Posts Tagged ‘entrepreneur essentials’

New Video: Key Startup Investing Risks for Friends, Family, and Angel Investors

Establishing a mutual understanding between investors and entrepreneurs as to what each expects from the other is essential to a harmonious beginning for a new venture.

The future is likely to be challenging;  if entrepreneurs expect to be able to count on additional support from their friends, family, and Angel investors, several key risks that must be addressed in advance.  This video focuses on four of those fundamental risks:

(1) A startup’s high probability of failure;

(2) The mathematics of dilution;

(3) The tendency to misunderstand a company’s stage of development and, therefore, its capital needs;

(4) Understanding the risks associated with investing good money after bad and knowing when to call it quits.

Some important statistics:

In 2012, the average amount of seed or angel capital raised per company was $880,000 (Source: Pitchbook)

61% of seed-funded companies will not be able to obtain follow-on funding (Source: CB Insights)

Those seedlings that won’t find capital will be the victims of the so-called Series A Crunch

While seed investments increased by 64% in 2012, Series A investments declined by 2%. This defines a supply/demand imbalance exists between institutional VC capital and the ‘Seed Crowd’ .

It is a tribute to America’s innovation culture that, while most startups fail, we are currently experiencing such a boom in seed financing in the United States. Institutional venture capital is not increasing; on the contrary, the industry continues to consolidate by firm and is declining in total.

Being aware of the risks inherent to startup investing and having a clear understanding of the basic parameters of dilution mathematics should be helpful to investors and entrepreneurs alike.  If you are an entrepreneur, this video may be very helpful to you so that you can explain these risks to your investors.  If you are an investor in very early stage companies, this video provides useful perspective on risk and portfolio management.

This video is Chapter 2 of the Entrepreneur Essentials Video Series.

How to Break the Familiar Pattern of Board Dysfunction in a Startup

After watching Board Dysfunction: Root Causes and Solutions, an experienced CEO told me that the video succinctly identifies and summarizes issues that are intuitively clear but often overlooked in practice. Experienced investors know that successful investing often employs pattern recognition. But when it comes to boards of directors, the unfortunate recurring pattern that is familiar to many experienced directors raises red flags about dysfunction. This is particularly acute for startups because most startups have inexperienced board members, and usually the least experienced directors come from the management team. This problem is compounded in the earlier stages of a company’s development because inexperienced co-founders often make common mistakes that could be avoided. Left unchecked, such errors in board management, board configuration, and in board process can cripple a company’s future growth path.

If you are an entrepreneur involved with your first startup, a venture capitalist who wants to educate management on acceptable and unacceptable board behavior, or an independent director new to small company board dynamics, this video should be helpful to you. The video combines PowerPoint slides with specific anecdotes to illustrate frequent errors made by inexperienced boards. The content also highlights typs of behavior that are unacceptable and that should raise concerns among all directors.

It’s easy to say that directors need to communicate more frequently and openly.  But how do you accomplish that? How do you hold directors accountable to each other? The video outlines process tools that are readily available to boards and that can help solve problems. Ironically, viewers may watch this and feel that a number of the points raised are intuitively clear. That is actually the point of this work– most of the time, the people in the room know what’s wrong, they feel it, but they either don’t feel comfortable articulating the problem or can’t easily implement the solution. By watching this video with your peer directors, you can now raise issues that are already in your mind but have not been comfortably stated out in the open.

Please consider this video to be a management tool. It is for investors and entrepreneurs alike, with a focus on the perspective of the entrepreneur.