Robert Ochtel’s Blog

An Experienced Approach to Venture Funding

Entrepreneurs, A New Vision and New Executive Team Members can Move Your Company Forward and Create Significant Momentum

Start-up companies often get stifled with an old vision and legacy executive team members that lack of motivation to move the start-up company forward.  This is usually due to the fact that the start-up company has been through multiple incarnations, and as a result, the original vision for the start-up company is old and the associated legacy executive team members lack the desire and motivation to move the company forward due to multiple failed attempts to do such.  With an underlying technology, product or service offering that still has significant merit and associated upside in the market, the founder(s) of the start-up company must significantly change direction to get the company moving forward again.  To do this, the start-up company must come up with a new vision, secure a new executive team that have the motivation to move the company forward, and develop a near term plan to create significant momentum to begin engaging with investors.      

Create a New Company Vision

The vision of a start-up company can be a great motivator.  If this same vision is inappropriate or does not match the needs of the market, a start-up company can get stalled and not have the ability to move forward and secure funding. Sometimes to create a new vision for the company the founders must step back and relook at their target markets to identify new trends and strategic opportunistic needs that are addressable with their underlying technology, product or service offering.  Often the original direction of the company is based on a vision that will not come to fruition in the near term.  This is generally due to the underlying fact that the entrepreneurs and their executive team of the start-up company initially targeting the wrong market and associated customer base. As a result, there are many start-up companies with visions that are fraught problems, including, being too early to market, targeting markets that lack significant market size, or identifying markets that lack the necessary and immediate customer demand for their technology product or services offerings. Consequently, as an entrepreneur you must recognize this and create a new vision based on near term market opportunities that take advantage of your technology, product or service offering.  This is often a difficult task, as changing the vision of your start-up company and how it will ultimately create success in the market requires entrepreneurs to separate themselves from the past “vision and focus” and create a completely new “vision and focus”.  As a result of this separation and re-thinking, a start-up company can often create a new vision that will bring more success as it moves forward.  

Find New Executive Team Members that Buy Your Vision

Often with the change in “vision” for your start-up company, there comes a completely different change in direction.  As such, old, legacy executive team members may not buy into the new vision or focus of the start-up company.  This is not unusual, as restarting an early stage company can often cause nervousness and trepidation with the old, legacy executive team members.  At this point in the development of your start-up company the founding team members must find new executive team members that buy in to the new vision of the start-up company. Unencumbered with the past and legacy issues, these new executive team members can bring new energy and significant motivation to your start-up company and its new vision.  These same new executive team members often bring a new perspective and outlook that will enhance your ability to move forward in the market.  Finally, these same new executive team members often and necessarily bring a whole set of skills that are required for the change in direction and new vision of the start-up company.  So, make the effort to find and secure new executive team members that buy into the new vision of your start-up company as this will necessarily allow your start-up company to move forward toward future success in the market.

Develop a Near Term Plan that Will Create Significant Value and Momentum

With a new vision and new executive team members, the next thing to do is to develop a near term plan that will create significant value and momentum for your start-up company. This plan should fit into the overall long term strategy of the start-up company and at the same time allow you to engage with your targeted customer base. Doing this will provide you with the ability to validate your new vision with “real” customers, create momentum and at the same time create significant value as you move your start-up company’s technology, product or service offering development forward. In developing this near term plan, you will provide an opportunity for the new executive team members to add value to move the start-up company forward with their individual skills and capabilities. This will bring these new executive team members together by contributing to a new term plan and will ultimately provide baseline for success of the new vision of the start-up company and at the same time provide the necessary value and momentum to move forward.                                                                                                     

Start-up companies often get stifled with an old vision and old, legacy executive team members that lack of motivation to move the start-up company forward.  This lack of motivation often comes from multiple incarnations and associated failures that have left this same start-up company standing still with no direction.  To move the company forward, the founders must separate themselves from the old company, vision and focus and create a new company with a new vision and focus. This new vision and focus often necessarily requires a new executive team.  It will also require a new near term plan to help create both value and momentum in moving the start-up company forward.  By doing so, the start-up company will create new opportunity for success in securing funding and ultimately securing success in the market.

This information was taken from Robert’s new book: “Business Planning, Business Plans and Venture Funding – A Definitive Reference Guide for Start-up Companies”.  Available at www.amazon.com.  For more information on the book go to www.carlsbadpublishing.com.

April 5, 2010 Posted by | Venture Capital | , , , , , | Leave a comment

Entrepreneurs, Get Your House in Order Before You Present to Investors

Many start-up companies go through one or more incarnations before they are ready to engage with potential investors.  As such, more often than not, a tremendous amount of history exists that may have detrimental effects on your start-up company and its ability to secure funding from these same investors. Often, with changes in corporate vision and strategy, redirection in product focus and new executive teams along the way, there exist significant amounts of baggage that can have an adverse affect on how potential investors view your start-up company.  In order to make sure you put your best foot forward, you need to make sure that you have your house in order before you engage with investors. To accomplish this, you should review all of your start-up company’s outstanding contracts, update your capitalization structure, and secure a committed team.   If you do this, you can avoid any potential missteps with your investors and at the same time increase your chances of receiving funding.

Review Your Contracts

If your start-up has been through one or more incarnations, more often than not there exist old contracts that need to be reviewed and then determined if they are still applicable to your start-up company, its vision and product offerings.  Often, old contracts were based on completely different sets of assumptions and circumstances and must be voided or dissolved appropriately. If not disposed of properly, these outstanding contracts can have a detrimental effect on your company moving forward.  In some cases, these same contracts need to be renegotiated, since at the present time, your start-up company may have a completely new business model that significantly changes the role or importance of a contractor and their technology, product or service offerings.  Accordingly, many times, going back and renegotiating a contract can be a difficult and time consuming task.  So, before you open up a can of worms, you should spend the time to thoroughly review the contract to see if you can live with it as originally structured. If you can, keep the contract as is.  If you cannot, you need to go back and properly explain to the contracted party, that there have been significant changes in the direction of the company and you need to either renegotiate the contract.  If they are not willing to renegotiate, you need to find other sources for their technology, product or service offerings and immediately cancel the contract.  It should be noted that often when you try to renegotiate a contract, the contractor will have decided that the original contract was not fair to them and try to get a much better deal.  If this is the case, you need to understand if you can live with the updated demands.  If you cannot, then cancel the contract and move on.  Remember, you investors will want to review all of your contracts and old contracts that could have an adverse effect on your start-up company and have not been updated or voided will be an issue with your potential investors.

Update Your Capitalization Structure

Many times a start-up company that has been through several incarnations will need to be recapitalized to properly reflect the new debt and equity structure of the company and its present executive team.  Often old, executive team members and corporate structures will need to be modified, in order to move your start-up company forward. This is one of the most difficult tasks to accomplish, as old executive team members will want to retain their equity ownership and new executive team members will want their “fair” share of equity for their anticipated future contributions to the company.  So, you need to take a look at the whole picture, including previous contributions by old executive team members and their importance to your start-up company at the present point in time, and then come up with a new capitalization structure that works for all parties involved.  Many times, this includes changing the equity ownership of old team members.  In addition, you need to address any debt on the books and determine, if this debt is associated with any significant and present aspect(s) of your start-up company’s business moving forward.  If so, you will have to live with it, and if not you need to try to get this debt off the books through negotiations and/or voiding of any associated contracts. Remember, investors do not invest in your start-up company to pay off old debts.  So, if you can remove any old debt, do so, as it will help your start-up company moving forward.  Finally, in some instances, a start-up company with a long history, minor changes in the capitalization structure will not improve the situation.  In this case it is better to take your start-up company into bankruptcy and restart the company with a new capitalization structure.  Although not recommended, sometimes this is unavoidable. 

Secure a Committed Team

As often stated, investors invest in the “team” and not the “product”.  As such, for a start-up company with a history of several incarnations, often original team members, at the present time, do not add any significant value to your start-up company.  As such, these team members need to be removed and replace with new committed team members that will add significant value to the new direction of your start-up company. If you do not do this, you will end up with a bloated team and several non-contributing team members. This will de-motivate your contributing executive team members and bring the performance level of your start-up down.  Remember, it is better to clean up your start-up company’s executive team before you engage with investors. Many times these conversations are difficult, but necessary.  Accordingly, you need to have the best executive team you can possibly have and get their commitment to move your start-up company forward to success in the market before you talk to investors.  If you do not, you will not be successful in securing funding from potential investors.

A start-up company that goes through several incarnations often has a significant amount of history that can adversely affect the company moving forward.  To avoid this, and before you begin talking to potential investors, you much get your house in order. This includes reviewing your contracts, updating your capitalization structure and having a committed team.  If you do this before you engage with investors you will greatly improve your chances of securing funding from these same investors.

This information was taken from Robert’s new book: “Business Planning, Business Plans and Venture Funding – A Definitive Reference Guide for Start-up Companies”.  Available at www.amazon.com.  For more information on the book go to www.carlsbadpublishing.com.

March 15, 2010 Posted by | Venture Capital | , , , , , , , , , , | Leave a comment

Three Things to Focus on Before You Get in Front of Investors

Entrepreneurs have a lot of things to focus on when developing their business concept into a fundable business plan.  Assuming you have a solid business proposition and long term competitive advantage in the market, there are three things you need to focus on before you get in front of your first angel group or venture capitalist. By focusing on these three things, you will be able to provide investors with an initial level of assurance that you can help drive your start-up company to success in the market. If you do not do so, this will eliminate any chance of receiving venture funding from angel groups or venture capitalists.

Bring Your “A” Team to Play

Investors want to know that your executive management team is a seasoned team that has the experience, background, and knowledge to successfully execute your business plan.  In fact, they insist on this. This is so important that investors would rather invest in an “A” team and a “B” product than a “B” team and an “A” product.  As such, the first thing they focus on, after they determine they “like” the proposed investment opportunity, is the executive management team.  Here, you must have a seasoned team that has the appropriate level of experience in the targeted market(s) of interest.  This is very important, as investors believe that it is the team and not the product that will make your start-up company successful in the market.  Therefore, if you do not have a seasoned team, go out and identify and then secure the appropriate executive team members that can lead your start-up company to success.  Here, you need to make a critical assessment of not only your personal skills and capabilities, but the skills and capabilities of your other team members.  If you do take the time to secure the appropriate team members, your investors will either pass on the investment, or decide to invest and then clean out the existing executive team members, only to put in their own seasoned management team.  This is not a threat, but the reality of how investors work. Remember, they have the money and money writes the rules.  So, take the time to put together your best “A” team.  This will serve you will in front of your investors.

Focus on Developing Defendable Financial Projections

It should be remembered that venture capitalists are really “glorified” financial managers.  This means that they only make money if you make money.  So, generally, they are experts at analyzing financial statements to identify the holes within your start-up company’s financial projections.  Therefore, as an entrepreneur, that will be presenting your business proposition to “financial-focused” investors, you need to make sure your financial projections are defendable.  That is, you have to properly rationalize your development costs and the ramp up of your revenue projections.  In addition, your start-up company’s financial pro forma statements need to follow standard, generally accepted accounting rules, and at the same time present financial pro forma statements that are similar in structure to other competitors within the same market space.  If you do not do so, investors again will either pass on your investment or require you develop appropriate financial projections that represent acceptable norms within your targeted industry.  Remember, venture capitalists only get paid if your start-up company is financially successful. Therefore, their initial focus will be on your financial projections. So, take the time to develop defendable financial projections, this will provide you with a much smoother road in front of investors.

Determine Your Plan to Secure Near Term Market Traction

Your start-up company may have a great technology, product or service offering, but if you cannot convince investors that you can get near term traction in the market, these same investors will pass.  Let’s be clear, investors focus on “time-to-money”, as this provides them with the highest return for their investment.  Hence, these same investors want to see that your plan to secure near term market traction is not only logical, but provides the best path forward for your start-up company.   Therefore, before you get in front of investors, you need to determine a near term, go to market plan that will provide you with traction in the market. That is, you need to secure customers as soon as possible, as investors want to know how you are planning on doing this. So, before you get in front of your investors you need to not only identify your target customers, go market strategy and tactics, and sales channels, you have to have mapped out a plan that provides your start-up company with the ability to execute appropriately.  Anything less will not impress your potential investors.  Remember you are in business to secure customers and having developed a plan to secure this near term market traction is a key increasing investors’ interest.

Assuming you have a solid business proposition and long term competitive advantage in the market, there are three things you need to focus on before you get in front of any investors. This includes, bringing your “A” team to play, developing defendable financials and determining your plan to secure near term traction in the market.  Anything less will fail to impress your investors and at the same time will provide them with an excuse to pass on your start-up company and the investment opportunity it offers.  So, take the time to focus on these three things, by doing so you will substantially improve your chances of securing funding.

This information was taken from Robert’s new book: “Business Planning, Business Plans and Venture Funding – A Definitive Reference Guide for Start-up Companies”.  Available at www.amazon.com.  For more information on the book go to www.carlsbadpublishing.com.

January 25, 2010 Posted by | Venture Capital | , , , , , , , , | 1 Comment

Building a First Class Executive Team Requires Objective Focus and Sometimes Tough Decisions

Beyond the investment opportunity, venture capitalists evaluate the start-up company’s executive team when making their decision to invest in an early stage company.  This is the first thing they consider, once they determine the investment opportunity has merit.  It is often said that venture capitalists invest in “the team”, as they would rather have an ‘A-team’ and a ‘B-product’ than a ‘B-team’ and an A-product’.  Therefore, when developing an executive team for your start-up company, as an entrepreneur, you need to be very careful.  This is not a “friends-based” decision. It requires objective focus, as to get to where you need to be requires an executive team that has proven experience in the business area your start-up company is focusing on, has the ability to make prudent business decisions, and can execute at a high-level in both good times and in bad.  Also, in some instances, it requires the founder to make tough decisions and release certain individuals, as some executive team members may not work out in the long run. This article outlines some of the things that need to be addressed by entrepreneurs as you are building a first class executive team for your start-up company.

Executive Team – The Beginning

Start-up companies usually begin with an executive team that is composed of individuals that in their careers have worked together at one point in time or another.  More often than not, one individual comes up with an “idea” or “concept” and passes this by one of his friends, usually a business or technical colleague.  With this “idea”, these individuals decide to move forward and develop a start-up company.  Many times, neither of these same individuals have had any experience in starting a company, or for that matter running and managing a business.  But, they give themselves lofty titles, (CEO, CTO, and Vice President of Business Development) and are off to the races.   Often this same initial executive team consists of a technical person and a business or marketing person.  These two individuals, if they have the proper backgrounds, although not a complete team can take the start-up company quite far in developing an initial “idea” into a value added business proposition.  On the other hand, if these same individuals lack the proper background, experience and focus, they often just spin their wheels trying to decide how to move the company forward. Therefore, as an entrepreneur, if you are starting a company look objectively at what you are trying to accomplish and do not build your executive team with “friends”, but with first class individuals that have the necessary and proven experience and ability to move your start-up company forward to the next level, securing funding.  If you do not, investors usually pass on your company as they will not risk their money on executive teams with no or little experience.  Remember, investors are looking to secure a substantial return on their investment and cannot afford to risk their monies on unproven and inexperienced executive teams.

Executive Team – Must Consist of Members that Contribute

Start-up companies need to accomplish many things with very little resources. Often the only real things they have are a “good” business proposition and a talented executive team.  As such, from the beginning, all executive team members must step up and contribute at a high level.  As with all teams, the complementary backgrounds and skill sets of the individual team members are necessary to put together a compelling business plan and associated value proposition that will provide a sustainable competitive advantage in the market.  Anything less will not suffice.  Therefore, each executive team member must commit themselves and their time and effort to achieving their near term goal of securing venture funding. If individual executive team members do not have the time or the necessary commitment to achieve this objective, then they need to be let go and this often requires making tough decisions by the founder and/or CEO of the company.  Remember, securing venture capital is serious business and requires both commitment and significant contribution from all the members of your start-up company’s executive team. If you do not get rid of “slackers” your investors will once they make a decision to invest.  Also, it is better to make these tough decisions early, as non-contributors more often than not have an adverse affect on the whole team, and in some instances can derail the whole start-up company.  So, recognize this and build a strong, first class team, with individuals that have the willingness and desire to contribute in the effort and objective of securing funding.

Executive Team – Filling In the Holes

A start-up company’s executive team is almost always often incomplete.  That is, your start-up company may be missing several executive team members or just a have a couple key executive positions that need to be filled.  So, while you are building your start-up company, it is smart to keep your eyes open to new and talented executives that can fill in these holes in your executive staff, and at the same time help your start-up company to achieve both its business and technical objectives.  These individuals are often hard to find, but can make an immediate and substantial impact, and at the same time be a key to achieving some important near term corporate objectives.  Hence, by doing so, these same individuals can also heuristically move your start-up company forward in the venture funding process.  Finally, it should be remembered that venture capitalists do not necessarily require a full executive team to invest in your start-up company.  Consequently, these same venture capitalists would rather have a strong, incomplete and first class team that they can help develop with their contact base, than a complete team with questionable individual, executive team members. 

Building a strong, first class executive team often makes the difference between a start-up company securing and not securing venture funding. So, as an entrepreneur, you need to be aware that initially building your executive staff with “friends” is not necessarily a smart move.  Often it is smarter to wait and build an executive staff with key individuals that can have a substantial impact and at the same time help your start-up company to meet its goals and objectives.  If you do not take an objective and focused approach to building your team, you will often have to make tough decisions later on to get rid of these same executive team members, as non-contributors or sub-par talent will not allow your start-up company to grow to its potential. Finally, remember you do not have to have a complete executive staff to secure venture funding, so focus on developing the best first in class team you can find.  This will serve your start-up company well in the long run.

This information was taken from Robert’s new book: “Business Planning, Business Plans and Venture Funding – A Definitive Reference Guide for Start-up Companies”.  Available at www.amazon.com.  For more information on the book go to www.carlsbadpublishing.com.

November 30, 2009 Posted by | Venture Capital, venture finance, Venture Funding | , , , , | 1 Comment

Entrepreneurs, Make the Tough Decisions Necessary to Move your Start-up Company Forward

Start-up companies by their nature are very volatile. As such, things change rapidly and need to in order to stay ahead of the game.  Unlike large companies, many daily decisions can have an inordinate affect on both the short term and the long term success of a given start-up company.  Accordingly, entrepreneurs often need to make tough decisions that will have a material impact on their start-up companies.  These decisions should not be taken lightly. On the other hand, due the fast paced nature of start-up companies, and the need to focus on creating significant value in an accelerated time frame, many of these same decisions do need to be made and quickly.  Often delays in decision making can create missed opportunities, and at the same time wreak havoc on a start-up company’s potential for success in the market. This article outlines several examples of tough decisions that need to ultimately be made by entrepreneurs that can significantly affect the long-term success of their start-up companies.  Here, quick decisions are welcomed, as prolonging the decision making process can often lead to a failed venture.

Changes in the Executive Team

The executive team is the key component that drives the success of any start-up company.  Therefore, this is the first thing, beyond the business opportunity, that venture capitalists look at when deciding to invest in a start-up company.  As such, if there is a member of your start-up company’s executive management team that is not working out or not adding significant value to the start-up company and its ultimate goals and objectives, the best thing to do is to remove this person from the team.  Why, because for start-up companies, there is no room for “non-contributing” executive team members. This situation only puts more burdens on the rest of the executive management team. Also, with each executive team member having more than enough to do, everyone needs to be pulling their own weight.  Anything less is a drain on the start-up company and its overall performance.  So, as an entrepreneur, if you recognize that your team has an executive member that is not working out, a quick decision needs to be made to cut your losses.  Here, removing the executive team member and having an empty position is much better than having a non-contributing team member.  Non-performance, by a single team member will lead to resentment from the other executive team members and pull the performance of the overall company down.  So, as an entrepreneur, once you recognize that one member of your executive team is not performing, it is important to remove this person, and quickly.  If you do not do this, your investors will.

 Changes in Strategic Direction

From their inception, start-up companies often go through multiple changes in strategic direction. More often than not, there are good reasons for this and it is necessarily part of the process to support the long-term success of the start-up company.  What is important here is that as an entrepreneur, you need to recognize that sometimes a significant change in strategic direction is necessary to enhancing the overall value of your start-up company. In addition, once the decision has been made to make a significant change in the strategic direction of a start-up company, the executive team needs to fully embrace this decision and commit the company to this new direction. Anything less will cause the start-up company to fail.  A one foot in, one foot out commitment to changes in the strategic direction of a start-up company will not work.  Finally, it is important that any significant changes in the strategic direction of your start-up company are not taken lightly, and do not happen too often, as too many changes in the strategic direction of your start-up company will kill the overall momentum of your start-up and as such will result in disaster. Therefore, once a decision has been made to change the strategic direction of your start-up company, get buy-in from all of the executive team members and move quickly to make it happen.  This approach only will benefit your start-up company.

Deciding on Strategic Alliances

Strategic alliances can help create phenomenal success for start-up companies and at the same time significantly enhance their overall value with investors and in the market.  By providing access to markets, sales channel support, complementary technologies and services, all value added propositions, strategic alliances can be used to create significant value for your start-up company.  That being said, a bad strategic partnership can have the opposite impact on your start-up company.  Therefore, when determining the value of a strategic partnership, look at the market credibility of the strategic partner.  Are they a significant player in the market? Does their name add credibility to your start-up company? Will they be able to deliver on the promises of the strategic partnership?  Often it is often better to step back and make an overall assessment of the potential long-term benefits of the partnership before committing your start-up company’s future on a particular strategic partner.  This will provide you with perspective and allow you as an entrepreneur to make a better decision.

Sometimes it is the case that as an early stage start-up company, you will not be ready for a strategic alliance relationship.  Here, be honest with yourself.  Does a strategic alliance partnership make sense at this point in time?  If it does not, then it pays to walk away, as it may only serve as a distraction to the important immediate goals and objectives of your start-up company.  Therefore, take the necessary time to properly evaluate any potential strategic alliances.  Move quickly, but remember to make an informed decision as the wrong strategic alliance can be detrimental to the overall performance of your start-up company.

Determining a Funding Strategy

Determining a funding strategy is often a difficult task for entrepreneurs. Do I go after all of the required funding now and give away more of my start-up company to investors, or do I look to secure funding in multiple tranches?  This is a very difficult question to answer and how it answered is specific to the each start-up company, their overall funding requirements and their ultimate value at a given point in time.  The key thing here is to outline your start-up company’s significant deliverables for the various funding scenarios and then make a decision as to whether at the end of each funding scenario, if significant market value has been created to secure addition funding from either existing investors or new investors. Remember, investors want to see significant value at the end of each funding round.  So, take the time and map out your start-up company’s significant milestones their associated time frame and then overlay the funding requirements.  This will allow you to determine that natural break points in securing funding and provide your investors with the insight necessary to determine if your start-up company’s funding strategy makes sense.  Remember, determining a funding strategy is often one of the most difficult decisions an entrepreneur can make.  So take the time to make an informed decision, but do not dwell on, as investors will often dictate the overall all funding terms and tranches of your start-up company.  The key point here is to make a decision and then move to secure funding to push your start-up company forward to the next level.

Entrepreneurs need to make tough decisions every day. These decisions often have a significant impact on the start-up company and its long term success in the market. For each decision presented here, whether it changing the make-up of the executive team, moving the start-up company in a new strategic direction, deciding on alliances, or determining a funding strategy,  it is important to make an informed decision.  Also, the quicker the decision is made that more likely you will get your start-up moving forward, and creating momentum for your start-up company. Therefore, as an entrepreneur, make the tough decisions it will only benefit your start-up company.

This information was taken from Robert’s new book: “Business Planning, Business Plans and Venture Funding – A Definitive Reference Guide for Start-up Companies”.  Available at www.amazon.com.  For more information on the book go to www.carlsbadpublishing.com.

October 26, 2009 Posted by | venture finance, Venture Funding | , , , , , | 1 Comment