OK, great. I'll do the feedback here so there is some kind of value for the community. In this first post I'll cover top thee preliminary issues and set the context for further analysis.
Post 1: Authority, Investment ready, entrepreneurial specialisation
Authority: This post is about getting isock to the stage of being investment ready. It's highly improbable that an investment deal will come to fruition - but the process of getting there will minimise downside and maximise upside for the entrepreneur because the journey follows industry standard practices for what makes high potential interenet startups.
The authority for this information are
venture capital training manuals which are based on empirical findings for what makes good investment deals, and the collective posts of over
130 vc bloggers who write about these things on daily basis. This is not Danny Nerezov making shit up.
Investment ready: With startups, there is the concept of being
investment ready. Practically, it's a checklist which changes depending on the stage of the company, what the company does and who the founders are. Whilst I'll skip commenting on this check list for now, I will say something important about the process of being investment ready.
When seeking to raise money, it's advisable for the entrepreneur to start with a crappy startup which fails most checklist items. This approach is advantageous, because the founder will need to build repore with his potential backers over a period of 6-12 months before any L.O.I or term sheet discussions are ripe to take place. During this time, the entrepreneur ought to report copious amounts of good news, which is impossible to do if the entrepreneur has perfected his startup before contacting his prospects.
Cumulatively, during this journey, investors will make demands to see changes, and request things from the entrepreneur which the entrepreneur may not agree with. In these circumstances, the entrepreneur is advised to bite his tongue and nod enthusiastically because the entrepreneur is trying to sell securities, and has to be flexible to tailor his pitch so the prospects for these securities hear what they want to hear - as opposed to what the entrepreneur thinks they should hear (i.e respond to customer demand - the investor being the customer). It's salesmanship.
Entrepreneurial specialization: To make sure that deals are closed quickly with minimal fuss, the founders of startups like istock, need to appreciate their unique and important role in the economy.
With the Internet industry, there is a small number of very fierce, large competitors who have stakes in most consumer markets. The founders of small companies like istock will find their fates a lot more favourable if they appreciate that their role in the economy has little to do with competing with these giants - but rather it is to create products and services which let the giants compete against them selves.
With stock quotes, and other financial data - one way to create a great entrepreneurial startup is to innovate in the areas of how financial data is distributed, or consumed. For example - traders have a natural tendency for herding together, yet currently available products from Google and Yahoo do little by way of helping traders herd together.
From Google's of Yahoos point of view - investing resources into developing this functionality makes little sense because these are billion dollar corporations which need to grow by at least 10% a year and this growth is better achieved by investing in the marketing of existing products, rather than creating new ones which may as well flop.
This is the niche dominated by entrepreneurs. They innovate and test market new ideas for large corporations. Then they get bought, the corporations extend their competitive advantage and the entrepreneur gets a merit badge. There are no other people in the economy endowed to do this job other than entrepreneurs.
Finally: From this perspective - startups like istock are typically advised to follow the old fashioned way of making large sums of money, and create innovative products which don't directly compete with insurmountable competition - but which serve as nicely packaged complimentary additions to what ever the 900 pound guerrilla's got on offer (i.e. NOT substitute goods, but complimetary goods).
Failure to follow this process creates a mismatch in dialogue between founders and prospective investors. The investors want a
timely exit, but the entrepreneur wants to build a company which can wrestle market share from a huge competitor. Even if that's possible, which it isn't, this process would take to long and therefore dilute any effective rates of return.
So...if you're doing a startup - do your job well. Be innovative. That's your role in the economy. That said, entrepreneurs must specialize in very particular kinds of innovation which is more valuable than technical innovation.
In my next post, I'll com back to the investment ready check list and apply it to istock to draw conclusions.
Website Review
Opened my eyes a bit, really fits into my situation. (well not the looking for investment part)
Linear Mode
