ameliajohnston

The Problem with Socialism

“Socialism is a philosophy of failure, the creed of ignorance, and the gospel of envy, its inherent virtue is the equal sharing of misery.”
Winston Churchill

“The problem with socialism is that you eventually run out of other people’s money.”
Margaret Thatcher

“Socialism is the same as Communism, only with better English.”
George Bernard Shaw

“Socialism values equality more than liberty.”
Dennis Prager

At a recent dinner party in Paris, I was part of a most interesting conversation. The dinner guests included a few high-ranking government officials, VCs, heads of a few well-known tech internationals, and CEOs. The discussion was around the growth of the tech ecosystem in Paris and the rest of France.

France has a long tradition of pro-union, pro-socialist governments. But the current administration has taken it a step further, coming to power with their tax the rich platform. One of the other steps they took, however, was the main topic of the discussion. The interior minister, who is a lifelong politician, has decided ” to make firing so difficult for companies, they will not think about doing it.”

Clearly this makes theoretical sense to someone who has never held a job in the private sector or has experienced accountability.

There are several important unintended consequences that are impacting the tech ecosystem:

The best companies look with hesitation at any high-caliber candidate who would like to work or remain in France!

Many private schools are losing a large number of families, including their best, brightest, and most accomplished, as they are moving out of France
The foreign VC investment in France is diminishing rapidly.

The Emergence of Los Angeles as a Booming Tech Hub

“To fly as fast as thought, you must begin by knowing that you have already arrived.”
Richard Bach

Silicon Beach Fest SBFSource: http://siliconbeachfest.com

 

Last week I had the pleasure of spending time at the various Silicon Beach Fest activities in Santa Monica. My conclusion: Los Angeles is a serious tech hub.

Make no mistake; we still have a long ways to go. There is a serious lack of growth capital. There are still very few large, brand-name successes, and more often than not, there is more hype than substance.

As William Gibson said, “The future has already arrived. It’s just not evenly distributed yet.”

But overall, the quality of the new companies being funded has improved dramatically. There is a drastic improvement in the quality of teams, as well as deeper understanding of business models, monetization mechanisms, and scalable models. Much of this improvement is due to the incredible work being done by the likes of Paul Bricault, Jason Nazar, and Jeff Stibel to name a few, who are helping create a thriving environment for young entrepreneurs and CEOs.

The ecosystem in Los Angeles finally has the necessary infrastructure, seed, and early-stage capital, support, and advisory services, business development opportunities, and an excellent talent pool to be sustainable. Many CEOs are now on their 2nd and 3rd companies. They are now more mature, experienced, and in most cases, more in touch with reality. Many Silicon Valley firms are setting up shop in LA to get access to the deal flow here.

There are few VCs in Los Angeles, but they are committed, great advisors, generous with their time, and sincere in their desire to see our startup scene succeed and grow.

The quality and frequency of tech-related events are fantastic, which allows for frequent networking events at all levels. We are seeing an increase in the number of exits and growth rounds.

As other cities are actively building their tech ecosystems, it is wonderful to see how far we have come in LA.

As Napoleon Bonaparte said, “Take time to deliberate, but when the time for action has arrived, stop thinking and go in.”

This is a great time to be a tech entrepreneur in Los Angeles.

Secrets of Successful Startups: 30 Key Questions

“Success is not final, failure is not fatal: it is the courage to continue that counts.”
Winston Churchill

creating a successful plan

Most startups fail. That is a fact. Even the most experienced operators fail 50% of the time. Experienced Super Angels see exits nearly 20% of the time. Scaling is very hard. Building a successful company is about understanding the changing needs and challenges of a company throughout its lifecycle. It is about team building, execution, managing expectations, establishing relationships, and understanding the ever-changing markets, needs, trends, and product-market fit.

There are common mistakes that are made, that if avoided, dramatically increase the chances of success. Most entrepreneurs are too excited about their idea to take the time to examine the foundations of what they are building. Over the decades, I have come to learn to ask a number of questions, that help me determine if the team has thought through the idea, their plan, and how to execute it.

My first focus is always on the CEO/Founder. Is he/she backable? I define that by determining if he/she can build rapport. That tells me that he/she will be able to build great teams, raise capital, sell, and provide clarity and focus.

Next, I look at the company’s setup; the legal structure, operating agreement, roles and responsibilities, vesting schedule, conflict resolution, etc. Then I begin asking what I consider to be pivotal questions:

  1. What is the problem you are solving?
  2. Do you have a personal connection to the problem?
  3. What is the story? How did you come up with this concept?
  4. Have you validated the problem?
  5. Who are you solving this problem for?
  6. Is this a big problem that will continue to exist?

Then I want to know:

  1. Why you?
  2. Why now?

I then look at how they will solve the problem:

  1. Do you have the right solution?
  2. Does the solution match the problem?
  3. Do you have Product-Market Fit?

The key to success

The market:

  1. How big is the market? Is it a growing market?
  2. What does the competitive landscape look like?
  3. What is your differentiation?
  4. What is the business model and monetization mechanism?
  5. Is your model defensible?
  6. What is the go-to-market strategy?
  7. What are the key sector trends? Headwinds or tailwinds?

Operating questions:

  1. What are your assumptions around unit economics?
  2. Do you have the ability to grow and scale the company and get it to the next stage?
  3. Is the timing right for this company?
  4. How much do you need to raise for an 18-month runway?
  5. What are the use of funds?
  6. Do you have a budget laying out the expenses over the next 18 months?
  7. What are your pre-money valuation expectations?
  8. What does success look like in 12 months?
  9. Who is on the team?
  10. Who is in charge?
  11. What if you have to pivot?
  12. How are you going to recruit talent?

The goal is to make sure the founders have thought through the basics of the company, the market, and how to get to the next round. Additionally, it is key to understand if they are looking at the same key factors and unit economics in determining the company’s success. And if they can use best practices and focus on key factors in building a company from the ground up, developing and validating a business model, validating the problem, building a team, working with VCs, and avoiding the most common mistakes.

What is My Company’s Valuation?

“Price is what you pay. Value is what you get.”
Warren Buffett

stacks of money

One question I am most often asked is, “What is my company’s valuation?”

In addition to the customary, “It depends,” my answer is usually followed by, “It depends on who the buyer is, market factors and trends, and cost of capital.”

As Warren Buffett said, “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”

Tech buyers and financial sponsors are always looking for good, scalable companies. A good investment banker does many things for a client. He finds the right buyers, creates a sense of competition and urgency, positions the company for the highest valuation with each potential buyer, negotiates terms, conditions, and employment agreements, and most importantly, acts like a therapist when, inevitably, the deal looks like it is going south twenty times before it actually closes as parties are fatigued, frictions rise, and common sense is replaced by ego.

Strategic buyers can act as large, efficient distribution channels for the right IP. As tech companies are cash-rich, and the pace of internal developments can’t possibly keep up with the necessary growth expected by Wall Street, the corporate development departments are actively seeking growth opportunities through M&A.

One of the early tasks is finding the right buyers. Any good investment banker knows that there is one buyer out there that is willing and able to pay the extra premium for that asset because it is accretive for him to do so. Finding that special buyer, positioning the asset accordingly, and justifying the premium valuation requires domain expertise, deep industry relationships, and a disciplined process.

When a strategic buyer is at the table, the following are the important points that will frame the conversation:

• The ability of the buyer to monetize that IP
• The scalability of the IP
• The quality of the existing clients
• Company’s Leadership Position in Its Segment
• The scarcity of the asset
• Timing & the macro Environment
• The competitive nature of the process

Knowing the dynamics of a particular industry is imperative as the goal is to change the nature of the negotiations from a multiple-type discussion to the ability of the buyer to monetize that IP. That can only be done if the quality of your clients validates the viability and scalability of your product. These buyers also are likely to acquire companies they already know in one way or another, as a competitor or partners.

So when the time is right for you to check the market for an exit, take the time to fully understand the landscape, hire a banker specialized in your segment, and make sure your potential buyers understand and focus on the strategic and accretive nature of the transaction.

Preparing to Meet VCs

Avoiding these 5 common mistakes will help to increase your chances of receiving the venture capital funding that you need to get your ideas off the ground and running.

  1. Relying Too Much on The Idea – When a venture capital firm looks at your idea, they will make the decision on whether or not it will succeed. What these firms are looking for is that you have plans for growth that are realistic and you will need to show them those plans.
  2. Not Being Clear When Explaining Your Opportunity – Venture capital firms are not going to waste their time trying to figure out the details of your opportunity. They will be much more willing to help with financing if your goals, plans, and growth opportunities are clear.
  3. Lying About Credentials – There are people in every venture capital firm that are paid to do extensive background checks on the entrepreneurs who are applying for financing. Don’t overstate. Make sure your information is accurate.
  4. Mistakes or Errors in Your Plan – You must trust the venture capital firm you are seeking financing from enough to share all the key information about your plan. Trying to mislead them will only get you rejected.
  5. Not Knowing Which VC Firms Finance in Your Industry – It is important to not spend your time cold calling venture capital firms that do not finance in your industry. This is a costly mistake that many entrepreneurs make. We recommend that you cold call and email venture capital firms that are relevant to your industry and the stage of your business.

It’s All About The Team

When raising capital for a new company, most novice entrepreneurs and investors focus on the idea. Is it a BIG idea? Does it have legs? How large is the addressable target market? The most common mistakes are talking about capturing 1% of a $500 billion market or showing conservative estimates that the company will go from zero to $100 million since the idea is so great.

Experienced entrepreneurs and investors know it’s all about the team. The reasons are quite simple actually:
• The idea and company you start with will morph with time.
• There will always be numerous mistakes and challenges of all sorts along the way.
• The markets shift quickly and unexpectedly.
• If the idea and the market are indeed good, there will always be competitors with more money, resources, and access.
• Access to capital varies with the mood of the investment community.

A smart, experienced team is one that has the ability to figure this out along the way, without falling in love with the idea itself, showing flexibility, agility, decisiveness, and maturity.

A good team thinks things through in an objective and thorough manner.
How do institutional investors know if you are someone they want to invest in? One of the most key elements is your ability to assemble a team that is credible, has relevant experience, is committed, articulate, and demonstrates integrity. A team that radiates the qualities discussed above.
How do you assemble such a team when resources are limited, and there is little or no cash in the bank?
A good leader has the ability to convince high bandwidth people to follow his/her vision and ambitions. The ability to assemble such a team demonstrates leadership capabilities which are key in the early, turbulent, and uncertain early stages of startups.
So rely less on the idea and more on putting the team together.