1. Focus on Cash Flow
2. Make Little Progress Every Day
3. Try Stuff
4. Ignore Schmexperts
5. Never Ask Anyone To Do Something That You Wouldn’t Do

Sound advice from someone who knows. I’ll add one more thing that I think is the most important lesson of all:

6. Do What You Love

When you love what you are doing, you will pour your heart into in and it will show. And, whether or not your startup is a big success, you will have done something you enjoyed and will have no regrets for having started it.

© Eye on Startups & The Startup Guidebook

This dearth of IPOs and successful exits has some dire consequences for startups. Where there’s no exit, VCs are forced to invest any new money into their current portfolio of companies to keep them going, rather than invest them in new ventures. This is consistent with an earlier post where I reported that VC activity was down during the first quarter of 2008.

If you are just starting up and looking for money, then you should consider approaching angel investors. As previously posted, angel investors appear to be taking up the investing slack.

If you are a startup that has money in the bank, consider yourself lucky. But with the current market conditions, its time to tighten the belt just a bit and perhaps conserve your cash. Hold off on any big purchases; after all, maybe the team can do without those brand new notebooks until next year. You never know how long it will be before VCs’ purse strings will loosen up….

© Eye on Startups & The Startup Guidebook

John Crowley started Novazyme Pharmaceuticals in 2000, spurred by the the 1998 diagnosis of two of his children with Pompe disease – a fatal neuromuscular disorder - and would not survive for long without treatment. In a little over a year, he raised $27M from venture capitalists to develop a cure to treat Pompe disease. Within two years of its inception, Novazyme was acquired by Genzyme for $137.5M and John oversaw the progress of clinical trials to reality, including the enrollment of his children in the trials.

In his talk, John recounted how he never thought of himself as an entrepreneur until driven by circumstances to find a cure for Pompe disease. Among the many lessons he offered was to have a vision and to be resilient in the face of disappointments, whether from the funding front or the research front, to reach this vision. I think this is the essence of entrepreneurship.

In 2006, Geeta Anand, Pulitzer prize winning writer for The Wall Street Journal, authored a book on Mr. Crowley entitled “The Cure: How a Father Raised $100 Million- and Bucked the Medical Establishment- in a Quest to Save His Children.” (www.thecurebook.com). If you have a chance to read the book, do so — it is truly an inspiring story about how anyone with the drive CAN build a company and make a difference.

© Eye on Startups & The Startup Guidebook

About halfway through the event, Don Dodge, a serial entrepreneur, angel investor, and member of Microsoft’s emerging business team, gave a short talk on the value of networking in the fundraising process.

Don confirmed what I said in a previous post, i.e., with the potential of being inundated with business plans coming through mail and email, investors must necessarily have some way to filter which new startup they will look at in detail. And that filter is usually a warm introduction to the startup (by a colleague or friend), or positive personal contact with someone at the startup. Hence the need to not only network, but to be prepared with an elevator pitch to catch their attention.

In his closing remarks, he said something that struck a chord with the entrepreneurs in the room. He asked everyone in the room to think about their stock portfolio and think about why they invested in those particular companies, out of thousands of others. That is, why did you invest in just 1% to 5% of the market?

VC and Angel investors are no different — out of the entire universe of businesses that they see, they invest in perhaps just 1% to 5% of the ideas which they think will make them money, whether because of technological superiority, market leadership, or a belief that it is the next big thing.

As you are going around seeking funding, you need to make sure you can position your company as one of the top 5% of startups.

So, are you in the top 5%?

© Eye on Startups & The Startup Guidebook

While I was impressed with the company’s progress, I didn’t say anything, but I guess my face gave it away. He grinned and pointed to a cartoon graphic he had created — a picture of the purple dinosaur Barney with a red circle-slash on top of it.

“No Barney Deals,” he said.

That is, he didn’t sign any partner deals where all it did was generate “I love you, you love me” press releases, with no financial or otherwise strategic gains for either party.

He is so right. I have seen so many startups fall into the trap of chasing after a “deal” with an industry giant, with nothing coming out of it except a press release and press coverage by industry rags. The VP of Marketing looks good because he’s got a stack of positive press coverage he can show off, the company looks good because it looks like it is gaining traction, and the industry giant looks good because it looks like it has partnered with a nimble startup for innovation. But in the end, nothing of any real substance comes out of it.

The reason this happens is that these “deals” aren’t business deals at all, but are just publicity opportunities for everyone. For business agreements to succeed, the terms of the deal need to be clearly specified — whether sales leads, actual sales, or a warm introduction to target customer(s).

No Barney Deals!

© Eye on Startups & The Startup Guidebook

TCN and NEVN are two of the area’s preeminent organizations for providing a community for bringing together entrepreneurs and investors, and have put together the event: “Networking for Startups: Why a Good Pitch Deck is No Substitute for Good Conversation” to bring together entrepreneurs and the Boston area’s leading angel and venture firms for an evening of wine, food, and networking.

If you haven’t figured it out yet, despite appearances to the contrary, you can’t simply send a business plan to an investor in the hopes that they will read it. You really need either a warm introduction or a personal connection to an investor or a firm before they will even consider looking at your business plan.

Short of knowing someone on the inside, your best bet to getting to know an investor is meeting them! An event like this one is an instant meeting place — so sign up, hone your elevator pitch and show up and start networking. If you are an entrepreneur looking for an audience, this is a MUST event.

© Eye on Startups & The Startup Guidebook

(In the interest of fair disclosure, I should mention that I am on the board of TCN.)

In one case, the CEO’s role was quite clear. The CEO lied to customers about product development times in an attempt to land deals, and then lied to the board about revenue projections using these unsigned deals. It was
a case where one lie led to another lie, snowballing into one giant catastrophe.

Sometimes, the company can survive after a bad CEO is ousted. This one could not. By the time it was clear that there were no deals forthcoming and that the product was way behind schedule, the company had burned through millions and the investors were ready to write it off.

This was definitely one of those cases where the right CEO could have made a difference and made this company a success.

In another case, a newly-appointed CEO came in and fired the accountant to “save money” by doing the books himself. He then proceeded to go and hire employees out of state — spending MORE on administrative costs, payroll processing, state unemployment insurance coverage, and tax filings.

The company eventually folded for a number of different reasons, but the actions of the CEO clearly should have merited a review by the board. While the CEO may not have done anything wrong besides being inept in the area of financial controls, his firing of the accountant should have been a red flag. It is NEVER a good sign when the CEO says he wants to do the books himself.

How well do you know your CEO?

If you are a technology entrepreneur seeking a business-minded CEO to take your company to the next level, make sure you know your prospective CEO. Competence and experience are absolute requirements for the job, but so should integrity.

Dig deep when doing your reference calls to see what this person is really like. Know your CEO.

© Eye on Startups & The Startup Guidebook

While this figure is modest compared to the overall ad spend, they signal a growing comfort level on the part of advertisers to put some money into this medium. And that is significant — many advertisers have previously very been wary about a medium that gives its readers the ability to provide feedback and otherwise generate content about their brand without their direct control.

This positive trend in the blog ad market is welcome news during these recessionary times. Investors don’t like to miss out on a promising market, so you can bet they will be putting some money to work in this sector while it is still in its early days. Keep your eye out for startups targeting the blog ad market to come out of stealth mode in the coming months.

In the next three years, MHT projects the total ad revenue from blogs, podcasts, and RSS feeds to reach $1.1B. That’s certainly a big enough prize for investors to bet on.

© Eye on Startups & The Startup Guidebook

This past Monday, we pulled the plug on a startup and filed the papers dissolving the company. It is never a pleasant thing to do, but sometimes, it is the best course of action.

There are many valid reasons for saying Sayonara to a startup, and this company had the killer combination:

• It was running out of money in the bank;
• It was bleeding money year after year;
• Its market landscape had changed and there was no way the company could survive in the new climate with its current business.

It is the third one that is key, as it meant it would never be able to generate the revenues to grow, let alone survive.

If your market changes you either have to adapt and refocus or you are dead. Investors fund companies that are in growing markets, not stagnant or dying markets.

Pay attention to the market you are in — if it changes, be prepared to change along with it. Otherwise, you may set yourself up for a Sayonara Startup scenario…

© Eye on Startups & The Startup Guidebook

Not that entrepreneurs always have to suck up to investors, but they should at least be civil to them at all times. Doesn’t sound too unreasonable, does it?

The funny thing is that some of the smartest people in the world don’t get it.

I once consulted for a startup founded by this brilliant technologist. Somehow, he always took offense with board members who would dare ask a reasonable question about his financial models, marketing plan, or heaven forbid, his development plan. How dare you question me- you don’t know what you’re talking about! was just about the tone of his every response.

It got to the point where some of the company officers would cringe when anyone would start to ask a question of the founder at a board meeting. Needless to say, the relationship between the founder and the investors became increasingly strained.

What do you think happened when it came time to raise more money from investors?

Alienating your current investors is never a good idea. Even if you decide you don’t want them in your next round, you’ll soon find out that many of their friends won’t be coming around to invest either.

The moral of the story:

Don’t take money from an investor if you don’t think you’re going to get along with them. Otherwise, you put yourself in a position where you just might bite the hand that feeds you. And that is never a good idea.

© Eye on Startups & The Startup Guidebook