Secrets of Successful Entrepreneurship #1

On January 27, 2015, attended the Secrets of Successful Entrepreneurship seminar. It was held at Chateau Invictus, the former Buck Estate, a 17,000 square foot Woodside, CA mansion built in 1934.

Chateau Invictus is a small live-in community of early-stage entrepreneurs that provides a close-knit environment designed to create leaders who can successfully bring disruptive products to market. Participation requires full-time personal commitment, but provides an entrepreneur with every chance to succeed, along with a rich schedule of social events to ensure that it will be fun. To apply to join, please send an email to: apply@chateauinvictus.com

Roger Royse is the author of Dead on Arrival: How to Avoid the Legal Mistakes That Could Kill Your Start-Up and the founder of Royse Law Firm. (Note: the slide set for his presentation may be found at: http://www.slideshare.net/rroyse/startup-valuation-what-are-you-worth)
  • This seminar is an introduction to the nuts and bolts of startups.
  • A sea turtle hatches on the beach, then must make it through a gauntlet of birds before entering the water, where fish try to eat it. Life is hard for turtles and startups. There are a lot of challenges for a startup to exit via an acquisition or IPO—most will not make it.
  • There are three factors to the success of a startup: money, people, and technology
  • How do you split up equity among the founders? If you split equity equally among the founders, you are more likely to have a lower valuation than in a startup that doesn’t.
  • You could do a negotiated split, but this rewards the best negotiator in the team.
  • You could do a formula based on how much each person is paid
  • A better solution is the “grunt fund” where there is a dynamic split that changes as the startup goes along that is based on who is doing the work. This means that you have to keep track of IP, services, money, facilities and space contributed.
  • You need advisors for the skills you don’t have, such as market characteristics, technology, raising money. What is the value of these skills?
  • The FAST (Founder Advisor Standard Template) model developed by Adeo Rossi of the Founder Institute provides a systematic way to value these skills by a process of defining milestones and deliverables such as number of investors and sales leads. http://fi.co/contents/fast#
  • How long should stock vesting be? For founders—three years, advisors—two years, employees—four years are typical. Reasons for immediate vesting are change of control and firing without cause.
  • With respect to investing, founders have to have skin in the game, they can’t do it solely on sweat equity. Friends and family funds exceed those from VCs.
  • There are dozens of methods of valuation. Look for a group of three that are relatively close to each other.
  • There are a variety of exits. A startup could enable simply having a more desirable lifestyle, to IPO, ESOP (employee stock option), to LBO (leveraged buy-out)
Gary Jinks is the principal of GLJ Group and is involved with South Bay Angels.
  • There are three business models: traditional, franchise, and startup
  • The traditional model is slow growth, typical self-funded and through loans and lines of credit.
  • The franchise model is follow my structure, training, branding and support, and you’re more likely to be successful, in return for an upfront fee / cut of your profits, typically 7%
  • In a startup, you are starting with nothing and having to grow. It is designed to have explosive, fast growth, providing short-term results in 3 to 8 years. It does not have a long term outlook per se.
  • Startups are a high-risk, high-reward venture that many attempt and few succeed at.
  • Angels are typically investing $25K to $500K. VCs consider seed financing to be $500K and up, with A, B, and C rounds starting at $5M. Super angels are in the $500K to $2M area.
  • Corporate VC is when a corporation invests in you, and if it works, they buy you.
  • Crowd funding can be done by Kickstarter, the JOBs bill, and Incubators / Accelerators. One advantage of Kickstarter is that a successful campaign is likely to get mentioned in TechCrunch.
  • Incubators and Accelerators are an attempt to get a good deal flow by angels. You pick the best two or three companies out of a hundred.
  • Should you get VC funding? It is the quickest way to bring a company to the point where it can be sold for $50M to $100M or be acquired.
  • VC funding is not appropriate if you have a smaller scale company, want to keep control, or want to be self-employed.
  • To do a startup, you must have a plan and understand cost. You need to understand the opportunity / challenge or problem and the dynamics of the market.
  • You need to get out of the gate rapidly and effectively. How fast can you acquire customers?
  • You sell your product to customers, you sell your business model to investors. Worrying about dollars is an exercise in details. In raising millions from investors, the CEO must convey their vision.
  • In presenting your business plan, there is a balance between visual and text. If you do a visual Tedx talk, it presents well, but no one will understand what your business is about from reading the slides later on. You can describe your business in eight slides: opportunity, problem, solution, market, plan, financials, team, what you need.
  • The kiss of death is a team of one or a husband and wife team (since they are effectively one).
  • Suggest reading How Great Leaders Inspire Everyone to Take Action by Simon Sinek
  • If you don’t have a competitor, you may not be in a market. There is a big difference between TAM—total available market and the SAM—serviceable available market that your startup will address.
  • In terms of financing, remember that a convertible note is actually debt.
  • While VCs talk about investments in terms of home runs, their returns are actually based on a combination of singles, doubles and triples. One angel fund reports a return of 56%, but this drops to 12% if you ignore their top two investments. Typically angels get a 3X to 4X average return.

Young Women Entrepreneurs Under 30

The Vlab Young Women Entrepreneurs Under 30 event was held January 20, 2015 at the Stanford Graduate School of Business. #VLABywe
  • The moderator was Fran Maier. She was the co-founder and first general manager of match.com, and led TRUSTe for over ten years. She was responsible for Match using a membership model, and making sure that no one ever asked your weight. Match was sold for $7 million.
  • Brienne Ghafourifar is the co-founder of Entefy. In 2013, at age 17, she raised $1 million. Entery provides a cross-device platform for aggregating disparate forms of communication. They have subsequently raised $4.1 million and hope to do a beta launch in early 2015. She comes from a high-performance family. Her biggest challenge has been to define the company culture as they have gone from 30 people to 100 people. She states that it is critical to define your values. In doing fund raising, it is exciting when people believe in you.
  • Lisa Falzone is the 29-year old co-founded and CEO of the iPad POS company Revel Systems. They have raised $115 million and have 250 employees. Since 2011, they have sold hundreds of millions of units. She observes that building the team has been her biggest challenge. They started as an ordering app, but quickly discovered that POS systems were a pain point for customers. They have found that referral networking really has helped them grow. Part of my motivation for Revel was that I didn’t want to work for anyone else. Chocolate is always good. I definitely cry at work.
  • Alex Meliones is the co-founder and chief creative and marketing of BitWall. They are a software as a service company that enables digital publishers to generate revenue and engage socially with their readers. We provide micropayment for articles. In raising money, I talk to everyone, from people in bars, someone sitting next to me on a flight.
  • Nanxi Liu is the co-founder and CEO of Enplug. They provide software for digital displays in malls, restaurants and retail stores. They have over 350 clients. It is a numbers game to get funding. As a CEO, I do sales and recruiting. As a woman, I feel you have less time to make an impression. My dad builds tractors. I knew we were on to something when I started making more money on an app, than he did building tractors. We had our first ah-ha moment when we realized we could charge for our software. One thing that surprised me was the need for human resources. Initially I was writing out people’s paychecks by hand, and having to be reminded to do so. Also, I had absolutely no idea how to fire someone.
  • Yunha Kim is the CEO and co-founder of Locket. They provide relevant content on your smart phone lock screen. People glance at their lock screens, 10.8 million times each day. She notes that building something out of nothing is very challenging and that there are lots of obstacles over overcome. With respect to major issues, they went from three to fifteen people in 45 days, then had to lay off half of the team. They researched on Google had to fire someone, but have now learned a systematic way to do it.
  • What problems do you experience as a woman? People have expectations that we are “nice and soft.” There are a lack of role models. Constantly asking myself if I’m being too harsh or bitchy. It’s difficult to be a hard ass. Feel that if I ask for help, I make myself look vulnerable.
  • The Silicon Valley VC network has been the hardest one to penetrate; it is an Old Boy network. We have hacked our funding by getting men to build us up, then we come in to close.
  • Do you have any balance in your life? Everyone works on the weekends. Work is a fun adventure. None of us have kids. You have to have some alignment between work and life, but it can happen intermittently.
  • You have to learn to deal with rejection. It is important to remember that I’m out there trying and doing something with my life. I don’t want to be a person that has never known rejection or failure.
  • It is a challenge to build a sustainable business model that people will pay for.
  • We use metaphors all the time, from soccer “drop the ball” to super hero.
  • If you have no track record, you have to create a product and sell it, before you can raise money.
  • Recommend reading Customer Development by Steve Blank. Talk to prospects and figure out their pain points. Start selling the product before you develop it.
  • How to make the environment more conductive to women entrepreneurs? You have to get out there and try. You can’t go around looking for validation.
  • How should a young girl get started? Ask for advice. Ask do you know anyone who can help me?
  • How do you deal with procrastination? It comes down to survival, you will die if you don’t do something. It is important to know how to estimate the actual time it will take to do something.
  • Is there anything you would do differently? I would learn to code. I would have started earlier. I would have fired people sooner. I would have hired slower and fired faster.
  • What is your most important goal? To build an amazing team.