Categories
business startups

How to pitch VC’s and Angels

How to pitch VC investors and Angels

Startups often have just a few seconds to grab the attention of an investor and make a memorable impression. I’ve seen hundreds of pitch decks from startups and most are missing the critical elements needed to make their pitch stand out.

The most important thing for a startup, getting ready to pitch is preparation. If you’re planned ahead and rehearsed you’ll already be ahead of the crowd. The best pitches and presentations require a lot of preparation and rehearsal. You often have just a few minutes to make a great impression so every minute of presentation may require several hours of rehearsal and preparation.

Most pitches are forgettable, they lack energy and they lack soul. What I mean is that they describe a business problem and a solution but they don’t make me care. Great pitches should convey the founders’ character, they should tell a story, connect with listeners emotionally, and be memorable.

When I’m listening to a pitch. I’m asking a couple questions:

  • Why you? – What makes you unique, what makes you as an entrepreneur special and why would I be excited to work with you?
  • Why this? – Most ideas and successful companies capitalize on unique ideas, timed with when the world needed them.
  • What makes this special? How will you compete with other entrepreneurs, what will make your business stand out in a crowded field of so many other companies?

Many entrepreneurs make the mistake that investors are interested in novel ideas or clever inventions. Nope. Investors are looking for great people and great businesses that have huge potential to grow. Your idea is a part of that but a great idea, without a great business and without a great founder, isn’t going to go anywhere.

If you’re putting together a pitch. There are lots of templates but the key things you need to include are pretty universal. Sequoia Capital even put together a business plan outline of the things that they like to see:

  • Problem Describe the pain of your customer. How is this addressed today and what are the shortcomings to current solutions. Make me really feel the problem.
  • Solution Explain your aha! moment. Why is it unique and compelling? Why is your solution better?
  • Why now? The best companies almost always have a clear why now? Timing is as important as the idea. Why hasn’t this been done before?
  • Market potential Identify your customer and your market. How big is the market and how will you capture it?
  • Competition / alternatives Who are your direct and indirect competitors. Show that you have a plan to win.
  • Business model How do you intend to thrive and grow?
  • Team Tell the story of your founders and key team members. Most investors don’t want to invest in solo-founders so tell the story of your team and how you work together.
  • Financials What are the financial models that support your story/vision. Don’t skimp on this, really knowing your financials helps investors trust you with their money.
  • Vision  – And lastly, and perhaps most importantly. If all goes well, what will you have built in five years? What’s the vision of the company? Paint a picture of how you get there.

In addition to these basics, you may want to include much more information. Don’t.

The point of the pitch deck isn’t to answer all the questions, it’s to get you to access to a deeper conversation with your investors.

It’s for them to lean-in and express interest in learning more. Resist having too much information.

It’s Ok to have your own notes or backup slides to answer deeper questions. This will help keep you focused.

There’s always more you can include in a pitch so you have to tune the deck and the presentation to the audience and the venue. For example, you should have several version of your pitch based on your situation.

The most common versions of pitches should include:

  • Elevator pitch – A well-rehearsed 1-2 minute conversational pitch that can be done with no slides.
  • Lightning pitch – 5 minutes (some visuals but not too much)
  • Emailed deck – A variation in between your lightning and normal pitch that doesn’t require a voice-over.
  • Normal Pitch. – 10-minute pitch visuals/slides
  • Long Pitch – 30min-1 hour pitch tuned for Zoom or In-Person with backup slides prepped for any anticipated questions
  • Demo Pitch – A rehearsed and working walk-through of the product that can easily be reset for the next demo

The most important two things for a startup, getting ready to pitch are preparation & passion. If you can connect with your audience in a deep and meaningful way and if you prepare well you’ll be far ahead of most startups.

Categories
business design startups

How much does it cost to build an app?

I’ve been asked this question hundreds of times. I’ve built mobile apps for over a decade with millions of downloads and I’m going to give you the formulas that developers use from the worlds leading mobile agencies to figure out what an app costs.

Whether you’re building an MVP for your startup or you’re building a polished product for a Fortune 500 company, the cost of an app can ranged in price from thousands to millions of dollars and how you design and architect your product can impact that price a lot!

When building an app most app developers will break down the work required into three core parts.

  • The front-end
  • The back-end
  • Design work

The front-end is all the work in developing the mobile app itself. This is what you use on your iPhone or Android device and the Back-end is the work that needs to be done on your server to store files, images and other information for your app to work.

To figure out what it will take to develop your app the requirements or the features of the app are broken down for both front-end, back-end, and design features. Engineers and designers will run estimates for each feature to come up with a high-level estimate.

Each app development firm or team will do this slightly differently but generally they will end up with an estimate of the number of hours, days, or weeks for each feature. More experienced firms will factor in time for handling edge cases, supporting a wide variety of devices and testing across a wide set of scenarios.

Here’s a hypothetical example for a very basic app:

FeatureFront-endBack-endDesignTesting
Login2 days4 days1 day1 day
Display Profile2 days1 day2 days1 day
Take photo1 day2 days0.5 days0.5 days
Total573.5 days2.5 days
Sample app adds up to 18 days of work.

In this basic example we would have 18 days of work. Each development team may do the estimates differently but it’s typical to get an estimate in terms of weeks of total work.

Once you have this estimate you multiply it by the hourly rate that the developer or firm charges This can vary by firm from $20/hour to over $200. This is why some of the ranges for how much an app costs can vary so widely. Even for this simple app that would take just a few weeks to develop you could see prices from $2800 to $28,000.

FeatureNative on-shore mid/senior engineersNative off-shoreHybrid off-shoreJunior
Hourly$180/hour$80/hour$40/hour$20/hour
Total$25,920$11,520$5760$2880
Example Costs

Quality of the app experience

The quality of the app and its success in the marketplace is often driven by the quality of the engineers and the details that are in-place in the design work. Spending more on great design can reduce complexity in engineering and keep your end-users happier in the end.

Technical Choices Impact the Costs

One of the key considerations for app costs is the technical architecture that you choose for your engineering. Most larger-scale mobile apps are built separately for iPhone, Android, and web experiences. This means that these larger firms often have to triple the engineering costs for the front-end of the product. As you can imagine this can triple the costs too. For well-established firms, the trade-off is worth it and well-built apps and web experience provides for both smoother experience for all users and a more robust code-base

Some engineering teams, however choose to use a cross-platform technology such as ReactNative by Facebook or Flutter by Google. These technologies allow you to more easily develop one core code-base and deploy across multiple platforms such as Android and iOS. These technologies are a good option for reducing initial costs but they come with tradeoffs in the user experience and on the maintainability of the code.

Ongoing Costs

Now so far we’ve talked about the initial costs of building an app but most successful apps are thought of as long-term and annualized investments. While many people think of apps as things, successful apps tend to be core and critical to a larger business. Because of this, these apps have to be updated, enhanced, and improved on a month-to-month basis. If your app is tied into a core business you should consider budgeting for an annual expense that’s related to the size of your engineering and design team.

For smaller startups, the initial engineering and design team can be as small as two people but often mobile teams are 5-10 people. Larger corporations will often have dedicated teams ranging in size from a dozen to hundreds of employees.

Because these teams are operational year-round their budgets are also annualized. Larger companies can do this because they think of their mobile teams as a profit center that’s core to their business, rather than a one-time cost.

While the price of an app can range wildly the impact that an app can have on a business is similarly large. Mobile apps can drive significant revenue for larger businesses and as more people are getting comfortable installing and using apps, the mobile-first trend will continue to grow.

Categories
business startups

Slack vs. Teams

The most important tool in a company’s arsenal is communication. Companies that are effective at communication are able to get things done quickly and efficiently. Now that everyone is working remote, having great tools to be productive is more important than ever.

I’m sure you’re busy so this isn’t going to be an in-depth review of every feature but if you’re looking at Slack vs. Teams then I’ll talk through the pros and cons of each product and how you should pick the best product for your company. I’ve used both Slack and Teams for multiple years and while each has strengths each also has weaknesses.

Communication tools reflect the culture of the company and the way the culture and leaders of the company choose to communicate. If your culture is broken, or your company is dysfunctional, tools aren’t likely to fix it. Also if the leadership of an organization doesn’t lean-in, the tools will be less impactful and there are tons of examples of either Slack or Teams being rolled out and not really embraced by the executives of the organization.

If you’re going to take the dive into these tools, really try to get the commitment of all-senior-leadership to try to use these tools in favor of long email chains and countless meetings. This time in history is unique because remote work cultures are really well suited for these types of tools. Organizations that take the plundge now should commit to the tool for at least a few months to really understand the organic benefits.

If you’re new to these tools, it’s important to understand how they may be different from your existing communication tools.

  • Like SMS, it can be a real-time conversation or you can respond to message and questions asynchronously 
  • Unlike SMS, it’s oriented around topics/groups
    (and you can easily leave or silence a topic/group)
  • Unlike Email, group conversations are automatically persisted so new people can get the benefit of past discussions and decisions.
  • Lastly… conversational groups are best when they can be created and disbanded organically by the organization itself. This is bottom up communication, not IT led communication.
Five minute feature overview of Slack and Teams

Pricing

While Slack was a leader in this space, it wasn’t the first chat based collaboration tool. Campfire, IRC and HipChat have been around for years before it. What made Slack successful was their timing and freemium model that appealed to early stage startups.

The freemium model allows anyone to setup a slack for their company for no cost and gets an initial Slack experience that works with all the bells and whistles while keeping a history of up to 10,000 messages. This led to rapid growth of Slack and a lot of adoption from early stage startups.

Microsoft Teams on the other hand is part of the Microsoft Office suite, so while it’s not free, it’s often perceived as free because it’s included as part of the Microsoft 365 Business suite.

The basic paid version of Slack is $6.67/user/month and the paid version of Microsoft Basic Business is $5/user/month.

Recommendations

If your organization is using the Microsoft tools already, including Sharepoint, Outlook and Skype for business meeting infrastructure then Teams is really compelling both from a configuration standpoint and a cost perspective. There’s less external dependancies and you’ll get the majority of the benefits. In general I feel that many of Microsofts tools are good enough. I do hesitate to call them great and the shortcoming is from many layers of software that try to tie together but don’t always… Two example…

  • Teams lets you schedule a meeting but it’s settings are different from how you schedule it in Outlook or how you schedule it in Outlook on the Web. So there’s three ways to schedule a meeting and if you do it wrong, your conference system may not work right.
  • Another area I found confusing was that while Teams was integrated into Microsoft Office it was often confusing where to find key files. Is it in the Team folder, The personal OneDrive, the Sharepoint folder or did someone forget and email it and it’s stuck in Outlook as an attachment?

While there’s certainly room for improvement, I do think that the File Folder + Conversation concept is really smart and this is something that Slack just doesn’t do.

Slack on the other hand is designed to be stand-alone. This means that Slack has been more focused on API’s and integration points to allow third party chat bots to extend the functionality of Slack. While I think it’s ideally suited for small to medium size organizations, companies as large as IBM are using slack with their 350,000 employees. Integrations across GSuite, Dropbox, Microsoft, Box, Zoom, Salesforce and more make it easy to tie many tools together into one conversation.

Remember how I said that communication is a company-culture thing? Well a key reason for that is that these chat tools can makes it easy to give your organization to offer company transparency.

Different teams or departments can have their own channels and make these channels visible across the company. This can make it easy to both find important company information and understand how decisions were made through discussion. This idea of being more public by default is a powerful idea and it allows organizations to move faster.

Conversational interfaces are here to stay because they meet us where we are as people and they foster collaboration in a very intuitive way.

Categories
business

Raising too much money

Two weeks ago Friday, according to Forbes an app called Clubhouse raised 12 million in financing at a post-money valuation of 100Million dollars. This is crazy when you consider that the app has no real users, aside from investor insiders. It’s been called amazing for the founders and company, but raising a ton of money at sky-high valuations can also spell disaster.

Raising too much money can ruin your business, your product, and your vision. Only time will tell if this was a brilliant move by the investors, Mark Andreesen, or a slip-up by the founders.

Lots of startups assume that there’s no such thing as raising too much money, after-all you need money. The crazy valuations can attract talent, buy fancy perks, and allows them to outspend on promotion, and customer acquisitions. But all these moves can lead the company astray and too much of a good thing can cause other issues.

Build a sustainable business

Watch my video on this topic

Too much money can cause you to overspend across the board. At first, this is a ton of fun, and companies who get over-funded go on a spending spree. They get fancy computers, standing desks, hire a ton of people, and often create multiple secondary teams working on secondary products or features. Sounds great, right?

Well, what happens is that the small team that was able to move quickly and get things done with 10 people, starts to drag with the weight of a larger organization. But the real problem is that the larger organization moves the profitability goal-posts.

Getting to profitability

A 10 person software team can get to profitability at just 1-2 million in revenue. A 100 person team may require 15-20 million in revenue to hit that break-even point. Suddenly the millions that you raised is running dry and you have to go back to investors to raise more money. This is where startups can get into even bigger trouble. If the last round was 100M valuation you will need to raise at an even higher valuation.

Two problems with this.

  • #1 – You need to prove you’re worth it. Each time you jump in scale gets even harder. You need to have the product and customer traction to justify that price.
  • #2 – Each time you do this you dilute yourself and you move the goal-posts move again. If your startup can’t grow fast enough, that just means raising ever-larger rounds. You hope to reach escape velocity while never turning a profit but this can also end in disaster.
Magic Leap Raised AR Glasses

How much is too much

One recent example of this is Magic Leap. They raised 2.6B over 9 rounds of financing. They initially hoped to sell hundreds of thousands of headsets but have thus far reportedly sold just 6000. After years of trying to get adoption, they are both attempting to pivot into the enterprise and trying to be acquired. (unsuccessfully thus far).

Smaller startup teams have the advantage of moving quickly, being able to pivot, and actually ship product. As teams get larger companies will spend more time on operations and communication. Large companies have a harder time with rapid innovation and this size is a direct result of investors plowing too much money into a good idea.

Masking Fundamentals

Besides overspending and overhiring the other key problem is that having too much capital can mask fundamentals. Many startups famously create fake traction charts by over-spending on customer acquisitions. How do they do this?

Easy. Spend $1000 the first month on advertising. Spend $2000 the second month and so on….. hey look, our growth is going up each month. We must be growing like crazy! Well sure if your customer acquisition costs are reasonable but not everyone looks at this and some startups will spend hundreds of dollars to get a customer that’s worth a fraction of the costs.

Sometimes startups aren’t intentionally fooling investors, sometimes they are actually fooling themselves. Company problems can be masked with capital.

  • Customers complain a lot – hire a customer support team to hide the problem.
  • Too much customer churn and cancelations – hire a customer success and retention team to keep them around a bit longer
  • If the product is terrible – hire a marketing firm to make a great promo video.

These things may look like they are helping but they are really masking the underlying issues. It costs less to fix the product and have a great design that customers love… but if you have a lot of capital you may have incentives to spend it in the wrong places.

Limiting your options for an exit

The other problem from raising too much capital is that it can limit your options down the road. Let’s look at two companies, both companies have built an amazing MVP and they go to investors looking for money.

  • Company A asks for 1M to give their small team a year of runway to improve the product at a 5M valuation.
  • Company B asks for 10M to significantly grow the team and spend on marketing and give it runway for 18 months at a 100M valuation.

One year later both companies get hit a wall. The tech is harder than it seemed, the market is more competitive but they are approached by a dream acquirer who wants to buy the business for $20 Million.

Company A, gave up 20% equity so they can walk away with $16 million dollar pay-day. The investors in company A made a 4x return on capital, not bad for 1 year.

The founders of Company B probably can’t take the deal. Not only is Company B much less profitable but worse… Even if they could accept such a deal they may get caught by a gotchya-clause called “liquidation preferences.”

These clauses in larger investment deals mean that the investor will agree to the higher valuation, as long as the startup agrees to give the investor a multiple on their money prior to selling. This may mean that the investor gets a minimum of 2-times his investment back prior to anyone else. In this example, if the investor had a 2X liquidation preference, all 20 million would go to the investor and the startup founders would be left with nothing.

Minimally Viable Capital

There’s a lot of press and attention to valuation and the size of funding rounds raised but the focus should be more on the sustainability and the long term potential of a startup. Founders should raise the minimum to give them security in the future and to bring them to long term sustainability and longevity.

Your equity and valuation don’t matter if your startup dies. Get to traction, get to product fit, get to awesome! Then, if your company truly has traction and is changing the world, go ahead. Negotiate amazing terms, raise money to grow your company even faster but be cautious because too much of a good thing could ruin your business.