Tips for Tech Entrepreneurs: Moving out of the Coffee Shop

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At the inaugural SF East Bay New Tech Meetup last week, Lawrence Coburn, the founder and CEO of Rate It All, gave aspiring entrepreneurs some valuable tips for “getting out of the coffee shop” and getting VC funding. Coburn’s venture – Rate It All, an online distributed consumer rating company, that allows users to find, share and solicit opinions on any topic, completed a $1.4M raise in September 2008.

Here are 4 key elements, according to Coburn, that a venture needs in order to get funding:

Solid Team: When Coburn initially kicked off his venture, he had meetings with many VCs who liked his business plan but weren’t ready to invest in his company because he was a one-person operation. The reality is that it’s risky for VCs to fund solo operations because if the entrepreneur got “hit by a truck” tomorrow, the venture and their investment would go down the drain. So Coburn made the point that VCs are most likely to fund a venture with a solid team and a clear game plan for succession to keep things going if anything goes wrong.

Product: A key point that Coburn brought to everyone’s attention was that VCs will no longer fund business plans  or concepts, so the venture needs to have a solid product or service that’s marketable. Given the competition for the VC funds, having a plan is just not enough as the funding will go to an existing product or service with a clear marketing strategy because that translates into lower risk for the VCs.

Traffic: Even when Coburn was working out of a coffee shop, Rate it All was revenue generating, making over $200K and yet, he couldn’t get funding right away. So, while revenue-generation is great, but it’s still not a guarantee that your venture will get funded. Having a revolutionary product or service is a good first step but to get funding, entrepreneurs need to make sure they’re focused on generating traffic right away (and revenue would be nice too).

Comfort level and Trustworthiness: Last but not the least, VCs want to fund someone they trust and are comfortable working with. This was a very insightful tip by Coburn and that was VCs need to have a certain level of comfort doing business with you - the entrepreneur. It also helps to be known in the industry and connecting with influencers who can help your cause. Some ways of making those connections and increasing your visibility is through speaking engagements and attending networking mixers where you have the opportunity to meet some of the influencers. He also said that inviting some of these influencers as advisors on your firm’s board will also add credibility to your new venture.

Overall, it was a brilliant talk by one of Silicon Valley’s best and brightest entrepreneurs. Coburn also went on to list several key technologies that are revolutionizing the online space including – Facebook Connect,Posterous, and the very well-known micro-blogging site - Twitter. Despite all the new technologies on the market today, Coburn reiterated that email still remains widely popular and is the primary way folks share online content today. He also pointed out that 90% of Rate It All’s 1.3million traffic comes from natural search so businesses shouldn’t underestimate the power of SEO either.

Defunct Mobio still on Twitter

mobiologo.bmpThere are plenty of hyped start ups who get tons of publicity in the leading blogs and news media in their heydays but when they go under, there isn’t much mention about them. The only time you typically hear about them again is when the founders resurface under the banner of a new venture or cause.  

One of those ventures that gets mentioned occasionally at networking events in the valley is Mobio,  who is still advertised under ‘downloads’ on Twitter but the company is no longer in business.

Mobio-shot

Mobio Networks was a startup that received a good deal of publicity from Venturebeat, Mashable and $9million in funding in 2007 because of their nifty mobile ‘lifestyle’ services and widgets for mobile consumers. However, based on the note on their now defunct website, they have folded their business (at least in the US).  

“Mobio Networks is winding down its US operations. As a result most of our portals and apps are currently “off the air”. We appreciate your patience as we work through several alternative ways to bring back the services.”

User comments and valley rumors seem to indicate that their downfall was caused by their inability to execute and the VCs pulled out (probably in that order). This should be a lesson to all start ups that funding isn’t everything, ability to execute is key. If you are not able to execute or monetize and the funding dries up, your venture is on its way to becoming the latest Silicon Valley roadkill.

I heard that the company founders are still in the valley working on their next mobile venture, this time it’s in the B2B space. I’ll add more details as I find out.

Death of 'free' as a business model?

I looked up Techcrunch40 winners from 2007 to see how the winners have progressed in the last year.  (Agreed, this isn’t a statistically significant sample but given that these ventures received a ton of goodwill, funding, and publicity, one could argue that they had a high likelihood of success). Here’s what I found, many were VC-funded and 1 in 4 of the award-winning startups are still in beta, one year after being recognized for their potential.

Maybe I am missing something here, but isn’t one year an eternity in the online business for small and nimble startups with funding and fully-devoted, talented teams? Perhaps, I am being too aggressive but given the intense competition in the industry, shouldn’t startups and their funders be in a mad rush to get to revenue-generating state ASAP?

While I concede that without funding, many startups would languish and some infusion of cash is needed to sustain great ideas. One could just as easily argue that VC-funding is artificially propping up the weaker ‘species’, which should be eliminated through the process of natural selection ie. free market forces.

In all fairness, VCs don’t have a magic crystal ball to predict with 100% percent certainty as to which startup will fail and which one will succeed. They place some calculated bets and the ventures that succeed probably more than make up for the ones that don’t (if not, these firms should consider going into a different line of business). 

However, the bigger systemic issue is that funded startups can afford to give away their services for free but in the process they are creating legions of freeloading consumers who have no concept of paying for any of the services they consume. And how many startups can realistically expect to be sustained by ad-revenue alone? 

As a consumer I love ‘free’, but as an unfunded entrepreneur, I loathe ‘free’ because there’s no such thing as free when it comes to servers, engineering talent, office space, etc. and someone has to pay for these basic business necessities. I can’t help but wonder what it’s going to take to break this vicious circle of ‘free’.  How are the funded and unfunded startups planning to wean users off ’free’? Or is that the next startup’s problem?

For the self-funded startups competing with a well-funded venture, the challenge is similar to what mom and pop stores face when a mega-mart comes into town and slashes the prices to drive everyone else out of business. In the process, the mega-mart creates a monopoly or goes bust itself because the low prices are not sustainable. Neither scenario bodes well for the entrepreneurial community or the users. 

I am optimistic that the current economic downturn is forcing flight to quality and hopefully, we will see more startups that aren’t just a feature or utility waiting to be bought out by some mega-corporation, but rather a sustainable revenue-generating business that can stand on its own.

Is downturn a good time to start a new venture?

Techcrunch recently posted VC funding figures for the third quarter that show VC funding for Internet startups is down 16percent since same time last year, while overall funding for startups is down by 7percent.

With all signs pointing to the world going to hell in a handbasket, starting your own business during the worst economic crisis could be considered a sign of sheer lunacy or…maybe not.

Paul Graham has an excellent essay on starting startups in the downturn, he says that the economy by itself shouldn’t dictate whether or not you should start your own gig.

If we’ve learned one thing from funding so many startups, it’s that they succeed or fail based on the qualities of the founders. The economy has some effect, certainly, but as a predictor of success it’s rounding error compared to the founders.Which means that what matters is who you are, not when you do it.
 
If you’re the right sort of person, you’ll win even in a bad economy. And if you’re not, a good economy won’t save you. Someone who thinks “I better not start a startup now, because the economy is so bad” is making the same mistake as the people who thought during the Bubble “all I have to do is start a startup, and I’ll be rich.”
While the going is good, even the most mediocre ventures will get funded but only the good ones can survive the downturn. If you have what it takes to build a business during the downturn, you’ll be in great shape to ride the wave during the good times as well.
Here are three reasons why current economic downturn is a great time to start your own venture:
1) Easier to find qualified people: Many companies are laying off talented people and their loss might just be your gain. It is easier to find qualified people during a downturn and when the stock market is down, rather than in a booming economy where you can’t even begin to compete with high-flying stock options.
2) Less competition is a good thing: The economic crunch has forced flight to quality for VC Funding. Now that the VCs are not throwing money with anything that has half a business plan, you may find that you have less competition. You also have more time on your side especially, if you’re planning to bootstrap your venture and scale slowly.

3) Diversify your risk: With the prospect of mass layoffs looming large, it’s a good time to re-evaluate your options and diversify your risk. The layoffs combined with hiring freezes has increased the scarcity of interesting jobs. If you’re looking for job satisfaction vs. just a paycheck, what could be more fulfilling than your own venture?

Now, it is your turn to tell us what you think.Vote below to let us know if right now is good time to start a new venture and as always, leave your comments in the comments section.

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Entrepreneurs, get ready for TiEcon 2008

I am looking forward to the TiEcon 2008 in May. Organized by TiE – The Indus Entrepreneurs and touted as "the World’s Largest Conference for Entrepreneurs!", it offers leading-edge speaker sessions, entrepreneurship bootcamps, insightful panel discussions, and terrific networking with fellow entrepreneurs and VCs. Last year’s event was fantastic and this year should be even better.

While, I think both the websites are very circa 2000 and should be optimized to make them more ‘social/web 2.0-friendly’, I have to admit that I really like their marketing this year.

Here’s an email I received from them. It’s personalized and it’s from an entrepreneur who was successful in raising money at TieCon 2007. I think this email is a great example of how to use WOM. It’s obvious that TiE understands its audience and that’s a newbie entrepreneur. What do you think a fledgling venture is most concerned about? Bingo! The email’s not from some admin or event-planning monkey (no offense to the organizers). This came from a living, breathing, and (most importantly) funded entrepreneur, now that’s more powerful than any marketing spin.

Tiecon_email_4 

I’ve blogged about some of the panels from TieCon 2007, in case you want to check them out before you decide.

Web 2.0 – Redefining How We Live and Socialize Online and Offline 

Building and Monetizing online communities 

Here’s an interview with Meg Whitman, ex-CEO of eBay, who was the Keynote speaker at TieCon 2007 (Warning: poor video quality)

13year old Entrepreneur looking for funding