The road to success is not crowded

The road to success is not crowded

The market is the most moral! Under the market law, the more money you earn, the greater your contribution to society. This is I uphold the concept of creating wealth. Therefore, it is glorious for entrepreneurs to pursue wealth through innovation and entrepreneurship.

However, in this dream of the wealth of the road, can go to the end is only a few. According to the statistics of it oranges (as of March 13, 2015), 2014 to get seed Angel round of investment company reached 847, get a round of 861, get B round of 229, get the C round has 82, get D round 17, of course this is just it orange collected public information, But it is also very statistically significant in a certain degree. If you show the data in the above rounds graphically, you will find that it is a very sharp angle at the bottom of the "Eiffel Tower", the bottom is very wide, and the lower part is very steep.

According to the data above, the D-round: C-round: B-round: A round: The proportion of the angel wheel is 1:4.8:13.4:50.6:49.8. It can be simply stated that only 4.8 of the 50 projects entering the A round end up in the C round and 1 into the D round (considering that some projects eventually do not need to enter the D-round, the significance of the data needs to be discounted). In fact, the above seed Angel wheel data is very confusing and misleading, since many of the early projects have been funded by seed wheels or angel rounds, the vast majority of them have opted for secrecy, and, from the current wave of "national entrepreneurship", many of the early projects have been started by the founding teams themselves, Obviously this part of the "recessive Angel" is completely out of the media's statistical range, given the above two factors, the existing angel round of financing pens multiplied by 100 times times should not be radical.

From this point of view, most of the projects are dead in the first round, at the same time, to get a round of the project has 74% fell on the way to the B-round! I would rather tell all startups than the government's advocacy of national Entrepreneurship and Innovation: Beware of a-round death! The one thing I often say to entrepreneurs is: entrepreneurship or low to earn money near the low, or high dozen financing to earn money far away, the most afraid of is, take a step to see a step Buzhi to play, near the money did not earn, far from the money to earn!

It's easy to start a business, Angel.

Today's entrepreneurial environment compared to 10 ago, that is a world of difference, various incubators, various entrepreneurial services, all kinds of cloud services are active close to the entrepreneur, to "internet thinking" to provide a variety of free services, which greatly reduced the psychological threshold of entrepreneurs and the reality of the threshold, entrepreneurs basically only need to "take heart Stay" on it. So it's not a big decision for many people to start a business.

From the angle of capital market, because of the recession of traditional industry and property market, stock market, also make all "rich Man (tyrants)" Wear "Angel's wing" race to "Internet +" to create rich heaven. In addition, because the early project is mainly to look at people and look at the direction, so your project as long as the load of "dream Drive", plus the team is reliable, the probability of getting angel investment is quite large.

Is investment a vote?

A lot of people believe in one thing: investing is a vote.

I have different views on this. Investment in different stages of the project, the criteria are different. If the Angel round item is 10% sold past 90% sell the future, then a round of the project is 20% sold in the past 80% selling the future, B round of the project is 30% sold in the past 70% selling the future, C-round project is 40% selling the past 60% selling the future, obviously, the more late, the more need to see "dry goods." Investors decide to vote for a project is not equal to be able to, whether or not a project is not equal to this project must not be, but investors decided to vote for a project, must conform to his (her) mind of the investment logic, must cross the investor's psychological threshold.

Many projects have such "hump curve" rules, 0 to 1 (seed wheel) and 1 to 10 (Angel Wheel) is easier, 10 to (a round) is more difficult, 100 to 1000 (b-round) is relatively easy, and 1000-10000 (c) is relatively difficult. That is to say, most entrepreneurs die easily at two passes, A and C, and a larger part of them die at the end of the A round.

Nine kinds of dead method of "a turn off"

Why do many angel wheel projects fall in the process of melting a round? According to our actual contact project, we have summed up the "A-turn off" of the nine kinds of "dead method", for the protection of entrepreneurs, this article is still not directly to the case, creating an industry is not easy, do not want to have entrepreneurial brother because of my "blah-blah" and lay the gun, everyone himself to the line, It's best not to find a seat.

First, "Product death".

Regardless of hardware or app product, the first attribute (first scene) is the tool attribute, is what use do you have to the user in the end? How much value, thickness, and value you can provide to your users determines whether your product is a "gold hook" or a "mud hook" (see Liu Yan another article " Smart hardware: Have you found alternative inflection points and second scenes? Many entrepreneurs tend to be self-reinforcing and "rape" the market's will, the product does not conform to the "universal, explicit, just need" principle. Some products, although also can meet the user's "universal, explicit, just need", but can not extend to the second scene, there is no way "high-frequency", so it can not produce persistent user stickiness. According to my observation, the stronger the tool attributes, sometimes the weaker the platform properties (if the second scene is not effectively designed), such as lock screen, weather, alarm clock, smart switches, dictionaries and many other tools belong to this category. Therefore, if your product does not conform to the "universal, explicit, just need, high-frequency" of "the decision", then a round of the probability of death is very large.

Proposal: Project in the start-up phase should want to clear what user, solve what pain point demand, industry trend is what, time is not your side? As far as possible according to the "Universal, explicit, just need, high-frequency" decision to carry out product design and scene design.

Second, "The ownership structure dies".

The process of start-up financing is actually an iterative process of "more water, more water and more noodles", and the founding team is responsible for rubbing the first dough (sometimes the dough has not yet started to rub or get the money), and then introducing the angel wheel with appropriate valuations. Sometimes, the founding team did not grasp the pace of financing, too early or too much financing may cause angel investors to share too much (which is often easy to do with tyrants money), and the founder team is too low for late-stage financing (because prospective investors will think the founding team is not motivated enough).

It is particularly worth proposing that sometimes the subprojects that are hatched in a project the most likely issue of ownership structure, as the hatching of the subproject is "job results", the original shareholders will not want to give up too many shares, which directly led to the actual founding team share of the share is too low (some will be close to 50% or less than 50%).

Proposal: Project in Angel Stage try not to take tyrants money (can bring strategic resources except), but should try to introduce professional angel investors. In the case of an angel having to accept dilution more shares in the round, it is also proposed to set the share repurchase clause in the investment agreement, in which case the angel investor may also set the performance evaluation clause, and if the achievement goal is achieved, the founding team has the right to repurchase some shares of the angel investor according to a certain price (guaranteed a certain premium). This set of terms will not only protect the interests of the founding team, but also protect the interests of investors.

Third, "Data dead".

A round of financing products and user data, is essentially the project from 1 to 10 in the process of product validation in the market data expression, this time does not require corporate profits, but the data must show that the product on the market after the "Ganci" trend. If the data does not perform well, it is inevitable that investors will shoot off the project.

It is worth noting that sometimes the absolute value of the project data can be, but the industry ranking is not in the top 5 (except the trillion-tier market), the financing process will be more tangled. Here is a question about the psychological threshold of investors, to put it bluntly, is to make investors feel that you are relatively safe, there is sufficient margin of safety. Because in some win-take-all industries, the industry rankings largely determine the success factor. Therefore, some investors make it clear that they only invest in the top three, if you are only the fourth place, fifth place, it is sad, low raise low dozen and can not earn money, hold high Gao Ta and not so much money, finally in the play was dragged to death. Therefore, it is crucial to get good data performance before a round of financing.

Proposal: Enterprise early funds are "super money", so be sure to properly use the angel round money, entrepreneurs need to understand that the purpose of the angel is to melt a round, the purpose of a round is to melt the B-round, the purpose of the B-round is to melt the C round, ..., with this capital-oriented thinking, The business of the entrepreneur's products will not deviate to some extent from the capital-driven trajectory. In the process of product operation can be as far as possible data-oriented, always pay attention to the data performance of the auction, at the same time for their own a round of financing to predict good data expectations, target-oriented decomposition into day-to-day operational details. Of course, there is no need for entrepreneurs to do data entirely for financing, thus disrupting their own strategic rhythm.

Four, "The profit model Dies".

When it comes to business models or profit models, any company can boil down to a formula: Profit = revenue-cost. The different business model is that the income curve and the cost curve are different in different stages. According to my understanding, all the companies can be divided into five kinds of forms: pure Products (platform), pure service, strong product weak service, strong service weak products, strong products and strong service. Different product or service forms will have different profit patterns (CPC, CPA, CPT, CPS, etc.) and cost structure, also determines the scale of the economy and the extent of the release of economic effects, which ultimately determines how far the project can go, how much, and thus determines its investment value. The more partial service items, the more the lower part of the line, the more vulnerable to "scale, quality, cost" of the challenge of the Iron Triangle.

When many entrepreneurs enter an industry, do not want to clearly follow the business model, when the development to a certain stage, found that its profit model facing the ceiling, although enterprises can make money, but to achieve 10 to 100,100 to 1000 of the expansion, faced with great challenges, such an industry usually presents the pattern is "big market, Small workshop. " Such projects will also encounter great difficulties in financing a round.

Proposal: After the Angel round financing, the enterprise should start to think about the future business model, and it is best to use the financial forecast model (can ask professional financing consultancy company to assist) show the different scale stage of income change trend and cost structure. Although the financial forecast model may not be able to accurately predict the future income and cost, however, this systematic tool can help us to simulate the process of enterprise development, so as to help us identify key success factors and key failure factors in the process of enterprise follow-up development, so that we can have a good idea and avoid the development of "stepping on watermelon Skin".

Five, "valuation dead."

Financing this thing is "more noodles with water, more water to add noodles." Sometimes, entrepreneurs choose a good industry, the project has great intrinsic value ("The Pit dividend"), but because of the current data performance and business model, such as has not been able to effectively release, so its explicit external value temporarily unable to support too high valuations. This results in greater differences in valuation expectations between founders and investors. In fact, the question of how much a start-up should be valued is reasonable, and the problem is that the world has no solution. We are more willing to accept the fact that prices are formed by the market. If the capital markets are generally unable to accept the founders ' expected valuations and the founders are unwilling to compromise or accept the terms of the bet, they are likely to miss out on financing opportunities and allow competitors to take the initiative, which makes it easy for entrepreneurs to suffocate their projects.

In fact, when the industry is far from the integration adjustment stage, competition between competing products is inherent in the competition between the product and the team, while the dominant performance is the competition of financing ability. Who can seize the initiative in financing, who will be more priority to occupy the minds of investors, so that the potential investors of competing products to create greater psychological barriers.

Suggestion: The market is the most moral! It is perfectly natural for startups to get the best valuations in a round of financing, and the key is to find the right investors in the mainstream capital markets, and the rest is to market prices. In addition, the price negotiations and investment institutions can not be too long, the entire financing cycle should not exceed 5 months, otherwise too obsessed with valuation will lead to missed financing window. At this stage, rapid access to money to achieve business volume is the best policy. To believe that if the project is done, the capital market in the late will certainly help you find lost, on the contrary, if the project can not do, then the current valuation is only "God horse."

It is worth proposing that valuation adjustment terms (BET) is essentially a solution to the "asymmetric information" and "confidence asymmetry" between founders and investors, and you can understand that giving investors a valuation adjustment option can also be understood as giving the founder an opportunity to raise valuations. The key to fair inequity lies in the set of performance targets and the reasonableness of the valuations given by the objective. Therefore, it is suggested that the entrepreneurial team should not instinctively oppose to the gambling, a matter of discussion.

"Team dead."

Some projects, the direction is good, the data base is also good, but the team structure has the flaw, for example CEO too "technical Curtilage", lacks the sufficient strategic ability and the resources conformity ability, this also directly affects the investor to the founder financing ability confidence. Investors will worry that you may not be able to get the next round of financing after this round. Some project teams lack core partners in technology, marketing, and operations, which may also directly lead to investment companies abandoning investment opportunities at the A-round stage.

Recommendation: The sooner a team problem is solved the better. In the early stages, because the value of the project has not yet been done, so in the introduction of the core backbone of the stock issue is relatively easy to talk about, so the founder should be after the angel wheel to solve the problem of team structure defects. It is particularly worth noting that we have a technical partner who will not be willing to join us until this round of financing is in place.

Seventh: "Vertical trap death".

It is of course the best strategy for startups to cut into the vertical. However, in the "plain zone" of the "serious vertical" field, if you can not establish an effective moat (to achieve a certain scale barrier or vertical industry itself has a strong ability to specificity or resource specificity), it is likely to achieve a certain stage after the large platform coverage, that is, When the vertical platform has not yet played a scale economic effect (able to reduce the cost of services to a certain extent), you can be a large platform of the scope of economic effects (horizontal economies of scale, and thus can be in the whole wide range of large platform system diluted costs) killed, in fact, the most threatening platform is its super capital strength and financing capacity. Heavy vertical projects are more likely to survive in areas with obvious "capability specificity" and "resource specificity", otherwise it is a race against time.

Some projects in a round of financing, are always questioned what will happen if the big platform is involved? This is normal, the key is whether the founding team can show investors the project itself, "offensive level barriers" or "defensive barriers" where. If this is not effectively demonstrated, it is inevitable that such a project will be poured into the gate of a round.

Recommendation: There is no particularly good suggestion. How to gain a certain barrier advantage before the big platform starts to intervene, it is related to the timing of the team, and the execution of the team, and the founder's strategic ability and resource integration ability. The team should remain sober, even if you want to be a big platform for mergers and acquisitions, as far as possible in the industry to fight a good seating.

Eighth: "Legal risk death".

Some projects, from the very beginning of creation, have been on the verge of policy and law, there are a lot of policy uncertainties and legal risks, such as yellow, involving public opinion supervision, the existing regulatory policy (licensing) and other aspects of the project, if the time is not on their side, in a round of financing may be facing investors to avoid the risk of investment.

Proposal: Consult a legal professional or policy professional prior to the commencement of the project to keep the legal and policy boundaries under hold. In the process of project operation, always pay attention to the change of policy environment, do PR work well. The other, you can only see life.

Ninth, "Die".

Some entrepreneurs, their own background is good, Angel wheel easy to take, so on the project in a round of financing too self-confident, at the outset set a high level of financing and valuation expectations, constantly testing the bottom line of the capital market, repeated major adjustments to the valuation, resulting in a long financing cycle and the circle is known, Investors of such projects will of course remain cautious.

Suggestion: Rationally set a round of financing expectations, do not because of face, competing products false reports and so misled their own judgments, can take the money early as soon as possible to take, not in the lack of money to finance, do not give their own financing set too many restrictions, to maintain an open and cooperative mentality, financing this matter, often inadvertently inserted willow shady.

Conclusion

Entrepreneurship is, of course, a escape adventure, without risk, does not matter entrepreneurship. The key is how to balance the various factors, which is the ultimate test of the founders and the founding team.

Anyone can only live in the present, have the courage to accept what you cannot change, the ability to change as much as you can, and the wisdom to recognize both.

The strategic ability of "big country" and the ability to spend money on cooking small is the ability that investors most want to founder. In this sense, investment is still a vote.

The entrepreneur's mission is to find a market of flour, and then rub dough, then prove to investors: you have nothing, only lack of money (water).