Two weeks ago, I attended the Startup Extreme unconference in Bergen and Voss. It was smashing! I met a great number of entrepreneurs and investors both at the conference and over Smalahove and white water rafting.
After the event I continued my trip in Norway for another 2 weeks and did many of the things a tourist can do in Norway – such as hike to Trolltunga, take a deck passage on Hurtigruten, and camp at Nordkapp. I even stayed in a real DNT mountain cabin that felt like a time capsule from the 1930s!
While I was on the road I had time to reflect on a couple of thoughts that have been brewing for a while and that were reinforced while talking to entrepreneurs at Startup Extreme.
I’m keeping it brief. Please use the message board or reach out if you wish to discuss further.
Thought # 1
Essentially, there are two types of entrepreneurs. Those who can “walk on water” and everyone else.
Travis Kalanick, Daniel Ek, and Elon Musk can walk on water. Unless you have their “wow”-personality and the talent to convince anyone of anything and you can raise large amounts of money for a virtually untested idea you are “everyone else”. Then, you are most likely better off playing it “safe”.
By that I mean you either plan on not raising equity funding and bootstrap instead, or raise only modest amounts that allow you to execute on the idea but do not require outsized returns to satisfy the return expectations of a VC fund. You will need to exploit all kinds of alternative funding scenarios – government grants, subsidized loans, revenue-based finance.
Most entrepreneurs raise too much money in relation to the outcome, leaving them with little or no equity earnings once the company is liquidated. Of course, this is something you will only know in hindsight but I’m telling you now: Statistically, almost half of all M&A happens in the sub-$10M category. And that only includes funded companies that made it into the M&A stats – the truth is, most small exits are asset transactions and never reported.
So it is way more than that, but we don’t have the data. Depending on how much money you raised at what valuation, I’d place a bet now that you will not make much money in a sub-$10M exit. Or sub-$20M.
Thought # 2
Unless you have a “wow”-product, don’t pitch investors. Frankly, investors are inundated with pitches and in order to stand out you need to have a “wow”-product (or be a wow-personality, see above). Of course, every entrepreneur thinks he or she has a “wow”-product or “wow”-idea.
Be realistic. Benchmark yourself.
At the Bergen Summit I saw one “wow”- product. (Without having researched it – maybe that “wow” would go away if I did research it.) Also, unless you have a special way into a VC firm’s partnership, fundraising is a huge time killer and will distract you from building your business.
Deeply consider what kind of personality type you are and what you want to be.
Do you want to be a primus inter pares of a highly capable founder team? Do you prefer to weigh decisions and find a compromise so everyone’s happy? Are you an independent decision maker who gets stuff done? Do you want to be famous?
Do you want to make it big or do you prefer to run a small team in a highly profitable company? Do you want to work 12 hours or 6 hours a day? Can you deal with VCs breathing down your neck while you fundraise with less than a week of money in the bank?
That said, you can always give it a shot and come up with some kind of insane idea and test the market by pitching it to top investors. Be smart about who you approach how. It may take time to build the right, credible story and get the right introductions. But there is a chance you may find yourself talking to people you never thought were accessible to you. Celebrities on their private jet. Billionaires on their private island. In fact, many ideas were started that way. Someone woke up one day with some crazy story and simply wanted to find out who would listen to him / her.
But very, very few of entrepreneurial ideas make it ever to production stage, let alone to wealth creation for the entrepreneur. You may be better off aiming at a shorter distanced target and thus having a better chance of a well-placed shot.
Christian is a startup advisor and mentor to early and growth stage entrepreneurs in B2B SaaS and enterprise software. He currently works with the founders of Hotjar and other selected entrepreneurs on go-to-market strategy, recruiting, SaaS metrics, pricing software products, and VC fundraising.