I recently came across a commentary that goes along the lines of VCs know what to do with engineers but engineers don’t know how to deal with VCs. As with all good lists, and entrepreneurs like making lists, it centres around recurring issues for the inventor when dealing with a VC. Issues that are worth refreshing in this author’s opinion:

VC’s don’t sign non disclosure agreements – it affords them protection if they like your ideas, but they want to fund someone else to do them. How do you legislate against that when they have all the financial muscle and contatcts? The answer is it is not just about NDAs and patents but core competencies and brand, so approach with caution.

VC’s are sheep – they will either all fund something or none of them will, so if you have an idea that’s too new and too different you may struggle to find funding. Too right! It’s not just about self promotion, you have to promote your sector and hang a big sign over the exit..

VC’s aren’t technical – they dismiss what they don’t understand, your novel ideas, and they focus on what they know, usually irrelevant marketing terms or growth predictions. If your idea’s too new and different for the expert to understand then you may not get funding. BUT isn’t there much more to achieving commercial growth than building a great product? Have you considered treating your VC as your target customer? Maybe engineers should run the world but they don’t – Deepwater Horizon anyone?

VC’s don’t take risks – VC’s have a reputation as risk takers – they are not. They collect money from rich people to build investment funds. The rich investors take some risk, though their risk is spread across the fund’s investment and is often a tax benefit. Are they solely interested in making blockbusters and sequels? They certainly have a formula and like to stick with it, this is why you need to know A LOT about your investors and choose them carefully. You wouldn’t sell a Ferrarri in a Wal-mart, place your investment just as you place your product and pray you can find some like-minded people with influence and some discretion over the capital in play.

Venture funds are big – If your idea needs a lot of money, then you have a better chance of getting money than an idea that promises the same rate of return for much lower investment. This is because it’s easier for the VC to manage fewer big investments than many smaller ones. True, but most are transparent on deal size, the important thing isn’t how much your company is worth or how much you can spend, but that you spend it well and with purpose.

VCs collude – They price fix by discussing among themselves funding and pricing for candidate start-ups. They will probably between them only fund between two or three companies in an industry – this limits competition and makes success of the few more likely. Absolutely, they hate competition to fund good ideas and the worst thing is they are spoilt, so spoilt they invest next to nothing in enhancing dealflow, how many sponsor or educate & participate in conferences freely? Are they trying to innovate or harvest ideas?

With thanks to Nick Tredennick, Brian Shimamoto and Alan Barrell. To be continued…

When we started planning for Next Top Startup, we had in mind that the first installment of the event would span maybe two to three European countries, and that if we’d get any traction whatsoever from across a major body of water, it would be excellent and a successful achievement on it’s own.

We had no idea however, that the scale of this competition of ours would reach as far and as wide as it did – in the end, people from 14 countries are coming together to participate in this competition in both a mentor-ship scope and contestant capacity, and as of now we still haven’t reached out to the investment community.

By trying to challenge convention, and doing what we can not to become just another Y Combinator copy, we opened the contest up to all industries – and as such saw projects come in from across the board, some of the more interesting sectors applications that we received came from the following industries: Sports, Clean Tech, Aerospace, Cloud Computing, Social Enterprise, Fast Moving Consumer Goods, amongst many others.

There was one concurrent theme in all this  – technology – in one way shape or form it’s the decisive communal factor which is driving today’s entrepreneurs forward, and while we would have liked to invite all our applicants to participate, ten does seem to be about the right number, and with that we would like to announce the ten finalists to compete for the title of – wait for it – Next Top Startup.

In alphabetical order they are…

. FastTaxi – will be an interactive platform for taxi drivers and customers to get real time information through their smart-phones in order to find and order cabs within easy reach in urban centres.
. Foundation for Global Collaboration & Peace – A serious non-profit concern that aims to build a virtual peace network that benefits the global community through the dissemination of universal human commonalities.
. Getagreatboss.com – The concept is built around a crowd-sourced Interactive Manager Review.
. INBLOON / Zero2Infinity – is a start-up whose mission is to raise our planetary consciousness by offering near-space experiences.
. Lexpertia – aims to commoditise the legal services profession by creating a database and online directory for lawyers based on specialty, operating as a legal advisory search platform for lawyer services.
. Teambox.com – Is an online resource collaboration tool for enterprise and project management.
. Touchland – provides environmentally friendly disinfectant hand wash to the consumer via direct sales and 3^rd party resellers that install their dispensers.
. WeCard – is not a typical static loyalty card but an innovative smart channel of information, and user-business relations.
. Wellknown.as – A mobile platform for delegates, exhibitors, conference organizers and sponsors.
. Xtremgo.com – enables people to easily access action sports through Internet by creating a one off marketplace to book activities online.

Good luck to all of them, and we’ll keep you posted as to the winner, and we ought to have some other treats in store for all our readers after the competition closes. Stay tuned!

VIDEOS

And to get you as excited as we are about our contestants, we’re including those videos that we received from them. Enjoy f3fundit TV

Getagreatboss.com

INBLOON

Toucland

Wellknown.as

Y Combinator’s new 8.25 million USD fund shows that it’s funding model is definitely successful, but the question is can it transfer to other industries?

While Y Combinator may be focused on the web (and by we include mobile as the lines are ever more blurry), this new 8.25M fund shows that Y Combinator’s new approach to investment shows merit. The question however is, can those similar practices be transferable to other industries?

Typically an investment of up to $20k ($5,000 + $5,000 per founder) isn’t exactly big bucks and typically won’t provide sufficient capital to hire a team, program whatever, and devise a strong media campaign. What it does is give the founders of said startup enough cash to live for three months and develop the idea while having their hands held by the incubator.

Specialized business training on the go, or more likely during the building stages? Absolutely, look at the successful entrants, all programmers with little to no business experience, but now with successful companies, Reddit, ClickPass, Zenter.

However, this is the web, where businesses are easily and quickly scalable, but how about if we were to apply the same model to clean tech, could a micro investment also work?

Aside from what is undoubtedly the higher cost of a prototype, the model should be transferrable. Why? Because the recipe is the same.

Inexperienced Engineer in Business + Good Scalable Idea + Capable Mentoring = Higher probability of success

The only difference then is, how much money will a non-web company need, and what is the exit?

First off, we are definitely looking at larger figures of 50-100k+ per clean tech project total seed investment – longer lead times, longer, development times, and longer to market times. Not to mention of course that sales and profit generating activities typically will require more effort but should those same hand holding techniques be applied to a different tech sector we could very well see a paradigm shift in the way we go from prototype to market, and more so how early stage non web companies get financed.

Would be interesting to see if anyone will pick up on such a model in the coming 3 years.

Crowd-financing is a great tool to get your project off the ground, but it takes a lot of work and can often keep you from what you should need to, or are working on – the actual business.

There are of course other forms of crowd-financing, such as crowd financed managed seed/investment funds – but the legalities, specifically from the fund management side can get a bit tricky. That aside, company founders have a plethora of other options when it comes to raising capital – however often times these choices are only available to larger firms with positive income streams.

So what’s an entrepreneur to do in this world? Well the good news is that there has recently been some innovation on the field, and it’s a concept that fundamentally crowd-sources start-ups and invests in 100-200 of them per year, so at a minimum, you’re seeing 2investments per week. Compare that to your traditional model of 5-10 annually and you’ll see why this is financially innovative.

So who’s ballsy enough to lead the way on this – it’s a group out of California called Right Side Capital Management. And if you think about it, it makes a lot of sense.

You’re basically taking the roulette table approach, if you spread your money across the table, one will eventually hit, the difference here is, that in this start-up version of the popular Vegas classis, more than one may hit, in fact 2-3-4 may hit, and one of those will hit big – and then there’s your flip.

While there may be problems involved in startup corporate governance, and especially with the way they’ve got their logistics set up, the concept as a whole is absolutely brilliant when it comes to getting money out to those companies that need it.

But how do you go about making investments into 100+ companies, clearly aside from having to increase your deal flow by a substantial amount, you need to employ a very different project valuation methodology rather than the traditional VC model.

From the RSCM website, and specifically the application page, it seems that they are very heavily focusing on the team makeup, and those individuals cash position or personal financial health. Meaning, good credit, probably some money saved up in the bank, or similar – so that you as an entrepreneur can maintain yourself while developing said product and going to market.

After all, an entrepreneur that has no money is one that isn’t going to devote his/her full time to the project. So if we’re right, I bet the assessment criteria would be 1. Team 2. Project 3. Progress.

Any thoughts on this? Let us know.

We attended the BiCE summit this week at ESADE and overall we would say the event was a successful one, some interesting talks, some interesting companies, one that we’ll be covering sooner than later in our Startup Saturday series even.

However what we believe was the most interesting part of the whole thing was the panel of Angel, VC (venture capital), and PE (private equity) investors into the clean tech space, as well as a discussion on the development of clean tech in the CEE region. The low point – a long winded forum of government officials talking about sustainability and efficiency and elaborating on the need to create overly complex programmes to work together with the private sector and banks. So let’s start there -

Government and Clean Tech

Clearly one of the more important roles if any of government is to set policy, and provide incentives for enterprise in it’s own market. This is all good and well, and in our most humble of opinions this is simply something that needs to be done via tax abatement. After all, the stakeholder mentality is undoubtedly focused on the bottom line.

So what’s the problem? There should be none, government should have instituted tax abatement programmes for clean-tech initiatives a long time ago, the same for energy efficiency etc… etc… not only to offset the cost of installation, but also to create incentives for non eco-knowledgeable business to implement eco-friendly methodologies and practices into its day-to-day operations.

But @ BiCE, these governmental entities failed at promoting just that, instead they discusses large bogged down in bureaucracy initiatives, that lacked any sort of clear vision. Notwithstanding what really stood out – in terms of the negative – were comments made by various government individuals that “each case is different” and that a “different programme needs to be established for different companies”. Socialist, sure, but worse that that it screams of 1. Inefficiency, and 2. Higher Taxes. After all someone’s got to pay for all these new programmes.

What’s the solution, simple, Ockham’s Razor – entities should not be multiplied unnecessarily. Create an initiative that fosters the implementation of Clean Tech and Enviro-Friendly practices, give tax breaks to those who participate in the programme, and that’s pretty much all you need.

Clean Tech & Energy in the CEE

Elena Yordanova an investor in the clean tech area with Astra Capital spoke on this topic and although it was brief, it was also very informative. The region as a whole has huge potential for clean tech implementation, specifically in the area of en energy generation.

The SEE is rich in sunshine, there are various opportunities for hydroelectric as well as the north, i.e. Poland, and the Baltics can capitalize on coastal wind farms. Barriers to entry are still fairly low, and the region has massive growth potential across the board, however certain markets such as Romania already have met 2020 targets and over 30% of their energy production coming from renewable sources.

Investment Outlook for Clean Tech

This is a tricky one, as we all well know – investors want a high margin quick return. Clean tech companies however are not suited for this model, time to market may often be ten years or more, and investments are typically very capital intensive.

At the same time, the industry or sector is as a whole very new, and there is very little if any PE activity within the clean-tech space.The good news however is that you’re starting to see VC’s grouping their funds together for truly large scale capital investments into new technologies that otherwise without this money could not be realized. This is a good thing, the bad thing is the lack to BA’s in the field and their reluctance to throw money at clean tech startups – after all, there needs to be a call to a social cause when investing 500k-2m and expecting generally lower returns over a longer period of time.

The 3F’s, Seed Capital, Angel Capital, Venture Capital, Series A, IPO’s sounds familiar or does it?

Many budding entreprenerus, and especially those without a background in finance, and even those with a background in finance won’t really understand how the startup financing process functions.

Or more adequately how you go from cracking open your piggy bank to issuing shares on the DAX, or any stock exchange for that matter.

But first thing’s first, your 3F’s are your Friends, Family and Fools, and they’re the only ones willing to donate some money to your cause, friends and family, cause they care, and fools, cause well only a fool would give someone they don’t know cash.

Next up you’ll get seed money, these are typically people who want to flip their equity within 6 months, quick in grow the company rapidly, and quick out strategy.

Next up, are the BA’s (Business Angels) – who invest on the basis of 30x expected ROI.

These three groups comprise the “Valley of Death” in your startups life, basically meaning, these are the moments when your company either 1. Does, or 2. Dies.

Once your company’s out the red, and has broken even, this is where early stage VC comes in, typically Series A, then Series B for early stage, C for early late stage, etc… etc… and if you’re lucky enough, you get the company to issue an IPO, or Initial Public Offering meaning that the shares of your company can be traded on stock markets such as NASDAQ, DAX, etc… but when you get here, you’ll have a Morgan Stanley underwriting your deal, you may be going through a M or A, and all sorts of crazy things can happen to you so for the basis of this site, our database, and resource we’ll stick to the early stuff. For a visual representation of this entire process check out the really amazing graph, thanks of Wikimedia, and a bit edited by us.

How did you come up with the idea to crowdfinance?

Imagine the number of missed opportunities that are overlooked or can’t be addressed by the more traditional mechanisms of financing such as private equity and venture capital.

We ourselves saw several cases where entrepreneurs had a great idea but were unable to get past the initial seed funding, or where there idea had a potential for generating strong revenue, but not on the scale that would interest venture capital.

There are several reasons for this, the difficulty of evaluating each opportunity, the cost of the transaction, and the fact that risk capital is not as well developed in Continental Europe, let’s say in comparison to the US. These factors create a threshold where investment opportunities under <$2 Million are uneconomical for traditional venture financing. Furthermore, with more and more of the funding for venture capital and private equity coming from big funds, there is an increasing trend for larger investments.

With crowd financing we democratize the process and make it more efficient. The amount of money that can be raised can be quite significant. If you look at the Obama Presidential Campaign, he rose over $400 million from individual contributions of $200 or less. So substantial amounts of money can be raised. But another aspect that makes crowd financing attractive is the fact that by decreasing the amount that needs to be invested, you open up the process to a whole new market. As this market is more efficient, smaller investments remain attractive. Thus crowd financing allows us to address an interesting part of the innovation market, the area of 50,000 € to 2 Million €, which is underserved at the moment.

Another factor that attracted us to crowd financing, was the chance to develop a community where the considerable power of sharing information can be leveraged. Members of our community will help develop entrepreneurial ideas with their feedback. Basically we will act to bring together the information latent in members of our community, leading to more efficient and we hope more successful investments.

Interestingly, we set out initially to design a platform with the classical technology innovation entrepreneur in mind. However, we have seen a strong demand from film makers, bands, and designers who feel that crowdfinancing could be the best approach for them to raise funds.

Any milestones that you’d like to share?

We started out developing this idea in November 2009, and have been working on refining and developing the concept. Understanding the market and who are our customers. At the beginning of 2010, we refined the website of our company to explain more our ideas and elicit some feedback.

We have been also working on getting feedback from both entrepreneurs and investors. These inputs are going into the development of our web platform for crowd financing, which we are scheduling for launch in Spring/early Summer 2010.

Another important aspect, of course, is raising funding for our own platform. A process which we have just begun.

Can you tell us a bit about the team?

Hervé and I met as classmates in the executive MBA program of IMD. We have rather different backgrounds, but high levels of experience. Hervé has a strong background in marketing and finance, having worked both in large corporations such as GE, but also for smaller startups. He not only has experience working for start-ups, but also has worked with private equity. Thus he has a good experience with both sides of the equation.

Myself, I have over 16 years of driving innovation in Biotechnology. Initially, leading research at top Universities (I have a PhD in Molecular Pharmacology from Stanford) and more recently working in start-ups driving the R&D program and supporting product development. I have a strong insight of the needs that start-ups have when it comes to innovation support. Hence, my excitement in supporting our project.

Any difficulties you’ve experienced in the startup process of your company?

I think what has been the most surprising thing for us is the speed at which the interest and demand has developed around this idea and our platform. Hence, the biggest difficulty we’ve had has been the lack of resources. Hervé and I are bootstrapping the company, while keeping our full time jobs, and still making time for our families. Luckily for us, we seem not to need a lot of sleep! ☺

But seriously, the lack of the time and limited financial resources has meant that we have difficulty keeping up with the pace of the project.

To make sure we capture this opportunity is why we are pushing to launch this spring.

Any advice to pass on to budding entrepreneurs?

Engage with other entrepreneurs about your ideas, they can help you develop your ideas and evolve them. To many times entrepreneurs keep their ideas to themselves and lose the power of other peoples input to convert their ideas into successful ones.

And Tthe next time you are considering fundraising, consider the power of using crowdfinancing. You can a get more details at our website. www.cfi-partners.eu and consider using our platform this Spring for your fundraising needs!