startup

A country is hit by the entrepreneurial bug and start-up culture

jamaica startup women

Guest post by Susana Garcia-Robles (@RoblesSusanaro)

September 9th:  Arriving at my destination to speak at a Venture Capital conference sponsored by a local government agency.

September 10th and 12th: Attending the inauguration of the country’s Start-Up program and meeting the women behind that initiative and Startup Weekend. Listening to the manager of a prestigious private sector incubator. 

September 11th and 12th: Meeting tech entrepreneurs and participating in pitch events showcasing the winners of two local pitch competitions— one run by a local university, the other  a National Business Model competition spearheaded by a US fund manager who visited this country last year, fell in love with it, and has supported different entrepreneurial activities since.

September 12th: Meeting with a woman who runs mentorship programs for entrepreneurs. Meeting with potential  investors in VC/PE funds. Meeting with regulators.

Can you guess where in the world I am? If you are thinking Silicon Valley, Israel, or Brazil, you’re wrong. 

I’m in Kingston, Jamaica.  And I’m witnessing history in the making.

When I started working with the public and private sectors in developing entrepreneurial ecosystems in Latin America and the Caribbean more than 16 years ago, the world –in spite of the Internet boom – was a very different world than the one we live in today. We were beginning to experience the power of the Internet. Globalization was an issue discussed at an academic level. In Europe, the Euro had not been implemented yet. The region was not an investors’ destination, and there were subjects pending to be taken care of before we could be considered as a region with potential: poverty, economic crises, corruption, weak institutions, and lack of innovation better described us then.

Fast forward to 2014. The region has improved dramatically: many people who belonged to the Base of the Pyramid are now entering the middle class. No global or regional crisis has originated in the region  in a long time and better yet, we showed resilience during the last global crisis. Democracy is established at large. Globalization, coupled with access to technology, has shortened geographic distances, making access to information and knowledge available all over the world. 

Add to this mix the benefits of many countries having a young growing population known as the Millennials. They were born and live in a world where technology allows them to reach out to anyone they want, learn and work in informal settings, and be informed of what’s going on in the world as events unfold. Most importantly, they have developed a sense of belonging to a global community where they can work together in teams.

And this is what’s happening today in Jamaica. The  entrepreneurial bug has infected this country  and there is no cure for this.

I have met these Jamaican entrepreneurs and they resemble any other entrepreneur from any country that has a well-established VC industry. They are full of drive, trying out their ideas to make them into viable business models that can attract financing.  Angel investors, incubators, accelerators, MVP, pivoting the model, are part of their daily lexicon.

Together with many actors that come from different sectors of the country, the MIF is helping this ecosystem thrive: establishing a culture where risk of failure is accepted as part of the innovation and start-up creation process (fail fast, learn from your mistake, get up and move on to try again!), where being an entrepreneur does not mean having lost your job and not yet found your next one, but a life choice.

So…  yes, there is a Start-Up Jamaica, a Startup Weekend Jamaica, a Branson Centre of Entrepreneurship, a Jamaica LAB. And entrepreneurs are running start-up companies like Herboo, DocuJam, and Regal Farms Ltd.

Best of all, the Jamaican entrepreneurial movement and early-stage industry seem to have a greater participation of women than in other countries like the US or Brazil. Women are running the Start-Up programs and incubators, and start-up teams have women founders!

The future is bright for this island committed to fostering innovation from both government agencies and the private sector. At the MIF, we are working on a project with the Development Bank of Jamaica to strengthen this growing ecosystem for venture capital.

Meanwhile, major players in the Jamaican economy are getting involved as well. Jamaica’s largest bank, National Commercial Bank (NCB), and the Jamaica National Building Society (JN) are the companies behind Start-Up Jamaica, the cellular company LIME helped establish the infrastructure for Start-Up Jamaica’s awesome space. 

Have you seen signs of the entrepreneurial bug in Jamaica? And where do you think it will be seen next? 

5 Bad Excuses Not To Start a Business

entrepreneur startups

Lame reasons to give up before you even start

I often hear people claim to have good ideas for a business, but say they can’t pursue them for one reason or another. Some of course are valid, but others are misconceptions that deserve to be revisited. Here are the top five from my experience.

1. I don’t have the business skills

Not having business experience is not necessarily a problem. There are several ways for a person with a good idea for a product or service to develop it into a business, regardless of his/her background. First, you can look for a business savvy co-founder, someone you trust and that can take the lead on the business side while you focus on developing your product. Second, you can look for structured initiatives that support startups through mentorship and guidance, such as business incubators and institutional programs, like I-Corps and others. Third, you may join an accelerator, like Y-Combinator, TechStars and dozens of others, where mentorship and funding come hand-in-hand. (However, as I point out in another post, you do have to bring something to the table other than just an idea.)

2. I don’t have the technical skills

This is the other extreme to the excuse above: not having the technical skills to develop your product or concept. This is even less of a problem because, if you have the business skills and can articulate the commercial value of your idea, finding engineers or coders to build a prototype or MVP should not be so hard. You might engage them by offering equity (even bringing someone in as co-founder and potential future CTO), royalty payments, or raising a little seed capital to pay consulting fees. You can also explore partnerships with universities and other research centers. If you got something big and present yourself properly, finding the right resources to build your product should not be a deterrent. (Note: In my companies we have built software and websites without previously knowing much about coding – we simply mobilized the right resources).

3. I don’t have the time

Well, you don’t have to immediately quit your job or drop out of school to launch your startup. Most entrepreneurs begin to develop their ideas working a few hours at night and on weekends. If you are really passionate about your idea, you can certainly put on 30+ hours a week even if you are working full-time or going to school. You can also involve people who would put a few hours of their own. After 6-12 months in this “part-time” fashion, you should be able to at least reach a point where you can make an educated decision about betting the next couple of years full-time on it.

4. I don’t have the money

Raising funds for early stage is certainly not easy. But nowadays, building a prototype or MVP is much cheaper than it used to be, so funding needs are much lower on average than say 10+ years ago. There are several free or cheap tools for building products (open source software, Wix.com and others for websites, 3D printers for hardware, CrowdSpring and the like for design etc.) and marketing them (Salesforce, Facebook pages, blogs etc). Similarly, funding has become a bit easier with tools like Angel.co, that match angel investors with entrepreneurs, crowdfunding websites like Kickstarter, and the angel clubs and networks that sprout all over the place. Also, don’t be shy to approach family and friends for seed capital or loans, they will likely appreciate your efforts (as long as you are transparent about the risks). Finally, you may be able to get a lot done without any funding at all, just by bootstrapping and involving the right partners, who would work for equity or success-based returns.

5. I don’t have connections (nobody knows me)

Today it is easier than ever to make your voice heard and connect with people. Even if you don’t know anyone in the industry and don’t have a track record to show for, if you build something that people care about, you will be able to reach the right persons. Check your LinkedIn connections (if you don’t have a LinkedIn account, get one yesterday!) and see if anyone in your network (2nd and 3rd levels included) knows a person you need to reach: ask for an intro. Sign up for all relevant Facebook/LinkedIn groups and take part in discussions. Participate in industry events, meet people, shake hands, network. Cold-call if you have to, just make sure you do it with taste. Start blogging/tweeting about your product or industry. In other words, if you don’t have connections, just make them.

If you believe you have a winning business proposition, as well as the drive and guts to pursue it, none of the issues above should deter you from going for it!

See also Time To Start A Business – Or Not. Picture: ThinkingForward (Tumblr).

Are you sitting on a good business idea? Leave us a comment!

7 Reasons to Join a Business Incubator

business incubator, startup incubator

Business incubators are great for startups

The definition of business incubator (or startup incubator), according to Entrepreneur’s Encyclopedia, is an “organization designed to accelerate the growth and success of entrepreneurial companies, through an array of business support resources and services that could include physical space, capital, coaching, common services, and networking connections”. They are often sponsored by private companies or municipal entities and public institutions, such as colleges and universities.

I spent over three years in two different incubators – Brazil’s Genesis Institute, part of PUC-Rio’s university, and US’s Rockville Innovation Center, run by Montgomery County’s Economic Development Department – and can personally attest to their benefits. They played an important role in leveraging my businesses and providing valuable support in the early stages of my startups. In fact, according to the US Small Business Administration, 87% of incubator graduates stay in business, in contrast to 44% for all firms. To be fair, it is hard to know how much is due to good selection of companies versus good resources and counseling – but you still want to be among the 87%, don’t you?

7 reasons to join business incubators (no particular order)

  1. Seal of approval. When you’re nobody, it’s good to be associated with somebody! As an incubated company in a prestigious institution, when you go out to look for partners, clients, or capital, you can at least show some credentials. People will know that you have gone through a selection process and were capable enough to enter the incubator. While hopefully understanding you’re still a startup, they will have more confidence in your ability to commit and deliver than if you were unknown and unaffiliated.
  2. Administrative support. May not seem as much, but when you’re only a couple of people (or worse, a lone wolf) it is very important to have accessible support to mundane – and not so mundane – tasks, so you have more time to focus on the important stuff. You want to spend as much time as possible developing your business. Admin help usually comes in the form of a common assistant, interns (especially if the incubator is related to a university), affordable bookkeeping, CPA and legal services, as well as access to basic office gadgets and supplies.
  3. Facilities. Good incubators offer you a nice-enough office, with common meeting rooms and a professional atmosphere – certainly much more than your bedroom or garage! This comes in handy when you need to meet with clients and partners, or interview candidates. It is also good for the entrepreneur’s moral. I was able to get much more work done after walking into a decent office, in a nice building, surrounded by other entrepreneurs, than working from home. Also, incubators usually offer flexible and affordable rent and utilities, which you won’t find elsewhere on your own.
  4. Cross fertilization. Being close to other entrepreneurs is great. You are able to interact with like-minded people, most of whom are going through some of the same issues you are facing. You share tips and experiences. Startups in incubators tend to help each other out, and often engage in partnerships and become each other’s clients. I did business with two fellow incubated companies. At the very least, at the end of the day, you feel you’re not alone. Also, if your incubator is affiliated with a university or company, you may develop fruitful R&D partnerships and have access to great talent.
  5. Mentorship and professional services. Incubators are catalysts for mentors and consultants. I was often approached by people wanting to help: some for free, some for equity, others for fees.  Not all help is the same, of course, and in most cases I passed; but one can find specialized help more easily than if working alone. Incubator managers usually have a Rolodex with contacts of  designers, marketing specialists, biz dev folks, engineers, coders etc, who worked for previous incubated companies and are just one phone call away.
  6. Access to capital. All types of early stage investors – angels, seed funds, venture capital – have their radars on incubators, especially the ones with a successful record of spinning good companies. Incubated businesses are often approached by investors, either one-on-one or at pitching or entrepreneurship events. Also, incubators usually do a good job of opening your eyes to funding opportunities you never knew existed, including government and small business grants and subsidized loans. My first company earned a large government grant from the Brazilian government thanks to the hint we got from Genesis and their help in filling out the forms.
  7. Connectivity. Besides connecting with fellow incubated companies and adjacent resources, there are several national, regional and even global incubator networks and programs, such as Brazil’s Anprotec and World Bank’s global infoDev. This means that if you need to internationalize your business, find strategic partners in different countries, or benchmark experiences, being in an incubator can also be useful.

Of course, don’t expect miracles. The success of your business ultimately depends on your company developing products and services people care about, and your ability to adapt and innovate. Also, if you join an incubator, don’t necessarily take all advice you get at face value; people are just people, some are more insightful than others, and not all incubators attract the best talent. But if you’re starting out, that’s definitely a good place to consider.

See also Not All Angel Investors Are from Heaven. Illustration: shutterstock.com

Do you have experience in a business (startup) incubator? Leave us a comment!

Copycat Businesses Can Be Great

innovation copycat business

Innovation is relative, originality overrated

Innovation is one of the sexiest words in the business vocabulary. However, originality can be overrated, especially when it comes to the opportunity of bringing a proven business concept to a new market. The world is full of examples of copycat business models that were successfully replicated in new countries.

The Chinese watched the successes of Amazon and eBay and launched Alibaba, which today has higher revenues than both U.S. firms combined. Indians followed suit with e-commerce Flipkart. Brazil’s Peixe Urbano, in turn, mirrored itself on e-coupon websites like Groupon and LivingSocial. Pretty much every country or region in the world has its own travel booking website, inspired by Expedia and Travelocity. And on and on we go.

The main benefits of copycat business models

The first benefit of being a copycat is the fact that the business model you are implementing has already been proven elsewhere. Of course, this doesn’t mean it will be a hit in your country, but at the very least you can incorporate several lessons before developing the product and launching the business. The risk therefore is considerably lower than that of an outright innovation, with no benchmarks to fall on. In fact, lessons learned can be applied not only at entry, but also from the moves and mistakes your reference company makes along the way, for it will always be a few years ahead of you. You benefit from the best of both worlds: innovation (at least in your target market) and proof of concept/benchmarking.

Second, pitching the business to investors and potential partners is easier than with other startups. What’s not to understand when you tell someone you want to start “Colombia’s SalesForce” or  “Turkey’s Paypal”? Investors quickly relate to your idea and can tell you if they like it or not. This may seem trivial, but it comes in handy when you are dealing with people who are used to listening to dozens of business ideas every week.

Third, copycats have the privilege to be born with a potential exit strategy already in place. If you are Turkey’s equivalent of Paypal, and market conditions are favorable, you can always approach PayPal for an acquisition or at least a partnership. Of course there’s no guarantee of that happening, and they may decide to compete instead, but the path is clearer than for many startups. In fact, copycats are often approached by their inspirers wanting to expand into new markets through strategic acquisitions.

Challenges with copycat companies

Nevertheless, there are a few particular challenges associated with copycats. Barriers to entry for replicated business models are by definition low and you usually have no IP edge. The innovation doesn’t belong to you and, unless there is some sort of local IP protection (rare), anyone with the same idea and resources can jump in. As an example, after the first couple of crowdfunding websites emerged in Brazil, dozens followed suit, ironically “crowding” the market. The only things that keep you on top are first-mover advantage, fast market-share growth, good marketing and continuing innovation.

Also, adapting the business model to a new market can be tricky. Country and cultural differences have to be taken into consideration. For instance, in certain regions of the world, you can’t really launch a peer-to-peer lending website because charging interest from peers is not considered a socially acceptable practice. Also, trusting strangers in web2.0-type interactions may not be something that the local meme supports (yet).

Macro role of copycatting

At the macro level, copycatting plays an important role in technology transfer, from developed markets to developing ones. New solutions and businesses are internationalized at fast pace and relatively low risk, benefiting the economy by fostering local innovation, creating complementary businesses and generating jobs. It is also one of the best ways for budding entrepreneurs in less mature markets to learn from more experienced ones. A copycat venture is a great first gig for an entrepreneur. And, who knows, we may get to a point where increasingly we shall see Silicon Valley startups copying innovations from Brazil, India and other developing markets.

See also An idea Is Just That. Image: Brad Jonas for Pando.

What’s your favorite copycat business? Leave us a comment!

Not All Angel Investors Are From Heaven

angel investor

On Angel Investors

As entrepreneurs, in the initial stages of the startup, we often think that the answers to our problems will come in the form of an angel investor. By definition, angels are high-net-worth individuals who get involved early in the company’s life, bringing capital, sector knowledge and network, and relevant expertise.

Angel investors usually invest anywhere between $20k-$300k and take on 10-30% ownership. They spend some of their time coaching entrepreneurs, opening doors, helping the company build the team and product, participating in strategic decisions.

Not all angel investors are the same

However, not all angel investors are the same. Reality has “expanded” the definition of an angel and many times what we see is well-off folks with no particular value-add (beyond the dough) playing the angel role almost as hobby. This is particularly true in less developed markets, such as Brazil (which I know from experience) and the rest of LatAm. Being rich and successful doesn’t necessarily make someone a good angel.

As an example, a retired C-level executive from a large pharmaceutical company may easily have a couple of hundred thousand dollars to spare and decide to invest in a startup. Why not help a couple of smart kids with a brilliant idea for a new technology or web business? What better way to stay busy and motivated!

The problem is that often these investors often have no idea what they are getting into. They just don’t know the real challenges and risks of starting a company. As time goes by, the product doesn’t launch as planned, the bank account gets thinner, and the investor gets nervous.

Entrepreneurs also get frustrated because they had expected miracles from this angel. After all, he is the older, successful mentor, who’s been there, done it all.

But it turns out the guy you looked up to actually doesn’t know much more than you when it comes to building a tech company from the ground. His rolodex only has contacts of retired people from irrelevant sectors. And as he sees his investment going down the drain, he doesn’t think you’re that cute and inspiring anymore.

Of course, I’m painting a pretty extreme scenario here. But the point is that you shouldn’t necessarily accept the first person who’s willing to invest in you. If the angel investor is not a good fit, it’s better to hold your horses, bootstrap the business a bit further, until you find someone who can actually add value to the company.

Originally posted on the Entrepreneur Academy (NEN). Image: nenonline.tv. See also Time To Start a Company – or Not.

What’s your experience with angel investors? Leave us a comment!

Outsourcing With Care

outsourcing software outsource

Challenges of international outsourcing

Many tech entrepreneurs face the question of whether to outsource software development to a foreign country. After all, there are good coders in countries like India, Russia and Argentina, while U.S. developers are quite pricey in comparison. But managing a team or project from afar can be quite challenging: communication often gets lost in translation and cultural differences; accountability is diluted across borders; pop-ins are not possible; contracts are harder to enforce; IP issues can come up; and even quality might not be as good as you expected. Here are a couple of simple (but often neglected) steps one can take to minimize risks.

Dealing with international outsourcing

First, make sure you consider firms or developers that have been referred by a client you know and trust. Don’t just pick a developer on Google or let yourself be lured by pretty emails selling outsourcing services. My LinkedIn inbox often gets messages from Indian and Russian developers offering their services. Maybe they are good, who knows, but I wouldn’t risk it. Client referrals are especially important when dealing with international suppliers in general. Ask a lot of questions to the referrer, such as how the developers deal with deadlines, if their English is good, if different time zone was an issue, how they heard about them in the first place, besides of course the quality of the job.

Second, before starting the work, have a face-to-face meeting at least once. Maybe your guy will come to the U.S. for a conference or to visit a client. Or, better yet, catch a cheap red-eye flight and go spend a couple of days with them. Meet the team, check out their office (garage?), go out for lunch, have a vodka (or whatever they drink) together. If the job is at least a five-figure commitment, visiting them is a relatively small investment and it will pay off. Despite Skype and all, in today’s world it is still important to shake hands once in a while, make things more personable. Putting a face to the partnership can help mitigate risks in the future and improve crisis management.

Don’t underestimate the complexities of outsourcing development to a foreign country. Knowing who you are dealing with, both through others and your own contact, is extremely important. An outsourcing job gone bad is hard to fix. Exit costs are high and transferring work to a new team may be difficult, if not impossible. If you don’t outsource with care, as we often say it in Brazil, “what’s supposed to be cheap becomes very expensive”.

See also An idea is Just That – Not Yet An InnovationImage: blogandretire.com

What’s your experience with software outsource? Leave us a comment!

With Disruptive Innovation, Customer Is Not Always Right

disruptive innovation

Disruptive innovations and customer feedback

A recent study by ChubbyBrain.com listed the top 20 reasons why startups fail. The #1 reason, ahead of funding, product quality, pricing and other popular ones, was “ignoring or not seeking customer feedback”. However, there are two sides to this.

If your company is launching a disruptive technology, or a at least a truly innovative product, and you really believe in it, taking initial customer feedback at face value may not necessarily be the best way to go. A classic example is the walkman. When Sony was building the product in the 1970s it reached out to potential customers to learn what they thought of it. The most common reaction was to say that the walkman was a stupid idea! Who would walk around listening to music, instead of enjoying it while sitting back in the couch? How would you run errands or even jog with “speakers” on your ears, not hearing what’s going on around you? Had Sony been discouraged by this feedback, it would have probably discontinued the project and missed out on this huge hit.

If not a disruptive innovation, follow the rules

Now, if your product, like the vast majority, is not starting a new market or doesn’t require change in attitude or lifestyle, then of course the story is different. You should adapt to your clients as much as possible, not expect them to do so. This sounds intuitive, but many entrepreneurs (including myself in the past) think their product is so great that the problem, really, is with the rest of the world that doesn’t want it the way it is. Distancing yourself from your “baby” and taking client feedback into consideration is fundamental, both in the product development stage and thereafter.

At the end of the day, it is a judgement call. Do you believe so much in what you are doing – and how you are doing it – that you are willing to risk ignoring customer feedback? Are you breaking a paradigm of sorts to expect to be right over the majority of people you are supposed to serve? Only a very small percentage of startups would fall in this category. If you are one of them, you will have an uphill battle to change people’s behaviors; but one that can have a huge payoff.

See also Not All Angel Investors Are From HeavenImage: pocketcalculatorshow.com

What’s your experience with disruptive technologies? Leave us a comment!

An Idea Is Just That – Not Yet An Innovation

Innovation idea new business

Innovation and new ideas

I am frequently approached by people who want to share a new business idea with me. Some are actually good, others, well, you know. Usually the pitch is accompanied by a good amount of mystery and secrecy: “Andre, I’m telling you this because I trust you, but don’t tell anyone; this could be big”. So let me summarize what I tell friends who approach me like that.

Turning an idea (hopefully) into an innovation

First, don’t worry too much about secrecy. Your new idea is likely not as much of an innovation as you think, it has probably come up before in one way or another. And even if it is (almost) that great, you will only be able to go somewhere by sharing it with other people who can give you useful feedback and leads. The chances of someone stealing your idea are probably slimmer than you turning it into a business without sharing it with others. Competent people are busy and know how time consuming and risky it is to start something new.

Second, ask yourself what YOU would bring to the table. Are you business savvy? Have the relevant technical skills? Money to invest? An amazing network in the industry? Lots of time to spare (on top of at least a bit of one of the former)? If you answered “yes” to one or more of the questions, then great, you should move forward. Try to find the people and resources needed to complement your skill-set and hit the road. But if the answers are straight “no’s”, I need to say you should probably let go and try to think of another idea.

To illustrate this, once a friend came to me with a pretty good idea for a mobile app. However, he didn’t know a thing about starting a company or building an app, didn’t have money to invest, didn’t know anyone in the industry, and was not willing to invest a good chunk of his time on it. Seriously? Don’t expect that someone will start a company with you just because you had a decent idea, especially because the idea will evolve/change as the business matures. You need to bring something concrete to the table. Ideas are just ideas… We all have tons of them.

See also Not All Angel Investors Are From HeavenImage: shutterstock.com

Have you ever had a business idea? What did you make of it? Leave us a comment!

MBA For Entrepreneurs Can Still Matter

mba for entrepreneurs

MBA and entrepreneurs

At times it seems MBA programs are passed their glory days. Every so often we see articles saying that they can be a waste of time and money, especially if your goal is to become an entrepreneur. My two cents: if you have no business background and you can afford it, a good MBA is still a great thing! My background is in economics and I wouldn’t have started my first company without the skills and confidence I acquired in business school.

MBA for entrepreneurs

If your undergrad is in the sciences or the arts and you want to start your own company, an MBA can be a good idea. Some will say that all you need is a business-savvy partner; but you know what, it’s not ideal to rely solely on others. Of course you will not become a management guru overnight (you don’t want that anyways), but by going to business school you at least learn the basics, the jargon, and know where to find the answers. You can sit down in front of an investor or Board and not look like a big question mark when they start talking about P&Ls, financial ratios, or SWOT analyses.

In a good business school you also meet interesting people, from different countries and sectors, expanding your network and perspective on things. You can bounce off ideas with smart people and potentially find the partner you’re looking for. You become part of an alumni group that can be of service in the future. Hey, even some of your professors might not be as dull as you think and give you good advice and open doors for you.

Depending on your age and where you currently stand professionally and financially, it might be that a two-year full-time program doesn’t make sense anymore. The opportunity cost can be too high. But you can do a one-year program, there a great ones in Europe, Canada and a few in the US. Or do a part-time executive program. If you can afford it, it’s never a waste to learn new skills and meet good people.

See also Entrepreneurship, Innovation and ProsperityImage: linkedin.com

Are you an entrepreneur and attended business school? Leave us a comment!

In Seed Capital Fundraising, You Gotta Choose Your Pizza

early stage funding seed capital

Seed capital and ownership

A common mistake entrepreneurs make, especially in the startup’s early stage, is to worry too much about valuation and dilution. The business, after all, is their “baby” and they can’t give away too much too soon – every share is worth fighting for! Well, guess what, the business is almost as much of a baby to those who are willing to back you up so early. Overvaluing the company from the get-go generates problems on several fronts.

Seed capital must be priced with care

First, very often the early investors are “3Fs” (friends, family and fools) or an angel who is only within one or two degrees of separation. Selling an overpriced product, even if you didn’t do it with bad intentions, may leave everyone with a bad taste in their mouths; especially if an institutional investor comes in a year later and values the company at half the first round. It’s hard to explain that to your uncle.

Also, overpricing makes it more difficult to raise new rounds. It sends the wrong message to more sophisticated investors. The impression is that you either don’t know how to value a company, purposely overpriced it, or the company simply lost some of its value. Neither is a good story to tell when you are sitting across the table from a VC.

Obviously, at the same time it isn’t good for anyone that the first couple of investors grab more than say 30-40% of the company. The entrepreneur needs to remain motivated, ideally also vesting some of the equity (more about that in a future post). But getting obsessed with dilution is bad for your startup. The more deep-pockets have their skin in the game the better and greater the chances the business will grow for everyone. After all, which would you prefer: 90% of a pizza or 10% of Pizza Hut?

See also Not All Angel Investors Are From HeavenImage: generalstorecafenj.com

Have you raised seed capital with 3Fs or angel investors? Leave us a comment!