Feel the Boot

Should you bootstrap your startup to greatness or take outside investment to accelerate your growth? Making the right decision can determine if your company will succeed and change your payout at exit by orders of magnitude.

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When is venture capital clearly the correct choice?

When is bootstrapping clearly the correct choice?

Implications for dilution

What if you have a modest exit?

Managerial independence

Resources

Resiliency

Relationships

VC vs. Angel investors

Bootstrapping vs. VC is not a binary choice

Other options for funding

Founders are often frustrated that, after struggling for weeks to perfect their pitch deck, investors just skim through it in a few seconds. Unfortunately, because they look at so many companies, they don't have a choice. I recently attended a webinar by Eric Bahn, GP and co-founder at Hustle Fund, where he talked about using better slide headlines to create a skimmable deck. His approach resonated with me, but I also had some additional thoughts on the topic. So, with his permission, I wrote this article to comment on and expand upon his concept.

I created some example slides to demonstrate this concept. Take a look at the blog to see them https://ftb.bz/55B

Eric suggests that the slide headlines should contain most of the vital information in the presentation. The contents of the slides only serve to support and amplify the titles. He advocates making the headlines complete sentences so that they can stand on their own. Furthermore, when read in order, they should create a comprehensible paragraph explaining the key aspects of the company and opportunity.

This approach also has the advantage of helping you organize your slides. For readers to follow your message, presentations must flow logically and smoothly from topic to topic. Using complete sentences as headlines makes it obvious when your deck has a problem. Logical progression failures often happen when a deck goes through many rounds of revisions. A slide that made sense in its original position now does not follow from the previous ones. Reading through the headlines can quickly show you where you need to make changes.

I encourage you to check out Eric's webinar. In addition to the presentation, he has extensive Q&A with the audience that helps explain the concept in more detail.

Eric Bahn’s webinar https://youtu.be/z7icuhqPq5s

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Today I want to address a problem faced by many founders, prioritizing development projects in the face of conflicting opinions and pressures. Because resources are usually critically limited, you must narrowly focus your development resources. What are you going to build, and more importantly, what will not get built? The problem compounds when you are a non-technical founder/CEO, and your CTO, developers, investors, or others are pushing to prioritize specific projects about which you have doubts.

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0:00 Introduction

2:54 What Not to Build

10:08 What to Build

I recently advised two founders in this situation. One was pressured by their CTO and the other by a potential angel investor. In both cases, they wanted to re-implement third-party code they had licensed and which was performing adequately. These applications were core to their business but fairly commonplace with the same basic functionality available from multiple vendors. Writing their own version would be a significant undertaking.

It can be challenging for founders to push back against more technical team members because they hired them for precisely those missing skills.

The trick is to avoid having a technical debate. Reframe the discussion in terms of business needs and priorities. Start the discussion by looking at your options in the context of the company’s limited development resources. It is usually a zero-sum situation where every effort displaces something else. Typically, there are many projects on the roadmap which are absolutely essential to your growth.

At one time, almost all startup fundraising happened in person. Investors wanted to see the founders face-to-face to get a read on their passion, intensity, and integrity. With COVID, all that changed, and the industry quickly pivoted to conduct virtually all pitching and investing over video conferences, mostly Zoom. I don’t think we will ever go back to pitching entirely in person, so mastering remote fundraising is critical.

A comment by Munly Leong on an earlier video prompted me to create this episode. He asked how he could find angels and VCs making investments using 100% virtual and remote processes. Before addressing the general advantages, disadvantages, and key tips for virtual pitching, I address his question specifically.

0:00 How Virtual Pitching Changes Startup Fundraising

2:36 Finding people willing to invest 100% virtually

5:16 Finding investors for companies outside North America and Europe

8:55 Upsides and downsides to virtual fundraising

10:43 Pre-screening matters more

12:37 The pitch is everything

13:51 Present, Converse, Demo

16:29 Improve your A/V setup

19:37 Watch your audience

24:27 Virtual pitching not so different

I would love to hear about your experiences with online fundraising. Please let me know what you have seen, or any great stories, in the comments below.

Till next time, Caio!

Resources

Websites with Lists of angel investment groups and seed funds

https://www.angelcapitalassociation.org/

https://angel.co

https://signal.nfx.com/

https://crunchbase.com

Referenced Episodes

Why you need Two Pitch Decks: https://ftb.bz/5B

Five Step Pitch Deck Process: https://ftb.bz/33B

Slow Down While Pitching: https://ftb.bz/52B

Why Angels Demand 20X returns: https://ftb.bz/3B

Build a strong foundation by testing assumptions first: https://ftb.bz/21B

I judged a pitch competition last night and the other judges and I, all noticed something about most of the pitches. They were going way too fast. The founders were just tearing through the material and leaving us baffled about what it was they were talking about. So I was inspired to create a quick episode talking about this issue, unpacking why it happens so often, and some ways to try to avoid the problem yourself

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It is not hard to guess why the founders were going so fast through their material. They only had three minutes to pitch their company, and so much they wanted to say about it. They felt that they had to rush to get through all of the things they thought we'd need to hear. And therein lies the problem. The presentations ended up being like a fire hose of completely undifferentiated words.

So, the paradox is that you need to say a lot less. And the less time you have, the more rigorous you need to be about what you cut out. There is no way that you're going to say everything significant about your company. It's just, it's not possible. You're going to need to pick and choose.

So say less, really edit down the information. Even if you know you need to provide a piece of information, you may be able to go through it quickly. Some points will only take a couple of seconds, then pause for it to be received, then move on. And the pause matters. Let things sink in. When I listened to the pitches, my inability to understand the key elements of their business was driving me insane. They spent two seconds on one topic, and as I was trying to work out what they meant, they were on to talking about the next topic. Because I was still thinking about the previous point that I thought might be important, now I've missed the following two things, and I'm trying to scramble to keep up. Not good.

So take a breath, slow it down. It was funny to read the chat window during the pitch competition. The founders were talking to each other about how they were getting out of breath. They literally forgot to take breaths, and it showed. The key here is just to own your time, which also exudes confidence. If you slow down what you're saying, you're master of your space and time. You show that you know the points you want to make. You're not just trying to fill the time available, but rather convey exactly and only the information that you want to share. You pause to allow them to understand that, and then you move on. It shows that you are in control of the situation.

We know that investors make a lot of their decisions based on the CEO. To a great extent, the job of a CEO is to communicate. Demonstrating that you're a strong communicator is essential.

All this is a very long way of saying, "In your pitch, take your time, slow down, say less."

Till next time, ciao

What are trademarks, patents, copyrights, and trade secrets, and how should you use them in your startup? Investors frequently pepper startups with questions about their intellectual property and how well it is protected. Most founders know very little about this somewhat arcane and complex topic. Fortunately, with a bit of information, you can start making the right decisions for your business and speaking intelligently about the issue with angels and VCs.

I brought in Adam Philipp to get you up to speed on the basics and some initial strategies. Adam is the founder of the IP law firm AEON Law, a patent attorney, and has been practicing IP law for over 25 years.

If you have any questions or would like us to go deeper on some topic, please let me know in the comments. I am sure Adam would be happy to come back for another episode. You can find Adam’s law firm at aeonlaw.com and follow him on LinkedIn at https://www.linkedin.com/in/adamphilipp/ and @AdamPhilipp on ClubHouse where he can be found offering the occasional “Patents and IP Law AMA.”

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In this interview we covered:

1:37 What is intellectual property?

5:08 What should founders do early on to protect their intellectual property?

10:05 What are the elements of a patent?

14:22 How can a founder talk safely to investors without an NDA?

19:54 When should you file your patents?

24:27 Which provisional patents are worth converting to full patents?

27:32 How do you enforce patents?

34:30 How should startups use copyright?

42:10 Patents vs. Trade Secrets

I am concerned about a lot of the startup advice I see out on the internet. Much of the advice is sound, and almost all is well-intentioned, but I think that a significant fraction is problematic. The troubling advice is typically in the form of a recipe or template for success. It tells founders that if they take specific actions, follow a given pattern, or use a particular pitch deck, they will succeed. I often see this guidance in interviews with extremely successful founders. The implication is that if you do the same things they did, you will have a similar outcome.

I worry that these kinds of guidance are too rigid and replace thinking with mimicking. Startups are not like snowflakes; they are far more diverse. Tips that apply to one company may be inappropriate or harmful to another. I suspect that this kind of advice often leads founders into cargo cult thinking. Since many of you might be unfamiliar with cargo cults, I will take a quick detour to explain them before discussing how the concept applies to startups.

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The 5 step pitch deck process is here: https://ftb.bz/33B

I have talked to many founders about automating business processes and why they should put that off as long as possible. You may have heard the Y Combinator mantra “do things that don’t scale.” Usually, they discuss that in terms of sales or support, but we rarely talk about the idea with respect to software and automation. We need to understand the value of doing things by hand in the early stages of a business.

In this episode, I explore the kinds of automation you may want to defer with some specific examples. I then share the six primary ways that performing these processes manually, in the beginning, can provide value to the business and avoid unnecessary costs.

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Founders often have a strong bias towards action. When you see that some process will eventually need to be automated, you may want to do it immediately. In most cases, I suggest that you hold off and go with “mantomation” at first. Mantomation is what I call it when you fake your automation using people.

Users want results. They don’t care if some sophisticated software is doing the magic or a box of hard-working hamsters. It is the result that counts, and it does not matter if they need to “Pay no attention to the man behind the curtain.”

I am not suggesting that automation is bad or that you should not do it at all. In my examples, the companies all eventually make heavy use of software processes. My advice is to wait until the last possible moment before you start that development. When the manual approach is strained to the limit, and you have squeezed all possible information from working directly with the data and customers, then start automating.

I don't introduce myself in these blogs or episodes, which may leave some of you wondering, "Who is this Lance person, and why in the world should I take his advice on startups?" I thought So, that’s the topic for today.

TLDR:

I have been an entrepreneur where I ran my own business for 13 years.

I then stayed on as Chief scientist for the acquiring company, where I helped develop their technology, delivered sales presentations, managed their PR, and ran their marketing department.

Since 2012, I've also been an active angel investor and startup mentor.

Before all that, I was an astrophysicist, so I bring a scientific approach to the startup process.

The longer version

I grew up in an academic household where both my parents were professors. One of them was a physicist and the other a sociologist. From the age of six, I planned to follow my father footsteps to becoming a physicist

I went to graduate school at UCSD to study astrophysics. I was working with the Hubble Space Telescope and the Keck, trying to understand the early Universe. In my spare time, I started dabbling around with cryptography, privacy systems, and building anonymous email systems. About the time that started to take off and get exciting, I realized that the Hubble Space Telescope wasn't big enough to answer the questions I was trying to ask. That was getting frustrating, so I put my Ph.D. on hold and founded what became Anonymizer, a company focused on consumer internet anonymity. It allowed people to avoid all tracking on the Web. I grew the business for several years, but we began to hit a plateau around 2000. And, of course, 2000 was an exciting time to be in an unfunded startup. That was when the .COM collapse happened all the fundraising dried up. It was touch and go to survive at all.

After that, there was the 9/11 attack on the Twin Towers and the Pentagon. We, like everyone else, started to wonder what part we could play. We started reaching out to people that we'd met in the government, mostly in the FBI, because they kept subpoenaing us for records on our Anonymous users. We were able to talk to them about how they were conducting online undercover operations, and we pivoted to focus on building covert operational platforms for the national security community. This model was very successful. These had extreme pain points and were willing to pay a lot to have them solved, and we were the only people around doing it.

Between 2001 when we started selling to the government, and 2006 that segment of our business went from about 1% to more than 95 percent of our total revenues. Around that time, we realized we didn't have the background or government connections to take the business where we wanted to go. So we started looking at being acquired by a Beltway Insider, and in 2008 we had an excellent exit to a small systems integrator. The founders of that company were all former Spooks and had the connections, knowledge, and understanding to take the solution where I couldn't. But, being spooks, they weren't going to talk to the media, so I ended up becoming the face of the company that bought mine.

I did all the pr. I did most of the public speaking. I wrote the company blog, and it was my face & voice any time we needed to speak publicly.

After a few years of being the Chief Scientist for this company, I decided I didn't want to live in the DC area anymore, so I moved out to Wine Country in California, where I could telecommute.

That was I started to get involved in Angel Investing. One of the first things I did when I moved out here was join the North Bay angels and get involved in a startup mentoring program. Helping startups became a passion of mine. I discovered that I loved working with and helping these early-stage companies achieve success.

At this point, I don't need more outward trappings of success. I'm enjoying living on a hilltop next to my vineyard with beautiful views and an excellent wine cellar. Now I'm much more interested in giving back to other companies. The great thing about advising is it provides most of the fun of being a Founder without the hundred-hour work weeks and constant existential dread.

Shortly after joining the North Bay Angels, they invited me to be on the board and their selection committee. The committee is the group within the North Bay angels that looks at all of the applicant companies and decides which will present to the entire group. That is a great experience because I get to see so many different pitches. These are not the finely polished best of the best. I see many rough presentations, which helps me know what makes the best of them shine.

A problem with the in-person advising was I could only meet a limited number of companies, and I wanted to help a vastly larger number of Founders. That's why I created Feel the Boot as a platform where instead of doing Just one-on-one advising, I could put this information out on the Web where would be accessible to anyone. Then, if they needed more specific individual coaching, they could seek me out, and I'd be able to do that.

At the beginning of 2020, I walked away from my role as Chief Scientist to focus full-time on advising.

Later in 2020, I joined the Founder Institute. I reached out to them, and they offered to make me a global entrepreneur in residence. That means I'm advising their companies everywhere in the world. One of the great things about this is I talk to many companies with different issues and problems. I am continually learning from the experiences of every founder I help.

The advice I give through Feel the Boot comes from my history as a founder, my experiences as an investor, and learning from one-on-one advising, consulting, and BoD work with founders.

But everything always comes back to my experiences as an academic and a scientist. It shapes the way I think about everything. I am always looking for patterns. Why do startups work the way they work, and how can we understand them at a fundamental level. I want to get founders away from the "cargo cult" approach where they think that if they emulate a pattern, it should work because it worked for someone else. I want to get to the fundamental why and how. Think deeply about what you're doing so that you can take what's unique about your business and put it in the best light, and leverage it in the best possible way.

I question whether this will be useful to anyone, but hopefully, this gives you some idea of where I come from, why I'm passionate about startups, and why the things I say hopefully carry some weight.

Till next time … Ciao.

As a Global Entrepreneur in Residence at the Founder Institute https://fi.co and chair of the selection committee for the North Bay Angels https://www.northbayangels.com/ I see heaps of pitches. Unfortunately, the same few fundraising mistakes doom most of their efforts. I want to share with you my list of the ten most common fundraising mistakes founders make and how you can avoid them.

1 – Only Looking at Equity

Just because you can get angel or VC investment does not mean that you should. Some other sources of growth capital don't require selling part of your business.

2 – Going in Cold

At the North Bay Angels, companies introduced by a member receive funding several times as often as previously unknown startups. You are at a massive disadvantage if your first interaction with an investor is to put your hand out asking for money.

3 – Fundraising too Early

A large fraction of companies applying to the North Bay Angels are not ready for angel investment. Unfortunately, you typically only get one bite at that apple.

4 – Missing the What and Why

I often reach the end of a pitch, having heard all kinds of information but with no idea what the company does or why. I need to be able to picture your business in action and your users interacting with the solution.

5 – Failing to Understand Your Audience

You know your business far too well, or at least I hope you do. You no longer remember what was obvious about your market space and what you learned while working on your business. This leads founders, particularly technical founders, to assume that their audience of investors understands these things too. I assure you that we do not.

6 – Weak Communications

In a perfect world, investors would judge your company solely on the quality of your idea, plan, and execution. Unfortunately, we don't live in that world. Investors are unlikely to see past an ugly surface to the gold within.

7 – Hiding Weaknesses

Many startups have some skeletons in the closet. If it looks like you have been trying to keep these issues hidden, you are violating our trust. And trust is everything in early-stage investing.

8 – Failing to Make Commitments

Often founders are vague about timelines and milestones. I want to know that after this investment, you will release a new version of the product with the following enhancements, grow to some number of customers, and generate a specific amount of revenue. If you can show a history of making and keeping commitments, even better.

9 – Raising too Much (or too Little) Capital

Sometimes funding applications draw an immediate rejection because they are raising too much money or too little.

10 – Failing to Follow-up

Finally, follow-up after your introduction, pitch, and any other interaction. Most investors are busy and easily distracted. If you wait a few days to get back to us or set the next meeting following a pitch, I am likely to have forgotten most of what you said and be off chasing some new shiny object.

Conclusion

Fundraising is hard, time-consuming work. Even if you do everything right, the odds of any angel or VC investing in your company are low. But, if you make these unforced errors, the odds quickly drop to zero. You are taking a huge risk as an entrepreneur. Make sure you give yourself the best possible chance of success.