Consumer internet is still the hottest US VC investment category, swiftly followed by clean tech and energy

The sector was voted the hottest growth area in the industry with 73.5% of those VCs polled backing it. Cleantech and energy is the second hottest growth area in the venture capital industry, according to more than half of (53.1 per cent) venture capital executives, third place goes to Internet Marketing with 40.8%.

Perhaps the question for those hunting more innovative products and business models at better valuations is whether they should be following this trend? Although it is a positive sign for early stage growth companies whose investors are looking to exit in upcoming fundraising rounds.

Overall, the annual study’s results indicate optimism in the venture capital scene compared to previous years. Over half, 56 per cent, of US venture capital executives are more confident and optimistic about the industry today, compared to a year ago when an overwhelming number of executives felt the industry was ‘broken’.

The survey found executives to be split down the middle when it comes to which geographical region currently represents the area of hottest investment opportunities, with 42 per cent indicating the east coast, namely Boston and New York, and 42 per cent Silicon Valley.

Seventy-one per cent of respondents are not worried about new deals and 72.9 per cent indicate they expect to see a steady deal-flow over the next six months.

When asked to identify which functional trends they were most concerned about, 62 per cent of the executives indicated they were very worried about the uncertain return of exit markets.

The survey also asked how the tax legislation on carried interest will impact the venture business and 46 per cent indicated it will have a major negative impact, while 16 per cent believe a ‘work around’ will be found.

This (second) annual VC survey was undertaken by Polachi Inc, a provider of Access Executive Search, canvassing VC executives across the US of which more than 98% are partners or managing partners.

Back in May we asked Jose Mariano of In Bloon five questions about his startup, being that he entered the Next Top Startup competition we felt it unfair to feature him and not the others, however now with the first edition of the competition well behind us we feel it’s time to publish his answers to our 6 questions.

What is bloon?

It’s an experience by which you will see the Earth shining round and blue on the eyes of the person you love. All in a safe, clean, not requiring strenuous training manner. A flight beyond the blue skies into the starry blackness of the cosmos. And with zero emissions.

Here’s the official definition:

bloon |bəˈloōn|
noun

1. a sustainable, cost-effective, inspirational and elevating device that enables out of this world experiences to her passengers, including unparalleled views of their planet while helping preserve it in the process; to be enjoyed by individuals, families, and other groups worldwide: inside the bloon we were one with the Planet.

2. zero2infinity first project.
verb [ intrans. ]

1. to feel elevated, to raise to a new level, to transform yourdreams into reality: We are about to bloon… ORIGIN Barcelona, early 2009 (originally denoting a previous concept from 2000): from French ballon ‘large ball.’

How did you come up with the idea for bloon?

I grew up surrounded by rockets, telescopes, astronomy and balloons because of my dad’s job. After graduation in 2000 I started to think about the possibilities of Space Tourism and it seemed obvious to me that the view is the core element of the experience and that balloons are the safest means to achieve the altitudes where the view can be enjoyed. I made a publication, then a business plan, technical design, patent and finally a company.

Any milestones that you’d like to share?

We are happy we just received our first piece of investment from Ultramagic, the world’s second largest producer of hot air ballons. Their qualified endorsement along with their expertise in the ballooning market, certification rules and technical acumen bring us closer to our goal.

Can you tell us a bit about the team?

Full time there are 4 Aerospace Engineers (Master’s level), there are many part time collaborators and interns. We are looking for a Chief Technology Officer and a Chief Marketing Officer. Our adivsory board is highly committed and comprises senior leaders in key sectors for our business.

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

The fact that I had worked on the concept for 9 years prior to incorporating the company had me well prepared. One important skill that I wish I had before, and only now I am starting to grasp is the ability to tell the people that just find your concept cool from the ones that can really help you. Generally in the EU there is a lot of talk about innovation and entrepreneurship as the best thing since bread came sliced, however there is very little real action in this topic. I think politics has distorted so much the landscape that it’s hard to find people driven by pure entrepreneurial spirit.

Any advice to pass on to budding entrepreneurs?

Be open minded and get as much high-quality advice as possible but don’t forget you know more about your business than anybody else.

If you have a startup and would like to have it featured, please write to info [at] f3fundit.com

While there are days of the entrepreneur, various government backed incubators initiatives and some absurdly difficult to find money from the EU, the one thing – and possibly the most important thing that is missing Europe-side, are readily accessible mentors. Those seasoned entrepreneurs who are willing to donate their free time to help the future generations of younger ones who lack that experience which sometimes means the difference between success and failure. Well and to keep them away from the failure.

In the U.S., that is SCORE or known by its longer name the Senior Corps of Retied Executives who typically council America’s small businesses, and set them on the road to success and profitability. On average retired individuals who have a passion for entrepreneurship and years upon years of experience in setting up companies. More so, this is probably the most prevalent of all U.S. entrepreneurship initiatives – and is non-for-profit.

On the other hand, Europe has what sometimes seems like countless initiatives dedicated to helping the entrepreneur. Information sessions, workshops conducted in conference halls, packets, subsidized space, financial assistance, etc… etc… etc… and best of all they are all typically backed by taxpayer money.

But the rub is that there is no necessity to subsidize businesses, in fact subsidized companies will be more likely to fail due to the preconceived conception that access to capital is easier to acquire, or simply that to gain that capital one needs to adhere to a set of absurd government guidelines.

What the business needs is contacts, clients and a strategy on how to acquire them – this capital does not provide, nor do information sessions on why it’s great to be an entrepreneur or institutions whose “vision” is to help the entrepreneur focusing more on their own prevalence in any geographic area.

There’s just too much mess out there, too many signals, not enough simple guidance and “proper & effective” entrepreneurial education. Academia is great and teaching people how to be entrepreneurs is fantastic, but there are no better ways to learn that to just do it.

For all the people in the EU, SCORE is accessible form outside the U.S. and the information in there, i.e. business toolbox can be helpful to non business oriented entrepreneurs, and even some business oriented ones.

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…

Put together by the Google Foundation, this video while an hour long is more than interesting and well worth watching by any aspiring social entrepreneur. It focuses on the Ashoka Foundation, but so much more.

Ashoka: Innovators for the Public is a nonprofit organization supporting the field of social entrepreneurship. Ashoka was founded by Bill Drayton in 1981 to identify and support leading social entrepreneurs through a Social Venture Capital approach with the goal of elevating the citizen sector to a competitive level equal to the business sector. The organization currently operates in over 60 countries and supports the work of over 2,000 social entrepreneurs, elected as Ashoka Fellows . Ashoka also creates mosaics of best practices that map the commonalities and intersections of key principles that guide Fellows’ individual solutions. Ashoka’s initiatives include Changemakers, Youth Venture, and Full Economic Citizenship.

In any case – enjoy.

A while ago we posted the top films for entrepreneurs, we continue today by talking about those TV shows that entrepreneurs should watch.

Aside from general entertainment, they also offer learning value to the up and coming entrepreneur, in no order of priority here they are, and of course should you have any recommendations please let us know.

Reality TV

Dragon’s Den – BBC -  is a series of reality television programs featuring entrepreneurs pitching their business ideas in order to secure investment finance from a panel of venture capitalists. In the U.S. this show is called Shark Tank.

American Inventor – ABC – s a reality television series based on a competition to be named America’s best inventor. It was conceived by UK entrepreneur Peter Jones. It was organized as a competition between the various Inventors resulting in one overall winner.

Tycoon – ITV – the show searched for entrepreneurs with ideas that he helped turn into profit-making companies. The winner was chosen by the public.

Shows

While most shows don’t focus strictly on the entrepreneurial lives of their characters, some are definitely more focused on the subject than others.

How to make it in America – HBO –  follows two enterprising twenty-somethings hustling their way through New York City’s fashion scene, determined to achieve their version of the American Dream.

Arrested Development – FOX – While the show focuses on the Bluth family and may oftentimes be seen as simply relating to them, there are a number of underlying business themes that are relevant towards entrepreneurship, or more appropriately “what not to do in business”.

The Kit Curran Radio Show – ITV – Kit Curran does pretty much anything to make some cash, especially in season 2 where the viewer can see many of his entrepreneurial ventures typically fail.

Mad Men – AMC – While Mad Men focuses on the advertising industry of the 1960’s in New York, the new season is gearing up to be very entrepreneurship focused with the entire crew having decided to start their own agency.

Think anything else belongs here? Let us know.

… before arriving at day two it is worth continuing with the finance theme just to add that yes ‘cash is king’ but growth is proportional to your necessary funds for operation, therefore, model your cash needs according to the expected or desired success of your business. Also, be as creative as possible when looking to reduce your cash requirement (subscriptions, early settlement discounts), at the end of the day this costs you less than fundraising.

When fundraising, research your investors as they do you, check the fund vesting status and exit horizon, consider their experience, and above all look for references from their portfolio companies. The better you know your investor the more chance you have of reaching an agreement over money for you taking the risk and putting in the hours.

When it comes to pitching your idea you are looking for relatively small amounts of capital in the main so don’t raise more than you need and avoid taking on more debt. Be as creative as possible on how to spend or not spend it and then pitch your idea with passion, vision demonstrating a clear market opportunity. What’s the purpose of all this? To get a meeting with the investor to go into more detail so don’t tell them your life story, keep them keen and make it special.

If you want to hone that pitch then you must know that communication consists of 3 parts: the SENDER, the MESSAGE, the RECEIVER. To communicate well you need to think about how you are communicating (your style and tools as The Sender); what you are communicating (the key elements of The Message; tell a story, engage the audience); and the ‘mindset’ and needs of The Receiver (know your audience and tailor the message to them).

Lastly, when it comes to being the latest innovation there are many common misconceptions out there and the top seven might just be:

7. Successful ventures are VC funded – only 12% of fastest growing companies in fact

6. Successful ventures are B2c – it’s more volatile and takes more time

5. Products sell online – even Google has a sales team for each country

4. Start-ups are born global – very few mature companies are even global

3. Break through ideas are instantly profitable – you need to plan & execute first

2. First movers are best – maybe if it’s a gold rush

1. We are the only ones – no competition probably means it ain’t worth fighting for

Now, don’t forget it is not all about the money so find people that are willing to work with and for you to make this dream a reality.

It would be easy to think that f3fundit launched this competition just to find a winner and give away some money. In fact the greater purpose behind this exercise was to demonstrate that there are many ventures worthy of our attention that stand to benefit and improve their chances of success through the two day workshop we put together.

This exercise was about capturing opportunities, mobilising resources and achieving results because we need more success, greater access to talent, more ideas to see the light of day and more value creation.

In the process we learnt some valuable lessons from the generous contributions given by our team of experts that have set up countless businesses between them. So much so we think these secrets need to be shared:

Firstly, the most important lesson to learn as an entrepreneur with an early stage venture is that your quite brilliant plan will always need changes and you must be willing to adapt as you move between planning, engagement and execution. Ongoing innovation is vital to your success and it is natural to go from plans A, to B, to C – in fact 86% of vested business plan submissions by (US) VCs are adapted one way or another.

Secondly, work on your business model not just your business plan! That means your valued customer, value proposition, value chain, profit engine (yes even if you are non-profit!), and protection. Doesn’t matter if you are the next Mango, iPad or Cirque du Soleil you need to focus on the right segment, clients, partners, risks, revenues, etc. How do you protect yourself? Through patents, brands and core competencies.

Thirdly, if you plan to be international then don’t just replicate what you are doing in one country, make allowances for cultural differences, empower the local partners and employees to manage and develop your brand and services but retain control. Eventually, you may even realise that people are identical to work with in spite of their differences.

Fourthly, capital is basically for 3 things, start-up costs, operating losses and working capital. If you look at the balance sheet this translates to investment in fixed assets, necessary funds for operations and a sufficient cash buffer. Further, as an entrepreneur negotiating with investors you must be aware of what impacts your personal wealth. This comes down to valuation, liquidation preferences (never more than 1x so negotiate!), accrued dividends (watch these), and anti-dilution – it is worth knowing that 1/3 of VC investment in the US is a ‘down’ loan.

Lastly, always, always get a good lawyer to guide you through these contract negotiations.

More lessons to come in our next instalment and take a look at our resources page for updated recommendations on content you should download or read!

The first edition of “Next Top Startup” took place in Barcelona over the course of June 16th and 17th. Contestants braved the journey from as far afield as South Africa and Brazil just to take part in the competition so at f3fundit we believed it was extremely important to give the participants real added value, key learnings, and new connections that will help facilitate their growth both in terms of strategy, commercialisation, and raising capital.

Two intensive days of workshops saw many teams work closely with the experts to answer doubts and improve their business models to the extent that the overall response was very positive. The winners – Touchland – were asked to join CEO Collaborative Forum and invited to their main forum where more than 100 CEOs of growth companies with a combined turnover greater than $3 billion are present. In addition, five other teams are either being put forward for financing or in talks with our experts to continue collaboration in some form. Over the coming weeks and months we will continue to support them and hope to confirm more news about the progress these ventures are making following their time with us.

As with any competition, some teams fared better than others and we feel that the value they received from the competition depended greatly on their approach and openness to the experts, as well as other teams.

On another note, we would like to thank all the people outside of f3fundit who helped make Next Top Startup a reality, these include the Barcelona Chamber of Commerce, the organizers of the Day of the Entrepreneur, ESADE Business School, CEO-CF, Maroon Analytics and both Freixenet and Damm for providing refreshments for the networking cocktail that took place after the final pitches at the Mies van der Rohe Pavillion.

However, aside from in kind services we had hoped that the business community – and especially those companies who actively claim to support entrepreneurial initiatives – would have come forward and helped sponsor the final prize. While here at f3fundit we did what we could and waited until the final moments to hear word of a cash prize for the contestants, at the end none came. Even though it was a freshman effort we can honestly say that we considered the level of experts, and contestants as well as the locations in which the competition took place to have been sufficient to at least secure some form of commitment, unfortunately, we were disappointed in the outcome as surely as the winners were.

In all however, the event was a success, both the experts and participants were overwhelmingly enthusiastic about the experience and so with that, we close the 1^st chapter of Next Top Startup, and open the second. Be sure to check the site for info on the next competition and our development of the community…

design should never compromise functionality, nor should functionality ever compromise design

Design is something that start ups tend to miss, forget about, or pay little attention to, and this is especially true for those with an engineering background.

Engineers tend to think that as long as it’s functional, and works right, it will appeal to the masses, but these engineers forget that the majority of the population are not engineers and in fact just general folk, and if your product targets the masses, one of the best pieces of advice we can offer is DON’T SKIMP ON THE DESIGN.

Remember the Volvo’s from the 80’s and 90’s? Great cars on the inside, but ugly, real ugly. Then comes Ford, buys the car division, redesigns the body and sales go through the roof, the cars, are now not only safe but cool.

Old example? Look at Android and iPhone OS. Android is open, there are no limits on what you can, can’t do, there is no parent company that strictly dictates what you can put on an Android phone, it’s open. Yet the sales are meager in comparison to the iPhone. Why? Well, it’s cool, the design is sleek and well thought out. Apple more so than any other company is known for the quality of its industrial design, and it shows, just look at the bottom line even during this recession. Now look at Compaq. Who?

Are you starting to see the point?

But thing is as a start up you don’t have the resources to splurge on IDEO, or hire some of the best industrial designers in the industry. Problem? Not really.

If you’re by a major metropolitan area chances are there’s a school which exclusively teaches design, or at least has faculty or a programme that deal with it. Your best bet is to contact them, explain what you’re looking for and see if you can’t involve students in a project, or even hire one as an intern. When it comes to design most of these students will be light years ahead of you and your engineers, they’ll be overjoyed at the possibility of getting some real world experience, and best of all, they’ll make your product attractive to the wider community.

A few things to note.

1. Some designers may go overboard and make it the best looking whatever it is, but completely non functional. Stay away from these and ask to see previous projects.

2. As an engineer, you’ll most likely describe what it is the product does in a way that the designer won’t understand. For this we recommend looking over our older post on value propositions and elevator pitches. Good communication is key.

3. Let the designer do what they’re good at, design. You’re there to get the business going, not micro manage.

4. And remember, design should never compromise functionality, nor should functionality ever compromise design.

And if you’re looking for a design school near you – just click here.