Jan. 24, 2012
If you have a tech startup looking for funds, you already know the competition is intense. But there are strategies that will help you to get funded. Investors revealed their preferences for funding technology firms at the 2012 Consumer Electronics Show (CES) in Las Vegas.
On her blog, the chair of the CES venture capital panel, Joey Tamer, writes “each early stage fund planned to invest in a Series A for four or five new early stage companies during this year.”
When she’s not chairing venture panels, Ms. Tamer is an outstanding Los Angeles-based strategic consultant to technology and media (www.joeytamer.com).
“In the case of Jerusalem Venture Partners, Yoav Tzruya reported that this number represents no more than 1 percent of the 600 companies JVP reviews each year for its early stage fund,” says Ms. Tamer.
“Kevin Spain of Emergence Capital which has a focus on B2B applications, and Chris Petrovic of GameStop Digital which is a strategic investor/acquirer of game companies, as well as Habib Kairouz of Rho Capital agreed with the plan for four to five new deals this year,” she adds.
“We are in a boom period again, this time for the number of early stage companies in play in the market,” Ms. Tamer explains. “The continuing trend that allows for new technologies and applications to be built with many off-the-shelf tools, using world-wide technical expertise, for much less capital, has created many new companies competing for the funding resources available.
“The new trend of incubating companies in accelerators has added some seed capital to these concept-companies to get them through their initial product development,” she says. “But then these companies need to get some traction in the market, hopefully to significant revenue, before they can hope to move from seed capital to Series A.”
Ms. Tamer indicates you have options to consider if you can’t get from seed to Series A or from Series A to Series B.
“Early stage companies not attracting that critical Series A or Series B funding should consider connecting strategically or through acquisition or merger with other similar-stage companies to create a stronger offering for funding,” she advises. “Aligning with other early companies that would enhance your market position or extend your product offerings or brand, you might attract that essential next stage of funding.”
She explains a developing trend.
“Kevin Spain added a new point, that he sees a strong emerging trend in B2B and enterprise applications using the new technologies that are mostly focused on the consumer market now,” she writes. “He advised companies to look for those B2B market opportunities for their current B2C products and applications. A doubling of your target markets, which rise and fall under different economic conditions, may present a strong offering to investors.”
She explains the motivation of two investors.
“Scott English from Hearst and Chris Petrovic of GameStop approach their investments as strategic additions to their portfolios, rather than as pure venture investments –even though each has a different priority for these investments,” she explains.
“The first point made was to conduct your due diligence about how strategic investors value their target companies,” Ms. Tamer says. “Hearst, for example, is a later stage investor focused on financial ROI to Hearst first, and strategic value to the portfolio second. GameStop, focused on early stage game companies, values its acquisition targets first as an operational addition to its portfolio plan (does the company add to GameStop’s infrastructure, product mix, learning about new markets, or strategy) before financial and ROI considerations.”
She explains some lessons:
- Do your homework about your company’s “fit” with what an investment group might be seeking.
- Talk with other companies in the investor’s portfolio.
- Narrow down your list and your efforts to those investors that prefer your company’s stage, market sector, and your possible enhancement of their portfolio’s current companies.
- Some strategic and corporate investors function very much like venture capitalists, and others have different priorities. So, after your due diligence, and as you enter discussions, read the deal’s restrictions and the detailed legal conditions before negotiating or accepting any investment.
Critical factors to help you win
“Norm Fogelsong of Institutional Venture Partners, a later-stage venture fund, insisted that your company’s vision must be big, very big, to attract the rounds of capital needed to become a major player,” she points out.
“The panelists agreed that they are very focused on execution, in particular execution on market penetration,” Ms. Tamer advises. “After you have been funded on your product’s unique value, it is time to turn your attention to your market, especially your customer acquisition and retention strategies, tactics and results.”
She provides another insight: “Yoav related that he looked for CEOs with deep market savvy, a founder who knows his or her product and its market realities, and has a strong go-to-market strategy.”
Ms. Tamer shares the insights of Sharon Wienbar of Scale Venture Partners, a later stage investor, who wants to minimize risk three ways:
- Proof of market responsiveness: Does your customer commit to your vision of your product’s value, price and use?
- A business model that prioritizes customer acquisition and retention: Do you have a plan that acquires each new customer quickly and for less and less cost of acquisition?
- Compelling metrics: are your projections for market penetration, growth and profitability backed up by proven metrics?
“So, amid the growing competition for capital we are seeing this year, particularly in the consumer market, investors’ focus seems to move quickly from unique technologies and applications to strong execution,” concludes Ms. Tamer. “Early stage companies need strategies to present compelling offerings to investors, and an increasing focus on market execution that leads to growing a big company and taking significant market share.”
Hope you enjoyed these insights. As usual, Ms. Tamer speaks and writes with authority.
(Note: I’m very familiar with Ms. Tamer’s expertise. She is a fellow member of Consultants West, www.consultantswest.com, a roundtable of veteran consultants in the Los Angeles area.)
From the Coach’s Corner, here are more of Ms. Tamer’s valuable insights:
“If you can dream it, you can do it.”
Columnist Terry Corbell is also a business-performance consultant and profit professional. Click here to see his management services (many are available online). For a complimentary chat about your business situation or to schedule Terry Corbell as a speaker, why don’t you contact him today?
Venture capitalists and CEOs are optimistic about 2011 – many expect more funding, hiring, higher salaries, and sales – according to a new survey. However, there wasn’t unanimity over forecasting the trend in fundraising in the 2011 Venture View predictions survey by the National Venture Capital Association (NVCA) and Dow Jones VentureSource.
Survey respondents included 180 CEOs of VC-supported firms and 330 VCs.
“The improving exit market and a renewed excitement in the IT sector have engendered a confidence among VCs and the CEOs of the companies in which we invest that promises to propel the start-up community forward in 2011,” said Mark Heesen, president of the NVCA in a press release.
“While the venture industry will continue to evolve, and likely contract, the companies we fund will continue to grow, innovate and drive the U.S. economy,” he surmised.
“An anticipated rise in venture investment and improvement in the national economy are closely linked,” said Jessica Canning, global research director of Dow Jones VentureSource.
“Venture investment is meant to be spent – on employees, technology, office space and other expenses – which means it reverberates throughout the economy,” Ms. Canning added. “Raising capital also gives companies an opportunity to grow, adding to their headcount and spending power as they try to become the next Google or Apple.”
VC opinions on investments:
- 51 percent anticipate an increase
- 24 percent don’t forecast improvement
- 24 percent expect a decrease
- 51 percent anticipate increases in later-stage investment
- 49 percent forecast expansion and seed investment
- 46 percent expect early-stage investment
- Among the VCs who invest in the earlier stages, 30 percent plan to co-invest more with angels
CEO opinions on VC investment:
- 58 percent forecast increases in VC investments
- 64 percent hope to get new funding
VC expectations on increases in technology:
- 82 percent predict investments in consumer, Internet and digital media
- 80 percent forecast an increase in cloud computing
- 66 percent expect more in mobile/telecom
VCs also make predictions about “froth”. (That’s a term used regarding over-investment.) Sixty-nine expect froth in consumer Internet and digital media, and 47 percent predict froth in cloud computing.
Fifty-three percent of VCs will invest only in the U.S.
Otherwise, VCs will not ignore startups in Asia:
- 26 percent are considering startups in China
- 18 percent are look favorably at opportunities in India
While VCs disagree on the direction of fundraising, there is a consensus on limited partnerships (LP):
- 76 percent anticipate LPs to get favorable consideration
- 48 percent say foreign LPs will get more funds
The economy will improve according to 63 percent of VCs and 64 percent of CEOs.
See the survey-results slide presentation.
From the Coach’s Corner, if you’re looking for funding, here’s a column you’ll want to read featuring the expert opinion of premier strategist Joey Tamer: What No One Tells You about Raising Investment Capital.
If you follow eight tactics suggested by premier financial strategist Joey Tamer, my sense is that you will greatly enhance your odds for landing venture capital.
She shares her expertise in a Wall Street Journal blog, Strategies for Finding Venture Capital in 2010.
Ms. Tamer is an expert consultant for early-stage technology and media companies whom I rely upon as an authoritative source on finance-related matters in my Biz Coach columns.
Whatever Ms. Tamer says, you can take it to the bank with confidence.