your company needs. There are always other options.

Lastly, you should expect your fundraising to take several months, and to hear more “no’s” than “yes’s”, so be prepared and don’t despair. You’ll come out of it wiser, with a better plan, and better conditioned to lead your company forward.

All the best!

Thursday, October 6, 2016

The Real Benefit of Unlimited Vacation Days

    Photo credit:

I recently read an article that celebrated yet another high-tech company that decided to allow its employees to take unlimited number of vacation days. The article quoted one of the company’s leaders who said that they expect this move to lead to better results for the company.

I too applaud this move, and believe that it will lead to better performance and results. But not necessarily because more vacation days will improve the wellbeing of company employees, and reduce their level of stress. Clearly those benefits can be expected. I believe that the key factor in the long-term improvement of the company’s performance will be greater trust.

Letting employees take unlimited vacation days sends a strong message: we trust you. By the way, the same can be said for flextime, telecommuting, and any other leadership tool that is designed to demonstrate and build trust.

I believe that trust is the foundation of great organizations, and successful companies.

Trust leads to confidence. Confidence brings out the best in a person, which leads to better performance. When employees feel that they are trusted it increases their commitment and loyalty, and reduces their stress and anxiety.

An environment of trust makes true cooperation possible, decision making simpler (and faster), and communication more efficient. It leads to high-performance teams and companies.

However, creating a trust-based organization requires leaders to sincerely believe in it and fully commit to it. Employees must feel that this is genuine and that they are really trusted. Any conflicting message, such as allowing unlimited number of vacation days but actually counting them and using it for employee appraisal, will adversely affect employees trust and lead to a very negative reaction, lower commitment and dissatisfaction.

This does not mean that leaders should be na├»ve, or that violation of trust should be ignored. On the contrary, to build an environment of trust, one must be vigilant in addressing any abuse of this trust. Employees that don’t fit such a system should be removed from the organization, and the cause should be clearly and broadly communicated. People should know that trust is mutual, that it’s respected and expected, and that lack of trust is not tolerated. For lack of trust is like a cancer, if it’s not identified and dealt with promptly, it will spread and destroy the entire organization.

And yet, that should not deter leaders from choosing to trust. Even if occasionally you will experience disappointments, it’s by far the better option, and I would even argue the only way, to build a great company.

To quote Stephen Covey: “Trust is the glue of life. It's the most essential ingredient in effective communication. It's the foundational principle that holds all relationships”.

Tuesday, June 7, 2016

The Social Impact of Technology Innovation

More than a billion people are estimated to be living with disabilities (source WHO).

One of the main problems for people with disabilities is their lack of independence. Their dependency on others is excluding them from our society, from employment opportunities, and adversely affecting their dignity and self-esteem.

Assistive Technology (AT) has been proven to make a significant change in the lives of people with disabilities. It can drastically improve their quality of lives, make them more independent, and enable their inclusion in their communities.

Assistive technology is defined as: “any product or service that maintains or improves the ability of individuals with disabilities or impairments to communicate, learn and live independent, fulfilling and productive lives” (source British Assistive Technology Association).

And yet, to ensure that assistive devices are appropriate and used effectively, they need to suit both environment and user, and need to be accompanied by adequate follow-up of a rehab professional (occupational therapist, etc.).

Unfortunately, according to a World Health Organization (WHO) report, only 10% of people living with disabilities are actually using assistive technology in their daily lives.  In low and mid-income countries, the number is even as low as 5%. This is a critical unmet need, and a great opportunity for a significant global impact.

In my humble opinion, the solution requires a two-prong approach: increase the rate and scale of innovation and availability of assistive technology, and at the same time improve the adaptation and effective usage of these products and services.

To increase the innovation of assistive technology there is a need to encourage more entrepreneurship in this space. Today, there is an abundance of so-called hi-tech entrepreneurs, who are taking advantage of the many great ecosystems that were created to make it easier, simpler and faster to develop innovative products and services, and start new companies.

These ecosystems include startup accelerator programs and incubators, a wealth of VCs and private investors competing to invest in these startup companies, and many service providers, such as lawyers, accounting firms, design and manufacturing companies that have created new business models targeted at engaging startup companies from day 1.

Moreover, there is tremendous hype and publicity around hi-tech entrepreneurs, who have gained fame and celebrity status. And technology startups are now the most desired companies to work for.

On the other hand, social or impact entrepreneurs, face a very different reality.
There are only two accelerator programs in the world for assistive technology (A3I, Remarkable); there are very few impact investors, and no ecosystems to assist them in converting their great ideas into successful products and social businesses.

This must change!

If we want to have more innovation in the field of assistive technology we need to encourage more entrepreneurs to make it their purpose in life. Simply put, we must create similar ecosystems for impact entrepreneurs to those that exist for hi-tech entrepreneurs. This needs to be a coordinated effort of leaders (including successful impact entrepreneurs and thought leaders), socially responsible global brands (i.e. large global corporations), impact investors, and governments.

Such an effort can create the required awareness and incentives that are needed to encourage more entrepreneurship, and make a real impact in the world of people with disabilities.

In addition to creating ecosystems for impact entrepreneurs, there is a need to train rehabilitation professionals on matching and adapting assistive technologies for people with disabilities.

They need tools and training that will enable them to easily and quickly find and match the right solution for their client, and apply it effectively to their client’s environment and needs. Such tools will significantly improve rehab professionals ability to leverage assistive technology to increase people with disabilities’ independence and improve their quality of life.

Inclusion of people with disabilities in our society is not just doing a good thing, and the right thing. It’s the smart thing. When 15% of the world’s population is sidelined and not participating we’re not functioning at our full capacity and potential. Just imagine what great things we can accomplish when we will operate at our full potential.

That’s the real impact potential of technology innovation.

Tuesday, May 17, 2016

The Founders Prenup Agreement

Founding a startup company is much like getting married. In fact, the relationship between founders is often described as important, intricate, and complex like a relationship of a married couple.

Indeed, much like a marriage, the quality of the relationship between the founders can determine the success of the venture.

Much has been written about the importance of selecting the right partner to start your company with. In this post I would like to focus on a less popular topic, but equally important, and that’s the founders agreement, or the founders “prenup agreement”.

When you and your founding partner are at the beginning of your venture, everything seems rosy, exciting and full of promise. Much like a loving couple before their marriage. What could possibly go wrong?

And much like a couple before their wedding, it seems very awkward at such wonderful and optimistic times to discuss and prepare an agreement that is intended to formalize the relationship and address possible issues, future contingencies, and conflicts.

And yet, that’s probably the smartest thing you can do before you incorporate your company.

Here are some valuable tips from my own experience, and that of other entrepreneurs.

  • Don’t delay! Make sure you get the agreement done, and signed, before you incorporate the company, and/or raise money. If you let it linger for too long, it might never get done, which could result in major issues down the road, and even with an ugly break-up later.

  • Lawyer up! This is not a DIY project. Yes, you are smart enough to start a company, and even invent a breakthrough product, but this requires the advice, input, and writing of a professional lawyer, preferably one that specializes in startups, and has done similar agreements in the past.

  • Be specific, very specific! As the old saying goes, the devil is in the details. Wherever needed, be very specific. For example, don’t write that each founder can hold a full-time job elsewhere until a significant financing round has been completed. Significant is subject to interpretation, and each founder can interpret it differently. Instead, define a specific amount, for example $250K.

  • Address potential conflicts, but keep it simple. It’s important to anticipate and address potential issues, such as asymmetry among the founders (i.e. one has another job, and one is full-time in the startup), what happens if one founder decides to quit, or is terminated, etc. However, as in any agreement, you will never be able to cover all possible scenarios, and there is value in keeping the agreement simple and clear. So, decide what is truly important, and what you can leave out of the agreement.

I know it’s not the most pleasant experience in the early stage of a new venture, and yet you will be happy you did it, and did it right.

Tuesday, May 3, 2016

How to select your target market

Often startup companies develop a technology that has multiple applications and potential markets. By now, most entrepreneurs have learned that a startup company must focus on a single market, at least in its early stages (I would argue that this holds true for latter stages too).

Trying to address multiple markets, with conflicting customer needs, can spell disaster to a startup company, and an early demise. Trying to develop several products at the same time, or develop multiple marketing and sales channels early on, often results in a very high burn-rate, which leads to depletion of company’s cash, and a premature death of the company.

The challenge then becomes how to select the best market out of all the possible options. But how do you know which market is the best one? What is the right set of criteria to use in making this crucial decision?

In this post, I would like to offer a set of market selection criteria, which I have developed based on my own experience, and that of several successful investors.

Following are my five criteria for selecting the best target market:

1.  Size of opportunity.
This includes the overall size of the market (TAM), your serviceable share of it (SAM), and estimated share of it (SOM). For example, are we talking a billion potential customers/units, 100’s of millions, or just a few millions? Is it a mass market, or a niche?
2.  Value proposition.
In which of your potential markets is your value proposition strongest? Where are you a nice-to-have and where are you a must-have?
3.  Time-to-Money.
How long would it take you to generate first revenue in each of your potential markets? This also implies how much money you would need to raise to survive until you can generate revenue.
4.  Risks.
Which market presents the lowest risk? This includes technology development risk (which product is more complicated to make), competitive risks (which market presents tougher competition), and market risks (uncertainty, regulatory risks, disruption, consolidation, slow growth, etc.).
5.  Funding.
Which market (and business model) would be more attractive to investors, thus making it easier for you to raise money?

I’m sure these are not the only, or even the best set of criteria. Indeed, I would be happy to receive your feedback and suggestions for other criteria.

Bottom line, whether you decide to use my proposed criteria, or come up with your own, what’s important is to make a timely decision and focus on one market, and even one application to get your startup running and get successful market traction as fast as you can.

Tuesday, September 8, 2015

The Foundations of a Great Start-up

I’ve written before about the importance of picking the right co-founder/s for your venture. I cannot overemphasize the importance of this decision. And yet, even if you’ve chosen great co-founders you still need make sure that you and your co-founders are functioning as an effective team.

Based on my own experience, and the painful experience of other entrepreneurs, I believe there are four critical elements to a successful founding team.

1.   Mutual trust. This is by far the most important element of any team. You and your partners need to have complete trust in each other. Otherwise, don’t even start your company.

2.   Full Confidence in each other. This means confidence in each other’s skills and abilities to perform their respective roles and responsibilities professionally, successfully, and with high quality results.

In order to move fast and meet your goals you will each need to take on a significant role and responsibilities in your start-up; lead a certain discipline or task; make the appropriate decisions; work independently. In short, this means you need to be able to depend on each other. Otherwise, your team’s progress will be slow and you will miss your goals, which will lead to disappointment and frustration. Moreover, you will be perceived as a dysfunctional team by investors, partners, and your own people.

3.   Shared vision and success goals. If your vision is to build a great and lasting company, while your co-founder is seeking a quick exit, you are bound to have significant disagreements in almost all aspects of running your company. For example, what’s the right business model, who are the right investors for your start-up, how to structure your organization, and more.

A common vision and definition of success for your company should be established early on in your work together. Don’t skip this important discussion, since it will come back to bite you.

4.   Symmetric level of commitment. This topic is rarely talked about, and yet I believe it’s very critical for a healthy and positive team dynamics. An asymmetric level of commitment is when one of you is fully committed to the start-up, working fulltime to move it forward, with minimal or no salary, while another partner is doing it part-time still holding on to his daytime job, including full salary and benefits. This may seem harmless enough, or at worst a petty issue. Believe me it’s not. Many start-ups failed due to this issue.

When one of you is risking everything, sacrificing her (and her family’s) quality of life, while her partner is taking no risk and sacrificing nothing, it’s a very real and personal issue. It can lead to conflicts in key decisions regarding fund raising, company formation, and equity distribution. It can poison the team atmosphere and cause resentment among its members.

An asymmetric level of commitment can undermine all the other three critical elements above, starting with trust.

Therefore, ideally all co-founders should commit to leaving their jobs and dedicating themselves to the start-up at the same time. If there is a situation where one of the founders needs to stay in his current job a bit longer either due to contractual or personal obligations, make sure there is a clear deadline after which he either joins the founding team fulltime, or is taken off the founding team (will not be considered as a founder). Although this may cause some discomfort among the team, it’s better to deal with it early on then later, when it threatens to destroy your company.

A great founding team is by far the most important element to a successful start-up. More than a great idea or a brilliant business model. The best idea in the hands of a dysfunctional team will be wasted. On the other hand, a great team can start with a bad idea and eventually arrive to a good idea and the right business model.

There are many challenges and struggles to overcome when you’re building a new company. Be sure you’ve got the right team, based on the right foundations, in order to improve your chances to succeed.

All the best!


Tuesday, August 4, 2015

It’s Good to be Down

As we’ve all come to know, life is a series of ups and downs. We all strive to have more ups than downs; make the ups last longer and the downs as short as possible.

When we’re up our confidence is high, we’re happy, satisfied, and our overall outlook on life is very positive. Conversely, when we’re in a down period, our confidence is low, our self-esteem is low, and our perspective turns negative. For many a down period is a period of depression.

However, as hard as we might try, it seems that we cannot prevent having down periods in our lives. I believe it’s like our mistakes. They are there for a reason. Mistakes are how we learn best. They are a survival mechanism. We can also turn the down periods to be significant learning and improvement experiences.

To begin with, we can try to understand what is it that got us to this down period in the first place. Was it something that we did? Or that someone else has done to us? If it’s the former, then that is an opportunity to improve ourselves. If it’s the latter, then perhaps we can learn from it about other people’s behavior, and how that behavior may adversely affect us. This knowledge can help us change our own behavior, or choose more carefully the people we work or associate with.

But what if the root cause to our down period was not people related? For example, what if it was triggered by a specific industry event, or a local economic problem, as some countries are experiencing these days?  In such cases we can learn how to reduce our exposure to similar problems in the future by learning new skills to increase our value and demand, or change our career altogether.

However, sometimes we just need to accept that there are things beyond our control. For example, global catastrophes (like the financial crisis of 2008-11), or natural disasters (like tsunamis or earthquakes), that can adversely affect us no matter what we do. And yet, even in these types of down periods we can learn how to survive, persevere, adapt, and eventually come out of them stronger and better than before.

Moreover, downs can be a life detoxification period. They are a humbling experience that allows us to learn what truly matters in our life, where we should spend our valuable time and what to ignore. We can use down periods to clarify our values and priorities in life, and review our goals. Often things become clearer when we remove hubris and hype.
Bottom line, down periods can be great opportunities for learning, improving, and creating the next up period. I believe that taking this approach will result in longer ups and less downs. And that is our goal after all.
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