The VentureCode

As innovation grows, expands and evolves, terminology follows suit. In the field of entrepreneurship and startup opportunities, the understanding of ever-changing terms is crucially important. Full understanding of incubators and accelerators is vitally important to any innovative startup trying to stake their claim in this world.

Incubators and accelerators serve similar roles with helping start-up companies and entrepreneurs; however, their approaches differ.

Incubators, like the largely successful Idealab, create tech ideas and start-up companies based on them in-house. Once the incubator is satisfied with the potential profit and success of a new tech invention, strategy, or business innovation, they will launch the “incubated” project with an external company or team. The benefitof incubators is two-fold. First, because Incubators generally have extensive R&D departments, they can usually launch programs/companies for a fraction of the cost of traditional start-ups. And second, incubators usually stay in a close business relationship with their start-up, insuring its success. However, this comes with a trade-off. The incubator takes a higher percent of equity from the start-up, ranging from 15% to 30% (not to say this equity cut is not higher at times. Usually, the incubator does not invest in incubated startups.

These days majority of them are about providing the infrastructure (office space, network connection,
phone answering service, copy machine) and facilitating networking and business connections.

Accelerators act quicker and more intensive in building up start-ups and business ventures. Instead of creating the ideas and business plans for a new start-up in-house like incubators, accelerators, like TechStars, take on external start-ups and developed ideas. Through an intensive program, generally lasting about three months (ex. TechStars, Woman Innovate Mobile and The NewMe), the accelerator will provide a plethora of resources and generally capital to ensure success after completion of the program. There are benefits and drawbacks with working with accelerators.

On the positive, if selected by an accelerator (many apply, but few get into these programs), the start-up or entrepreneur will be asked to attend a training program, wherein, success is nearly guaranteed. This high success rate is insured through the accelerator’s mentorship, business connections (ex. during Y Combinator’s program, a weekly “dinner” allows start-ups to mingle with those successful in their industry) and capital investments. In return, the accelerator will take a small equity stake in that start-up.

The cons of accelerators lie in their exclusivity and short-term interest. Many accelerator programs are extremely difficult to get into. For example, TechStars states that thousands apply, but only ten get in for each of their programs. Additionally, once the program is over, accelerators do not stay as involved in their “graduated” start-ups as incubators do.

Preparation is everything when trying to raise money for a new venture. Entrepreneurs need to be thorough and anticipate the questions and requests that will be thrown at them – if they even get as far as a meeting with an investor.

The first step is to submit an Executive Summary that is no more than two pages long. The purpose of this document is to gain a meeting with an investor. Because of the brevity of this document, every element and every word counts. It must convince the investor that spending 30 minutes is worth his/her time. Miss this one, and the game is over!

The second step is to present a Pitch Presentation in PowerPoint for use in front of the investor. The entrepreneur must be sensitive to the time element and respect the amount of time the investor is willing to give. It can range from 10 minutes to one hour. This will determine the number of slides to pick, while making every one of them count. The order in which the slides/topics are presented is extremely important so as to not lose the investor’s attention. This presentation must hypnotize!

The third step is to present a Business Plan. If the Pitch Presentation was successful, the investor will ask for it. This document has many elements, and it is important that it considers the investor’s priorities. For example, most entrepreneurs are fixated on their product, while Investors are more interested to know whether there is a market that has a dire need and is ready to buy.

Final point: all three documents must be complete before approaching investors, and they are usually developed in reverse order. If the Executive Summary sizzles, the entrepreneur must be prepared to follow through immediately. It does happen!

A few years ago I was introduced to a software startup & had the opportunity to invest in their round A. I wasn’t particularly excited about the uniqueness of their tech. nor was I impressed with the CEO’s sense for running a business.
So I passed. However one of my friends did invest, and hence I remained in the loop.
The company struggled for a long time, but to my surprise just recently I learned that the company closed a distribution deal for their product with a large firm. It turned out that the CEO leveraged his personal connections to close a deal.

Moral of the story:

There is no such thing as a “Qualified Entrepreneur”.
Everybody with enough commitment, persistence and passion has the fair chance of making a business successful.

Put very simply, MRD (Market Requirements Document) describes the opportunity or the market need, and PRD (Product Requirements Document) describes a product that addresses that opportunity or need.

The purpose of PRD is to clearly articulate the product’s purpose, features, functionality, and behavior. The product team will use this specification to actually build and test the product, so it needs to be complete enough to provide them the information they need to do their jobs.

Working with many Startups, I have seen a common pattern of undermining PRD importance.
Some organizations perceive such up-front research as too expensive or slow, or believe they already have enough understanding of customers’ needs to start building the product before proper requirement gathering.

However, according to studies, poor requirements management attributed to 71% of software projects that fail and fixing mistakes made at requirements elicitation stage accounts for 75% of all rework costs.

Eventually projects were more likely to “run away” (take 80% longer than expected, deliver a product 30% less functional than desired, or cost more than 160% of the original budget).

For products with a long sales cycle, companies need to consider unexpected events that may affect closing the sale during that time period.

Among others, a reorganization or M&A transaction can put a different person or group in charge of buying-decisions.

Keeping multiple contact points within a prospect’s business is the best strategy to mitigate such problems.