Startup milestones

So - we recently raised money for Admazely. A good occasion to share some thoughts on the great parts of entrepreneurship. There are tons of ball-busting, teeth-grinding and knuckle-biting parts of being a startup. But when you've just raised money and are looking ahead at (hopefully) years of fulfilling your dream, the sun tends to shine a little bit more. So I'll focus on the sunny side in this post.

A while ago I read a blogpost that stuck with me. Embarrassingly, I have forgotten the author and thus can’t link and attribute appropriate credit. However, I do recall the central thesis of the post. It was simple. As a founder you have three major milestones in the early days of your venture:

1. The first person you convince to join
2. The first customer you convince to pay
3. The first term sheet

And it is so true. Each of those three are immensely fulfilling and gratifying.

Cofounders
I started out with a drawing on a piece of paper. Talked a friend into helping me turn that into a design prototype. Talked another friend into helping out with a simple proof of concept for the hard math part of my idea. Both gave a good gut-feel but it was still just me and an idea with a lot of potential.

I started my hunt for a technical cofounder. And I had no idea what the hell I was doing. Still not sure I do, but I think I’m less embarrassingly awful at talking to computer scientists now than I was a year ago. It's a process that has seen a lot of write-ups lately, including this moronic post on TechCrunch. It's a tough process. I speed-dated a lot of people, rejected a lot of them and got rejected by a few as well.

Then I met Sylwia and David. Both of them seemed to have better things to do at the time. Sylwia was freelancing while considering an offer from a well-funded startup. Instead she agreed to spend her days in my living room doing our first website and and a very very rough user interface. David was supposed to go to San Francisco for a paid internship before completing his computer science degree in Stockholm. Instead he came to Copenhagen for a few weeks, which turned into him moving in with me, both working and sleeping in my apartment for a few months. And not going to SF.

Seeing such bright and talented people chose to work alongside me seeking out the potential of an idea was immensely cool. The trusted me to make my part of our venture happen (identifying customers, talking to them, understanding what we needed to build, knowing how and when to raise funding etc.) while they applied themselves, building the product. Experiencing the change in them and in our collective thinking as we started to share a vision for what we wanted to build. And after a while I asked – and they accepted – to become cofounders of Admazely with all of the responsibility that entails.

A while in, we convinced Søren to try and work with us as well alongside his day-job at SAS Institute. Spending his spare time on Admazely instead of spending it with his wife and his newborn son wasn’t an easy decision. But he started contributing and made commitments to the project and the team.

Wow – it was pretty awesome. Things kicked into gear. It truly was a milestone for me as a founder. At the time I was too busy moving forward to pause and appreciate it. Looking back at it, it feels great. And I really encourage anyone starting up to allow for a pause to be pleased with that kind of significant progress.

Our first customers
I like the idea of the Lean Startup. I like the concept of validating your idea with customers as early as possible – ideally even before you start building it. And that’s what we did. We took the prototype to potential customers to get feedback. And feedback we got. But not only the kind we were expecting. While we were hoping for opinions that could guide product development (and we got that in abundance) we also had potential customers actively asking when they could get their hands on what we were building.

So to validate that they weren’t just sweet-talking us we asked them to sign agreements committing to buy once we were done building. And they did.

All of the sudden things became a lot more real. We weren’t just building a product – we were building a business. Real people putting their money where their mouth was.

I’m a commercial guy. I like selling stuff. And while I knew my original idea was good, this felt fantastic.

Our first term sheet
If you read blogs or TechCrunch or other stuff like that, you get the impression that VC drive around throwing truckloads of money at any entrepreneur with his hand out. They don’t. Period.

I know a lot of really smart people, with great ideas, working their asses off to realise that idea. Trying to raise money but failing. For every entrepreneur able to raise money there are 100 who are trying but failing. While the investment market in Silicon Vally and New York is supposedly frothy, the same cannot be said for most of Europe. So I agree with those that say that the best thing to do is to move to where the capital is. Partly because… well, it’s where the capital is. And partly because capital tends to cluster around talent. Or is it the other way around? So you’ll also have a better pool of talent to recruit from after fundraising.

Fairly early on we realised that we wanted to try and build Admazely big. That we didn’t have the patience to grow it organically and wanted to raise money to accelerate the development speed and quality.

We talked to potential investors. I’ve been part of a team raising money before, but I’ve never lead the effort. It’s hard work, it’s stressful and it’s people jerking you around. Networking, calling, emailing. Iterating your pitch deck. Preparing a demo. We did some things right and we did a lot more things wrong. Luckily a few of them were interested, so we set a deadline for when we wanted to receive offers. And in mid January we received our first term sheet.

Venture capitalists by definition invest in startups. Nevertheless it’s still pretty daunting to have someone who sees hundreds of startups and only has the bandwidth to make a very limited number of investments decide that YOU are his pick. To get an offer for investing in your dream. To have skilled professionals say that they believe that you and your team can build a huge company.

We chose that we wanted to work with SEED Capital, we negotiated the term sheet, signed it, worked through the due diligence and the investment closed. The press release can be found here.

Negotiating an investment is scary and tough. No matter how well you prepare, you can be certain that the VC knows more about these types of deals than you do. I highly recommend preparing. Read Mark Suster's series on raising venture capital, have a look at some of Chris Dixon's stuff, read Venture Hacks, go to Term Sheet Battle or watch the Malmö event on YouTube. Have coffee with people you know who have tried it before. If you have no one else to talk to, ping me on Twitter.

We ended up with an agreement that we are very happy with. Obviously we didn’t get everything we wanted but frankly; that’s the nature of a negotiation. But we got a deal that enables us to do what was most important to us: to build Admazely.

It’s validation and it’s hard not to get a little giddy. At the same time it’s immensely humbling. All of the sudden we are responsible not just for doing what we want to do but also for doing what the other shareholders want to do.

According to the aforementioned blogpost, it’s the final of the three milestones that an early stage startup will experience.

Now we’re moving on building the company and the product. As my old colleagues in London always said: onwards and upwards. It’s fucking awesome!

Great teams at Startup Bootcamp Investor Day

Attended Startup Bootcamp Investor Day on Thursday. Great group of startups overall. Good pitches. Loved the venue.

Some general comments after seeing eleven kick-ass pitches in less than three hours:

Pitch structure
Everyone – without a single exception – used the same build-up: Overview in 30 seconds, define the problem, describe solution, demo, describe market, describe business model, try to prove traction, present team and say how much you are raising.

A good structure – but I think that having one or two deviate from that formula would have been good. Maybe some of the more rock’n’roll teams like ONEloudr or Balcony TV.

Everyone had only one team member present. Everyone used the same psychology trick of stating their fundraising success / traction as a fact (”we are rasing X / we will achieve Y users in the next Z months” as opposed to ”we are looking to raise X / we expect to achieve Y users in Z the next months”). A bit cheeky when you see eleven people in a row using it.

The mentors were another thing that I think could have been better. During Investor Day that is. I am certain they were invaluable during the three months. On Investor Day, most of the mentors did a high-level description of the businesses. But hey - the teams were doing that 30 seconds later, so why waste your time on that.

They could have talked about the stuff that the teams themselves couldn't say. Like how this particular team worked so hard that they did morning scrum every day at 8am and night scrum every night at 10pm. Or how the CEO has a unique insight into their particular market that makes everyone want to work with him/her. Or how the lead developer chose to work on this startup instead of accepting that offer to go and work for Google in Silicon Valley. Things that investors are looking for in teams when they consider investing.

Their asks
I don’t think that companies like Balcony TV, TrialBee, Briefix or Nippo need to raise a whole lot of cash to break even. But every single team came out with a fairly small ask to the investors. Even the ones that by nature are swinging for the fences like Archify or Eyeproof.

That didn’t make a lot of sense to me. Both of those two should – in my opinion – raise >5m euro.

Those two had the potential to beef up their apperance. And especially Archify whose founder has an exit under his belt should either bankroll the next 12 months himself or with the current angel investor – or make a big and bold ask. You are looking to change an industry, so don’t waste your time raising petty cash.

My verdicts
So – I talked to Alex Farcet over a beer the other night and I asked him which teams he thought to have high likelihood of succeeding. Obviously he didn’t want to say. But he told me to see for myself so we could compare notes. Maybe he was just making conversation and being evasive. But I like to think that other people value my opinion, so I took as an encouragement.

I thought: screw it – I’ll do it publically, so everyone can ridicule me later on, when I’m 0 for 11 in my predictions.

To keep it simple (and to not spend two weeks writing this) I’ll do it in a Twitter-friendly format.

Disclaimer: I greatly respect all of these startups. I am in awe of the effort that they have put into their ideas over the last three months. In no way do I mean to disrespect them, their abilities, their intellect or anything else. However, stats suggest that only two or three of them will be around in 18 months. And maybe – maybe – one of them will make it big.

Who the f... am I to think I should be judging these hard-working people? I'm no one.

So take it for what it is - a fun read. These are my best guesses, but the comments section is there for you to argue against my views. I haven't researched each startup and I don't know a lot about many of the industries they're in.

Note: likelihood of success does not mean raising a seed round (which I think that 60-80% of them will) but actually succeeding in building a huge business.

Archify – swinging for the fences means binary outcome. Will change search or go down in flames. Strong team but mission impossible. Likelihood of success = 3

BalconyTV – high-engagement platform but no barriers-to-entry for comp. Dependent on local representatives’ networks. Likelihood of success = 5

Briefix – solving a problem that others have already fixed. Also, don’t address the real issues in customer adoption for B2B tech. Likelihood of success = 1

Groupstream – cute but a FNAC. Facebook could build this in an afternoon and loks 99% like 10,000 other apps out there already. Likelihood of success = 1

Supermama – awesome. Addressing an underserved market. Business model is proven, so can copy 90% from Facebook etc.. Likelihood of success = 9

Nippo – solving an important collaboration issue but in my view betting on one feature. Quick exit to GumTree? Likelihood of success = 3

Trialbee – real problem, huge market, simple business model. Can they overcome archaic mindset of pharma? Likelihood of success = 8

ONEloudr – niche within music industry. Have done their homework on IP and copyright and carved out a good niche. Likelihood of success = 7

egoArchive – nice app but a FNAC. No business model. Google will offer this for free soon. Likelihood of success = 1

Eyeproof – if hardware works they’re off to the races. Huge industry that’s booming. Desperately need a VP of sales. Likelihood of success = 9

VideoAvatars – ad format that’s hard to use well. Never rely on media agencies for distribution. Likelihood of success = 2

PlayerDuel – are relying on players who are losing duels to pay to lose more. Works for casinos but not so sure. Likelihood of success = 4

That’s it. Once again let me emphasise that I have the outmost respect for the teams. It's been blood, sweat and tears for the last three months. And they have made impressive accomplishments. The above is nothing but my Monday-morning-quarterbacking. So if you are one of these teams, please prove me wrong. And I'll buy the drinks next time I see you (even though, in that scenario you don't need me to buy you drinks...)

And if it makes you fell better, use the comments section to write the reasons why Admazely will never succeed. Odds are stacked against us - like any other startup. So there's a good statistical chance that you'll end up being right.