Does your startup idea have the V-factor?

Facebook has it. Youtube has it, Flickr had it. Starbucks has it. Apples iPad has it. We’re talking about the “viral” factor that you’ll find behind just about every successful product or startup that’s really shattered expectations and grown really BIG! How do you know if your idea has the v-factor? Check for symptoms:

- Does it wow anyone you mention your idea to?
- Does it get them to talk about your idea or your product once they know about it?
- Will they instantly go tell someone else about it or is it easy for them to keep it to themselves?
- Will it create a stir in the market and have everyone talking about it if a few were introduced to it?
- Will it sell itself beyond a point?

Any business or startup needs some amount of marketing and effort to give it that push. In fact it’s a very important factor in how successful your startup can be but when we say ‘beyond a point’ we are talking about the stage after the initial push. Will your idea or product have the viral effect which helps the marketing effort gain momentum and multiply like a fission reaction?

Everyone is talking about the iPad whether or not they actually plan on buying one. As a result, everyone is curious about it and want one whether they need it or not. Sure, Apple does spend on advertising and marketing but with each person they reach through their marketing, their product creates a multiplier effect with 10 others knowing about it for every persons attention they grab. Everyone who initially had a YouTube account shared videos with friends and in turn got them to sign up to.

That’s the viral factor that YouTube had already built into their product even before it spread like wild fire. Similarly every time a new Starbucks outlet opens in the area, people will talk about and something within sparks that viral factor for Starbucks too proving it’s not just about social media or word of mouth. It’s something fundamental to the business which creates a positive vibe and sets off a chain reaction of positive customers for them. This is v-factor which helps these companies get from successful to super stars.

One of the great things we’ve got going with the Grow VC community is the opportunity to check if your startup idea has that v-factor on a smaller scale before testing it in the open market. By simply having your idea or startup published and introducing it within the community you observe if it causes any ripples. Does it spark interest right away? Do you get reactions like “I would definitely use that!” or “I would recommend that to people I know? Does it instantly get people within the community excited? If it does, then you know you have something which has the viral factor which will play a key role in the later stages of growth. If it doesn’t, then there is something worth looking for. What can I do or change to make it seem more appealing to :

1) The internal venture community whose hearts it’s necessary to win in order to create the support needed

2) The larger market out there who can use this to further sell or promote what we have to that it has the chance to explode into a phenomenon there

Once you’ve discovered that v-factor, then you’ll have to spend on marketing and pushing your startup right up till that critical mass where that v-factor takes over and the nuclear effect takes place. This is the event every entrepreneur, investor, VC and others dream of. The true spectacle where a gradual upward slope on a growth chart suddenly goes vertical and takes everyone by surprise!

In this episode we were joined by the insightful Francine Hardaway, serial entrepreneur on a mission to expand the entrepreneurial ecosystem in Arizona. Some relevant points and great perspective on developing a healthy ecosystem in the modern world.

Francine organizes the Arizona Entrepreneurship Conference on November 17th, for more details, visit: www.azec10.com

Listen to the episode in the player below or on iTunes.

Here’s some quotes from the episode:

• “.. I felt like, I had to fund this non-profit somehow and I wanted to fund it through a business, so the business is the conference.”
• “What we need is collaboration, because that’s how you make things happen. You make things happen by aggregating good people and creating an environment in which they can collaborate. Because if you do that, they all find ways of helping each other.”
• “I believe there is no such thing as a safe corporate job anymore.”
• “Arizona right now is in a recession, where in the real estate environment people have lost a lot of money and they’re saying ‘oh, woe is me, woe is me’ whereas I’m trying to say ‘No! This is creative destruction!’ And what we have now, is an opportunity to diversify an economy that should have been diversified years ago.”
• “We have plenty of companies start in Arizona. The startup culture isn’t the issue, it’s the scaling of companies in Arizona that’s the issue.”
• “Silicon Valley is having a problem getting talent now, because the talent can’t afford to live there..”
• “Venture Capital has a herd mentality.”
• “That’s why I actually think that you can build as rich an online community as an in-person community.”
• “If you think that this is less than a 50 year goal, you have another thing coming.”

Recently, we wrote a blog post about entrepreneurs tunnel vision syndrome that got some nice re-tweet buzz as well. Related to this, I wanted to touch on one topic that I have been wondering about lately when looking at the market from the investors point of view and at the same time understanding the tunnel vision syndrome.

As an investor, advisor, mentor or any similar role, where you can have the opportunity to meet many different startups and entrepreneurs in their different stages. And you hear the entrepreneurs view from the inside out and then have your own views from the outside in – without having that unconditional love towards the startup that entrepreneurs have; you tend to look at the startups as they are (or as they seem to be).

We have also written a lot about the value of an idea compared to the value of the whole package. Where a lot of this understanding also comes from the broader view of the markets (investors, seasoned entrepreneurs etc.)

When we also look at many of the well know strategies of developing your startup in the early stages, it is all about customer development, being a lean startup, doing agile development and so on – towards finding the product market fit. There are studies made about potential success of your first plan, where the norm is that 66% of plan A’s fail. There’s even a great book about getting to plan B that talks in detail about how not to get fixated to your first plan.

So there is a lot of good information about how to train yourself or your team to “un-love” your idea and focus on the bigger vision, potential of the market and customer development to eventually get to the product that the market really wants. As there is also a lot on how not get too fixated on your original plan.

As entrepreneurs you must be able to fixate your self with results and learn to fall out of love to your idea and product, to be able to slice features, rebuild it as needed etc.

But then when you ask from most experienced entrepreneurs, investors and so on, what’s the most important thing in a startup, the majority will point out the obvious – it’s the team, it’s about the people. When you think about it for a second, it’s nothing short from obvious, particularly when you think about the before mentioned factors, execution and strategies.

However, as important as the team and people are, there is very little written about actually building the right team compared to how much there is written about strategies, processes and tangible steps to develop your product. Few of the good ones I have seen lately were these posts by;

Jason Baptiste

“What To Look For In A Technical Co-Founder” and
“What To Look For In A Business Co-Founder”

Here’s also one of our own older posts about this topic: “How to build your core team for early-stage startup?”

Coming back to actual topic of this post. As an investor or advisor, you very often meet people that have the same market and/or customers in target and often it can also be two teams (or often just single entrepreneurs), that are approaching the same idea/product from two different direction. One is from product development team and another is a biz development team or entrepreneur.

From both of their “tunneled vision” perspective, the right thing to do to move forward and develop their team is to look for new team members to join to make their team stronger in those parts of their business where there exists a lack of skills. So the startup populated with developers are looking for more of a biz dev, sales, marketing etc. type of people. And the biz dev, sales etc. populated team is looking for excellent developer team members, maybe for a CTO, head of product development etc. but not just skilled people – but ones with the right entrepreneurial attitude.

As you can understand, it’s more likely that the entrepreneurial, passionate developer is not free on the market just waiting for the right startup to find them, rather they are most likely working on their own startup, maybe already tunnel vision is kicking in. And the same goes to those biz types of startup teams/entrepreneurs.

At this point you start to see the problem, if they are both successful to find the right people, they go and start to compete on the market even harder.

I think it’s safe to argue that if your aim is to build something disruptive or massive in scale, you really need all the skills you can get to your startup. And the best people are rarely on the markets just waiting for someone to find them.

That why I often think when looking from outside that “these teams should get together”, few times I have even hooked these up, but rarely have I seen anything but polite conversation come out of it.

There are natural reasons for this. That’s because it’s hard even in the existing team to always appreciate some of your team members work, especially it’s something you don’t fully understand. So developers think about how much they have put into product and sales / biz dev people see how much they can bring value when they have the right product. But as that can typically happen, before the others get traction to their product or the other team get the product done – the most likely outcome is that they have already lost the energy and passion or fallen in love with yet another idea for great product / business. Or the existing team is starting to break because there are no results.

It would be great to see that more of these teams come together and make a “micro merger” to join together as one team and just go after the markets much stronger. Naturally not always do the startups being merged have the same value, so it most likely will not be 50/50 deals between two startup teams – and rarely should it be. The best thing to do is look at the value from individual team members point of view and how the shares are split on each startup before and most importantly what each member will bring to the table going forward, in terms of skills, commitment, customers, connection, even some money and then have vesting of shares to match the common goal.

If the difference is clearly uneven, it can then be much more of a micro acquisition, where the other startup/team is being bought and paid by shares of the other. Naturally these are very common practices in the later stages of the business, but who said those tools should not be used more also in the early stages, to be able to get the best team possible for your venture.

Having done this myself, all I can say it really is a strategy worth looking at. Just make sure all of the potential team is more interested and focused in the future and not fixated to the value of the existing business, because that’s not the reason you should be doing it. Remember, in the early stages you are doing it because of the people/team (maybe for speed), and not so much of what you actually have in your hand at that time (I’m referring more to startups that have yet to reach meaningful revenue), unless those are paying customers – that value is very real and easy to calculate.

Maybe at this point you think, “yes that makes sense, but sounds to me it’s easier said than done”. Yes you may be right, but nothing in business should be easy, if that’s the way you feel, you will have problems what ever you do in the future. – I like to say nothing is hard, it might only take more time or effort.

Like many other things, new opportunities are opened with small actions. In this opportunity it’s about telling everyone you meet that you are always open to talk about potential cooperation, including those you may feel are your competitors. You can even say we are open to mergers with great teams if you like, there’s nothing wrong with that.

And do remember, nothing happens until you have signed the agreements and no decisions need to be made until there is an offer on the table that calls for action. Also you should not start to really look hard for potential candidates, just be open to it and if there is a natural connection, look deeper into it. If you go into the actual process/serious discussions, you should feel good throughout the process, if you don’t – don’t do it. Feeling uncertain is natural, but feeling bad about the general direction is not. Also make sure to communicate the smallest little uncertainties you may have and also spend enough time with the idea.

Also one last point, the younger you are, both as a person and / or in business experience, the more open you should be for this kind of opportunity. It’s way better to go through this process and fail, than not and just let your business be flat or die, if you can not get the right team together, if you have a big ambition for business. You will learn much more from this than by not doing it plus your “entrepreneurs CV” looks much more interesting when you can talk about this type of experience, having done it yourself. This makes you much more valuable on your next startup, regardless if it’s your own or if you are joining another team.

In this episode we take a peek at the entrepreneurial ecosystem in Spain. Javier Rincon, an active individual in the startup scene, guides us through the startup world in the Spanish community. Listen for the successes and opportunities in the Spanish startup scene, both from the entrepreneurs and investors perspectives.

Listen to the episode in the player below or on iTunes.

Member highlight: Blue Planet

Support Blue Planet on their venture!

Here are some quotes from the episode:

“.. the crisis has obviously taken many jobs from different people, has made individuals think there must be another way to live life..

“.. it’s definitely beginning to feel more of a community, more of a scene, as in before, it was just what they called in Spain “a few locos” just doing crazy things.”

“.. there is a bit of a gray area, between VC firm and seed funds. I think in Spain it can be felt very obviously..”

.. the knowledge they had.. / .. (is from) TV programs such as Dragons’ Den or Shark Tank and you get an entrepreneur going into a room, full of nasty looking investors and asking for half a million euros..”

“.. you know you go into a terrace, you have your tapas, you have your cervezas .. this is actually great for networking!”

“.. when I spoke to my friends a few years ago about these kinds of landscapes, I ended up talking on my own!”

Gary Seymour is a 28 year old entrepreneur with a fool-proof business idea which is going to change the way people manage their family photos through a web 2.0 application he’s been developing on a drawing board. He’s convinced this is the best photo management application to be released on the web and once it’s launched and people try it, there is no turning back. He’ll have the market captured! Completely prepared, suited up and armed with a killer elevator pitch, he walks into the VC office and does his thing.

When the presentation is over and he’s waiting for the “ok here is the $175 million check to start your business”, he sees them whispering to each other and the gets a “mmmm we’ll let you know about it in a few weeks” from them instead. “What a bunch of losers! They are passing on a golden opportunity which would quadruple their investment in just two years!” thinks Gary as he walks out fuming.

He can clearly see his goal ahead, there is light at the end of the tunnel and he only needs to get past those investors that are there, just waiting for him to arrive.

Gary’s View As An Entrepreneur

Gary, like many of us entrepreneurs suffers from entrepreneurs tunnel vision syndrome. A condition many entrepreneurs have where they are so pumped up and convinced about their business plan they ignore the investors point of view and “know” their idea is the best one ever offered to the investors. Not quite so in reality. Investors tend to use the whole 360 degree panorama view to compare their options. One that goes beyond startups and ideas, including public stocks, market trends and more.

While Gary was convinced that he needed at least $175 million because he planes to rake in over $400 million by the end of the second year or so, the investors didn’t have a clue where he plans to spend this and how would it help achieve the target revenues. They also didn’t see how the one additional feature alone would be able to uproot Flickr, Picassa and other established players in this space.

After all, Gary doesn’t have sites like Yahoo and Google which already have a gigantic customer base which would adapt much quicker to any product they launch. Entrepreneurs have to be able to take a step back and look at their ventures from the outside like the point of view of an investor.

Investors View

Just the other day over dinner with some professional investors, we started discussing one of my own startups and I learned things about it I could never see because I’m so close to it. To some extent , I’ll admit I couldn’t see this point of view because I’m emotionally attached to what I’m trying to build and so completely immersed in it I fail to see what they could.

The advice I got however, would be invaluable in allowing me to take a few steps back, incorporate their suggestions. I know I’ll build something more valuable with these inputs I got from their viewpoints.

This is what Grow VC offers as a community even if you don’t intend to fund it using crowdfunding. Simply putting your startup in front of a community which has

• People who think as entrepreneurs

• People who think as investors

• People who think as startup experts

….gives you a 360 degree perspective on your own business which allows you to strengthen your plans and build a stronger venture. Whether you get support, praise, criticism or even nothing from the community, it’s all feedback which you can use to get an all round vision of people’s thoughts with your startup put right in the middle of it all. It’s feedback you can use to make it better!

Not only this, but because of our unique community fund concept, every subscribed members including entrepreneurs also need to start looking other ventures from the investors point of view to allocate their portion of the community fund, while wearing their “VC hat”, they should be able to find the best startups to allocated the their budget for the community fund investment. The more they look at other startup profiles the better their 360 degree will develop and at the same time they can maybe start to notice patters of missing information in other startups that are not communicating to an “investor” and also learn to improve their own profile and communication to better communicate to potential investors.

As the very simple fact is that the better we understand the roles of each others and the way we see things differently, the much better we can work together to reach those ultimate goals of our ventures.

One of those make or break questions that you need to decide on which will impact the future of your startup idea or efforts “What is the best funding option for my startup?”. The decision doesn’t just determine how much money you have as capital for your startup venture, it determines the role you’ll play, the way you work and a lot more. Not surprising…it’s a question that needs some serious thought put into it before moving ahead. Here are just some of the pros and cons of the various private equity funding models you have available to you when you’re weighing your funding options:

Sweat Equity / Bootstrapping

Pros

• You are and you remain your own man / woman. You are accountable to yourself and don’t have the added pressure of having someone else’s funds invested in your venture and the burden of their expectations to carry
• Lower operating risk profile for the business since you’re relying on generating revenues and building cash reserves before re-investing it in growing further
• You could end up building a leaner and most cost effective operation since you’re not used to having excess funds to throw at issues and make a habit of looking for alternative solutions instead
• If it succeeds, you retain the largest possible share in your venture and stand to gain from it’s success or exit in the long term

Cons

• Sometimes it could actually help to have advisors and the pressure of other investors in your business to keep the momentum of the growth
• You personally stand to lose both financially and in terms of time if the startup fails so the personal pressure to perform is high
• You risk a slower growth map since you are restricted by your own abilities to fund and execute on your plan and end up losing market share to others who have the capacity to move quicker
• If your idea needs a significant investment right at the start then it’s unlikely that this option would be an option at all
• You need a good track record and reputation before other join you in this mode. A bit of a catch 22 because many who rely on bootstrapping are also first time entrepreneurs and seasoned entrepreneurs look for VC’s or a form of Angel funding to speed up their growth.

Crowdfunding

Pros

• More closely related to angel funding so those who invest in you do it because they believe in your idea or business plan. Effectively it’s a multitude of angel investors pooling together to give your business the financial push it needs. Relatively lower pressure while still having a healthy pressure of having to communicate where the business is headed
• The investors themselves may not get directly involved with the day to day running of the business which gives you the freedom to operate as you will but you still have the option of seeking advisors and getting help from the community which has experts and mentors within it
• You can raise enough money to support your business through its early stages while not so much money that you stop working in a resourceful and lean way and have money to spend on issues taking the easy way out rather than finding solutions
• You can decide how much equity you want to give up in your business and how you would like to structure it and then list your proposal for the crowd to see and decide
• You gain a large audience to begin with (in the form of investors). That way you could have say 10 000 customers when launching. Investors in your venture are also fans of your business and will help evangelize your startup adding ‘word of mouth’ marketing as an added benefit

Cons

• Not suitable for very large capital intensive funding requirements beyond $1million or so and also for startups looking towards expanding in the growth stage through capital injection
• The funding may be all you need to build your product, go to market and start generating revenues but it may only carry you to the next stage where you need to seek another funding round
• You need to sell your idea and convince more than one investor in order to reach your target funding amount and it’s not a matter of getting one person to sign a check so campaigning is important in the process

Angel Funding

Pros

• Angel investors can often make quicker decisions about funding and often invest out of their belief in you. They are more likely to invest at a much earlier stage while still only a concept than others
• They often take bigger risks, they tend to have lower expectations in terms of rate of return or equity as compared to VCs
• While some may take up non-executive advisory roles in the business, most would have a comparatively lower direct involvement in the way the business is run which is a pro so it’s less external pressure on the entrepreneur
• Suitable for early stage startups that don’t need very large amounts of initial startup capital and grow the business to a level where other funding options may then be explored

Cons

• May not be a suitable source if the amount of capital required is very large and the break even period is expected to be longer
• The level of involvement may not be as high as VC funding for example and this can also be considered a con if more guidance and advisory is what you’re looking for
• It is extremely important to be able to find the right angels. You must be able to live with those people, and typically entrepreneurs and angels are strong personalities. So if there is no match, it can make things extremely difficult. You should have enough potential angel candidates to be able to select the right one

VC Funding

Pros

• Is more suitable for larger amounts of capital when the business is looking at growth and a significant amount of capital is needed to be injected in order to grow your market share and expand
• VC’s will take a more active involvement with the management of the business playing a pivotal role in setting targets, milestones as well as advice on how to get there since returns on their investment is a primary lookout for them
• They make the top rung of private equity funding so if you can find the right VC who will support your specific plans, you may have all the capital you need at your disposal

Cons

• Perhaps not likely to entertain smaller investments since there is a minimum amount of they need to invest in high potential ideas so if you don’t need that much capital, you’re better off exploring angel or crowdfunding instead
• VC’s don’t live only from the success of companies, but from the management fees and how much they own. So, it could mean a lot of dilution for you as an entrepreneur. Something to consider!
• Since the VC are likely to play a more involved role in the direction of the business and it’s growth plans there can be a feeling of “loss of control” over your business or some compromise in the direction you would like to take it
• VC’s can define your operations, as they may get a good position in your startup and may get to lay terms for your progress pushing you for the financial return. The exit may well become the primary focus
• VC’s have a profile of the type of ventures they would like to invest in and would prefer companies that have some traction and would like to see more than just an idea before investing

Once you’ve had the chance to weigh the pros and cons along side your own objectives and business plan, you then have to ask yourself some important questions to understand what kind of a business model you have and where does it fit best in terms of funding options. But more on that later!

This more personal episode on the growth of entrepreneurs highlights many social aspects of entrepreneurship. Serial entrepreneur and founder of the Diverse Entrepreneur Network, Joel Graham-Blake serves as our life coach and guides us through five different aspects to consider when growing your fantastic venture.

Listen to the episode in the player below or on iTunes.

The five points we covered:

1. How does a passion for business fit into your personal life?
2. Entrepreneurism in the educational system – what’s missing?
3. The missed potential in the grass roots
4. Widening services of mainstream businesses to wider communities
5. Mentoring and who should mentor.

Here’s some quotes from the episode:

” .. don’t stop believing that you’ll achieve your business goals, but understand the impact and that there are consequences into every action you take, and you’ve got to be prepared to manage all of that.

.. what I’m about to say really may.. well, will undermine education in the western world.”

“.. when you come out of school, you are almost having to start again if you want to be entrepreneurial.”

“Let’s be frank. There is a negative underbelly of enterprise as well, which lies in many grass- root communities, because a lot of times the finance is not there to execute an idea that they have.”

“.. it’s about people understanding the wider concepts of entrepreneurism, not just seeing the modern fancy side of it, but also understanding the passion and the reason why..”

“In business for me, if you cannot connect with that person you are doing business with, then the business you are doing won’t work, because people do business with people that they like.”

“.. if we cannot connect with each other, how can we move forward?”

We have been discussing the rapid change in the way the new generation of startups are being built and run in this highly networked new era on our blog and brought up how this newer, leaner generation have different funding requirements as compared to previous generations. In a new post which sheds more light on this recent phenomenon on how we work, Ehon Chan has defined it as Emergent Transformation and covers how it will affect the way we has humans do things using this technology revolution.

In his post titled “The Next Era Of Social Change – Uncovering Human Capacity” Ehon states:

“I have often spoken about acknowledging human as an individual full of potentials, and that we have more resources than we think we do. We are more hyperconnected than we have ever been but many of us still view these hyperconnections as mere relationships. We live in an incredibly small world – the more people we know, the smaller the world become. If you look at this hyperconnectedness, it seems as though its just a big ball of connections, but if we actually map the skills, talents and resource that each of this connection that we have access to, we will unveil some incredible asset that we have access to right at the palm of our hands.”

This is exactly the transformation emerging in entrepreneurship and the new generation of startups today and this asset which we have access to is what will set us apart from previous organizations and business practices. The Grow VC network is one that helps harness this human capacity, skills and talents with respect to entrepreneurship and startup ventures. When you as an individual can be networked heavily with others relevant to what you are doing a number of changes automatically take place in the way you do things:

Speed: The mind numbing speed at which a startup can move ahead with given the “highly networked” environment is leaves a blur in its wake as it’s now possible to go from idea to operational in just days as compared to months and years required for something to take off in the past. We are at a stage where if you have an idea you can turn it into a startup quick! Here is what we are talking about:

You are hit with the idea. You quickly ping someone you know who can get a website up and running by the end of the day. You log into your choice of networks and quickly send in-mails to 4 or 5 guys you know in different countries who can put together a beta version of your product in a week or two. You wait for their replies and close the one which suits your cost and requirements. While you’re waiting, you put together your business plan on a platform like Grow VC, draft a press release, create some awareness about your plan and see who shows interest in it. If you find more than interest from someone, in the form of visible passion, message them and see if they would like to co-found it, work with you, partner or help out in any way. If they say yes, your team is now 2 members strong already. Since it looks like you’ll have a beta version in a week or two, you can start building interest using social media or look through your network for someone you know can create some serious buzz for your product even before it’s available. And all this…. is something you can kick start on day one!

Collaboration in focus & physical out of focus: Perhaps one of the differences new generation startups are seeing is greater collaboration right from the get go. If your strength is technical and not marketing, you can perhaps locate others with marketing muscle within your network and collaborate. Need expertise? Turn to the network. Need to build a team? Use the network. Need funding? Use the network. Collaborate with others from the start. The “physical” will be of less importance and more importantly less of a barrier. If you are a startup on the beaches of the Cook Islands, you can still secure funding from an investor in London or have a PR person in the UAE. The organization or the business itself will eventually look more like a network of people putting their capabilities and heads together into achieving common objectives and creating value. It won’t be surprising if business valuation experts of the future don’t value physical assets like buildings, property, number of offices, data centers and countries you have a base for as much as they are worth today.

Cost patterns are changing: and for the better. Starting up especially, need not be as capital intensive as it was with the exception of certain business types which will always be that way. More importantly, it doesn’t take as much funding upfront to get started and current models of business are quickly moving to the ‘pay as you go’ format. For example, a web application startup can start with a domain name for $12 a year and a hosting service for as low as $5 per month to start off with. If the application is doing well with more customers signing on, the hosting can be scaled accordingly with cloud options based on the usage and capacity required. Similarly for communications you can start off with a Skype account for as low as a few Euros a month and when your requirements have increased, you can scale to a higher capacity VOIP system for your staff assuming you would also have more customers and revenue to fund expansion.

These are just some ways in which startups and the way they function are changing today. With emergent transformation, the very fabric of the way things are done is undergoing change and we’re all a part of this new chapter in discovering how much of our capacity still lies untapped!

Clicking through a tweet by Alltop’s Guy Kawasaki lead to the discovery of this brilliant post by Dave McLure :

MoneyBall for Startups: Invest BEFORE Product/Market Fit, Double-Down AFTER.

Though the post comes with a disclaimer for those who are not up for a lengthy read, Dave has really hit the nail square on the head in terms of covering the current angel investment and startup funding scenario and it was well worth the read. Where is all this going?

The bottom line is: we are in the midst of a completely new era when it comes to startups one which has taken a 180 degree turn from how founding startups was done a couple of years ago. The dynamics of building a new innovative startup has changed considerably! The way the venture capital model that funds them hasn’t changed. It’s like trying to fit the tires of a Ford Model – T on a Toyota Prius. Not going to fit!

Grow VC caters to the early stage startups looking for smaller investments typically $100k to 1 million and the initial reaction of seasoned investors as well as a number of entrepreneurs is “what am I going to do with that?”. It’s barely enough or “what will other entrepreneurs who bagged $250 million think?” Does it really matter what they think? While understandably some business models may be capital intensive and need that kind of funding to get them running, most startups in today’s radically different era are far leaner than their predecessors and don’t need that kind of investment to become successful businesses. As Dave says as a summary to his view on how the scenario differs today:

So to summarize: PRODUCT development cycles are shorter, required materials & resources are free or low-cost, development teams are smaller, and new services mashup & build on top of old services that already deliver terrific value in the cloud via features, data, network effects, & APIs. MARKETing costs are lower, due to a variety of broadly-available, low-cost, online distribution channels, which can be used in more measurable and predictable ways than ever before. high-bandwidth to the home means video and other data-intensive media are commonly available to anyone with cable or satellite TV. REVENUEcan be generated simply & continuously, via direct business models & online payment methods that are becoming mainstream all over the world… such as mobile payments even in the remotest, poorest economies.

As the way in which early stage startups function evolves, the support infrastructure that supports them needs to simultaneously evolve with them to continue being relevant at the very least. If the gap continues, there will be more deserving startups that don’t get the support they need, more investors losing money through investments that go into today’s market through yesterday’s investment models and businesses who are spending more than they need to in the wrong areas.

There is a lot that can be done with a smaller investment under $1 million if the startup is operating in the nimble and highly networked environment that we have today. There are some fantastic companies who hire talent globally where they can find it within their budgets, make the network organization connected through the internet their offices, leverage cloud computing resources, the social web for marketing and turn out more profitable than a capital intensive one. What we need is smarter, leaner angel investors supporting smarter and leaner startups. The lean movement in startups needs to translate into a similar reform for angel investment with a more organized network through which everything remains transparent. We either move with the change or refuse to see it and get left behind a few years from now!

Startups face a variety of challenges and in this startup survival guide, we focus on five big pitfalls startups experience and how to avoid them. Bob Walsh, author and IT veteran, narrates our way through these five different scenarios and how to survive in the harsh startup landscape. For example, look up the book Web Startup Succeed Guide by Bob Walsh.

Listen to the Podcast in the player below or on iTunes.

Check out our member highlight from this week: AdNeedle

Here are the Five Pitfalls we covered:

1. All I have to do is get money from a VC and I’ll be rich!
2. I know what the market wants, I don’t need to do customer research.
3. Everyone is going to want this solution!
4. I can compete on price and win.
5. I’ll work on my startup in my spare time.

Some quotes from the episode:

You have to come up with an extremely good idea, that can make enough money, so that it can pay for the other 19 companies that the VC is going to invest in, that fail.

If you’re doing this as a first time startup, tackle something other than changing the entire world, you can do that with your second startup.

Get over the discomfort of doing something that you’re not normally comfortable doing, and that’s going out and talking to customers – before you start coding.

This is a “doing” thing, rather than a “researching” thing

Creating a startup is a significant life event and it’s going to take a lot of time and effort.

While you may get your startup built, if you lose your marriage or your significant relationship, and everyone you know drifts away in your life – that’s not exactly a good exchange of value.