The $4.8 billion invested in Q3 is a significant jump from the $4.1 billion in Q2 and $3.3 billion in Q1, but still well off of the $7.1 billion invested during Q3 of last year. The number of deals has remained in the 600 to 700 range each quarter this year, compared to 900 to 1,100 per quarter last year. Clean Tech experienced an 89% increase in Q3 over Q2. As in previous quarters, the four strongest sectors remained biotechnology, industrial/energy (including green tech), software, and medical devices. Very little money – only $633 million – flowed to companies raising venture capital for the first time, down from over $1.5 billion during Q3 of last year.
Meanwhile, several weeks ago, the Center for Venture Research released their analysis of the angel investor market for the first half of 2009. The CVR reported that 24,500 ventures raised capital during this period from 140,200 individual investors. Although the dollars raised fell relative to the first half of 2008, the total number of investments increased slightly.
Combining this data with anecdotal evidence from elsewhere, it’s clear that great opportunities are still finding investors. It’s obviously harder to raise capital than it was before, but I think we all knew that. The keys to funding success haven’t changed much: create a great opportunity with a lot of growth potential, develop as much traction as possible before trying to raise capital, and package the venture in the most compelling way you can when you take it to the investor community. We can help you with that last part.
Most entrepreneurs are so excited about starting and growing their businesses, they often forget the end game until it’s too late. Proper exit planning can help maximize the value of your venture, minimize the tax consequences of the transition and allow the business owner to control the process. Here’s a sad but all-too-common story about a hypothetical business – Stevenson Consulting – to illustrate our point:
Mike and Bill Stevenson were two owners of a thriving IT Consulting company. What began as a business planning meeting quickly turned into a discussion about: “We’re getting out of business, how do we do it?” As successful as they were, they were tired of staff issues, changing technology, and the day-to-day grind of running a multi-million dollar company.
A sale to a third party was not an option because Mike and Bill were not willing to stay on after a sale. And they had failed to develop a strong management team, which any savvy purchaser would require as a condition of purchasing the company. Transferring ownership to a group of key employees was also out of the question. None had been groomed to take on this type of responsibility and nothing had been done to fund this type of buyout.
Neither owner had children who were experienced enough to take over the business, so their only remaining option was to liquidate.
Mike and Bill’s highly profitable company had little worth beyond the value of its tangible assets. After the sale of those assets, dozens of employees lost jobs, the business disappeared, and Mike and Bill left millions of dollars on the table.
You’ve put your energy and your capital into building a business. This business most likely accounts for more than 90% of your net worth. Why not protect that investment so that it can be monetized on your terms? Learn how Cayenne’s Exit Planning practice can help you prepare for one of the most important financial events of your life: the transition out of your business.
Eco-conscious product suppliers and their prospective customers descended en masse this week on Phoenix for the annual Greenbuild convention. It is quite an event with over 1,800 exhibitors, several full days of educational conferences, and headline ‘bring on the crowd’ brand names offering inspiration and entertainment. To wit, last night’s marquee event was held at Chase Field, home of the Arizona Diamondbacks and included a speech from Al Gore, and a concert by Sheryl Crow!
Beyond the headliners I was really impressed with the level of entrepreneurship on display at Greenbuild. I think a good way to measure entrepreneurship in a sector is by the amount of small sized booths at an event. Entrepreneurs typically can’t pay much, so they buy the smallest space available and go pitch their tent. The bottom line … lots of small booths at Greenbuild.
Among the areas where it seems Entrepreneurs are diving into the green space are:
Green Roofs, which are essentially a container of live plants and a drainage system that can be snapped together on a rooftop. Once installed, the systems dramatically reduce the heat absorption of the rooftop and thus reduce energy costs. There were at least 20 companies present at the show from various regions of the country marketing differentiated products and business models in this category.
Energy Efficiency Analysis and Improvement Service Providers offer a relatively low-cost capital efficient way for entrepreneurs to enter the green space. Residential and commercial energy efficiency plans employ a myriad of techniques from lighting and HVAC system improvement to insulation and window improvement to reduce energy expense in a structure. Given the multiple tools available, it’s not surprising that entrepreneurs have rushed to develop services and business models to help building owner get the most energy efficiency improvement per dollar spent … and prove the savings through software and reporting tools.
Geothermal Heat Pumps rely on temperature differential between ground and below ground levels. Certainly more capital intense than the first two items, this category represents an area where entrepreneurs with a mechanical focus are probing.
I believe next year’s show will be in Chicago, and if it’s anything like this year’s, it won’t be one to miss.
Summer is winding down and Labor Day is behind us. Although the recession technically started in December 2007, many of us did not feel the full effects of the financial crisis until the sudden collapse of 158-year-old Lehman Brothers one year ago today. This has been a year that none of us will soon forget. The outlook remains uncertain, but the future seems brighter than our immediate past.
Many economists are seeing signs of a so-called jobless recovery. A jobless recovery is a situation where the economy resumes growth, but employers remain reluctant to hire. The pattern could be similar to the aftermath of the 2001 recession, which was followed by two years of low employment. As of August, the unemployment rate was at 9.4%, and the underemployment rate – which includes part-time workers who cannot find full-time work – was at 16.8%.
Historically, high unemployment has translated into forced entrepreneurship. To paraphrase Plato, necessity is the mother of invention. Indeed, many successful companies such as Microsoft, Hewlett Packard, GE, FedEx, and Trader Joe’s were started during recessions (for more, see 14 Big Businesses That Started in a Recession and Defying Gravity).
With this in mind, we’ve collected a few resources to help entrepreneurs succeed in this tough environment:
How We Got a Loan: Banks have tightened their lending standards, and many are turning away small businesses. This story of how one company managed to get a loan may give you some ideas. The key lesson learned is that it isn’t going to be easy, even if you are thoroughly prepared, but it can be done.
Startup 101: How to Build a Startup: Bernard Lunn, another serial entrepreneur, has published an online book that covers a lot of the important aspects of entrepreneurship. Although geared towards web technology startups, the majority of the information here applies to any technology venture. Lots of excellent advice for first-time entrepreneurs, and quite a few important reminders even for folks with several startups under their belts.
Finding the Path to Success by Changing Directions: When what you’re doing isn’t working, it’s time to consider new strategies. It’s all about staying responsive to the marketplace. The best line in the article: “It was like people were smacking us around with a fish trying to get our attention about this high cost of storage problem.”
Meeting Short Term Cash Needs: If your business is generating revenue but is facing a short-term cash crunch because your revenue can’t keep up with your existing debts, the SBA has a new program that can help. The American Recovery Capital, or ARC Loan Program, provides up to $35,000 to help you stay current on the principal and interest payments on your other existing loans. The ARC loans are interest only for the first year, and amortizing over the next five years. To be eligible, you must demonstrate that your business was profitable in one of the past two years – this is not a program for startups.
Six Ways to Speed Up SBA Loan Approval: The American Recovery and Reinvestment Act made SBA loans easier and cheaper to get, but these special provisions will expire by the end of the year. If you’re thinking about applying for one of these loans, you need to act quickly.
To Slim Down, Businesses Team Up: Creative alliances can mean lower costs while allowing everybody to focus on their core strengths. This is a simple strategy that any entrepreneur can employ.
On July 24th, SnagFilms released The Entrepreneur, a documentary film about a driven auto industry entrepreneur named Malcolm Bricklin. Bricklin is a fiery, temperamental entrepreneur with a flair for brinkmanship. He has a storied past, having introduced the Subaru and Yugo automotive brands into the United States, and having developed the Bricklin SV-1 gull-wing sports car in the mid-1970s.
This film follows Bricklin for five years as he strives to build a new car company, Visionary Vehicles. He scours the planet for an unknown manufacturer whose vehicles he can import into America. After a long search, he discovers Chery International, a small but growing Chinese carmaker. He negotiates exclusive North American distribution rights to the Chery. His next task: to raise the financing and support from dealerships to make it happen.
Bricklin exhibits attributes shared by many successful entrepreneurs: industry expertise, unstoppable tenacity, unyielding hubris, and a willingness to risk it all (he has made and lost several fortunes and has developed a knack for emerging from bankruptcy on his feet). He also has anger management issues, zero empathy, and is inflexible.
In the end, the business falls apart when Chery backs out of the deal. But it won’t be long before a man who has started 30 companies will take another shot at it.
This isn’t the story of a “typical” entrepreneur – but every entrepreneur will appreciate many of the challenges Bricklin must surmount. Enjoy.
[EDIT: THE COMPLETE FILM IS NO LONGER AVAILABLE ONLINE FOR FREE VIEWING; HERE IS AN ABC STORY ON THE TOPIC]
Entrepreneurship. It conjures images of twenty-something graduate students hacking code in a Silicon Valley dorm room, fueled by a steady supply of Red Bull and Ramen. Starting a tech company requires youthful vigor, endurance, freedom from obligations like mortgages, imagination, and an intimate understanding of what’s trendy and hip. Right?
To be sure, a number of tech titans started more-or-less this way: Facebook, Google, Microsoft, Yahoo, and Hewlett-Packard, to name a few.
Technology company founders born in the U.S. had an average age of 39 when they started their companies.
Among a sample of companies started in 2004, two-thirds of founders were in the 35-54 age bracket.
The 55-64 age bracket exhibited the highest rate of entrepreneurial activity from 1996 to 2007, while the 20-34 bracket actually had the lowest rate.
However, these findings don’t come as much of a surprise to us here at Cayenne Consulting. We’ve spoken with thousands of entrepreneurs, and although we don’t ask people their ages, we do witness the experience they bring to a new venture. Those who succeed at generating interest from investors tend to have decades of business and technical experience.
The study’s author argues that the shifting age distribution in the U.S., coupled with a continued decline in job security, will put more middle-aged people in this entrepreneurial sweet-spot. As a result, “we may be about to enter a highly entrepreneurial period.” I hope she is right, because entrepreneurship will clearly play an important role in our return to economic prosperity.
But perhaps the most encouraging insight for those who’ve ever thought “I’m too old to start a company” is simply this: No, you’re not!
We can measure success in many ways. In business, one important measure is the value of the company. That’s because a company’s value is a composite of all of the quantitative and qualitative factors that comprise a company: revenues, expenses, risks, growth prospects, quality of the management team, competitive advantages, strength of the intellectual property, and so forth.
In general, we want to do the things that increase the value of the business, and we want to avoid doing the things that reduce it. The problem is that we often lose sight of the big picture, and get mired in everyday distractions.
One useful technique for keeping your eyes focused on what really matters is Cayenne Consulting’s Venture Value Scorecard™. It’s human nature to prioritize the metrics that get measured, so the simple act of keeping track is often enough to have a significant positive impact.
The Venture Value Scorecard is a one-page summary of your company’s achievements and assets: the factors that contribute to the value of your organization. It should be updated monthly so that you have a regular reminder of where you’re making progress, and where you may have become complacent.
People: A strong team is obviously central to value creation. Your Venture Value Scorecard should highlight your recent successes in recruiting highly qualified team members to fill the most important gaps in your organizational structure. You can also use this space to keep track of innovators (R&D personnel) and rainmakers (sales & marketing personnel).
Products: You obviously can’t create value without a viable product (or service) to sell. This section of your Venture Value Scorecard should summarize the important advances you have made recently in research and product development.
Customers: A company’s only sustainable source of cash is sales, so you need to keep track of your business development efforts. You should inventory your best accounts and prospects, as well as the status of any pending major sales.
Partnerships: Relationships with larger firms not only confer legitimacy to your business; they can be an important source of intellectual property, distribution channels, and marketing clout. You should document the status of your partnership negotiations so that you can easily gauge progress.
Competitive Advantages: Your ability to create value depends on your ability to grow and protect your market share. This requires the continuous development of competitive advantages, whether through intellectual property, new innovation, exclusive distribution partnerships, key endorsements, brand building, corporate culture, or other factors. Keep track of what you’re doing to develop and enhance your sustainable competitive advantages.
Net Income: The five factors listed above all contribute to something that is directly measurable: net income. Part of your Venture Value Scorecard should be devoted to summarizing your income statement. Detail isn’t important; tracking your progress is. Items that paint a big picture include revenue by major product area, cost of goods, and operating expenses by category. If you have a lot of non-cash items such as amortization or depreciation, or if you have unusually long receivables cycles, you should also include adjustments to reconcile net income to cash flow.
Assets: Your assets add to your venture’s value, so any recent or pending changes in your assets should be recorded in your Venture Value Scorecard. These assets include things like cash (say, from a pending investment), facilities, inventory, and other property.
Liabilities: Your liabilities detract from your venture’s value. Any recent or expected reductions in your liabilities should also be recorded in your Venture Value Scorecard.
Risks: Unexpected events can kill a firm (of any size), and can therefore detract from its value. This is an opportunity to demonstrate that you recognize the greatest sources of risk facing your company, and that you’re taking prudent steps to mitigate the greatest hazards. Use your Venture Value Scorecard to summarize your major risk management initiatives.
Other: Every company is different, so you’ll need to customize the Venture Value Scorecard for your own circumstances. I suggest you try to figure out the 3-5 key metrics that are used to judge the health of companies in your industry, and keep track of these somewhere in your scorecard.
As noted earlier, your Venture Value Scorecard should be updated monthly. Keep an archive of your old scorecards. That way, you can go back and review the progress you’ve made. I think you’ll be pleased by the momentum you maintain by keeping score.
ABC and Mark Burnett Productions are developing a new reality program putting entrepreneurs through the fundraising hoops. There’s still time to make the casting call if you’re interested in applying. Here’s what they have to say:
The producers of the new ABC reality series Shark Tank are on a nationwide search to discover the next successful – and possibly wealthy – entrepreneurs, inventors, businesspersons, dreamers, promoters, creators and innovators. In each episode, budding entrepreneurs are given the unprecedented chance to make their business ideas come true.
If you feel you have a lucrative business idea but just can’t seem to secure the financial backing to get it off the ground, then Shark Tank is just the show for you. Casting is looking for aspiring entrepreneurs who can pitch their breakthrough business concepts, products, properties and services to moguls in hopes of landing investment funds. If selected, five real-life, tough investors could be willing to part with their own hard-earned cash and give you the funding you need to jumpstart your idea. But the investors, also known as Sharks, aren’t just out to invest; they too have a goal — to own a piece of your next big idea.
Your business idea should be top-notch and something the Sharks will really want to sink their teeth into and might even spark a bidding war between them. Who knows – you could be the fortunate entrepreneur who gets the Sharks to reveal the true level of their interest and bid up the price of your investment!
All interested parties should email Lindsay Spaulding at email@example.com with the following information: Name, Age, Hometown, Phone, Photo; Are you an: Inventor, Entrepreneur or both?
Entrepreneurs are, by definition, risk takers. Thus, strong risk management is an important source of competitive advantage. Although over half of all startups fail within their first five years, you can beat the odds and build a thriving and rewarding venture by learning to recognize and manage risks.
“What Kills Startups” provides a framework for identifying, thinking about, and mitigating the biggest risks ahead of you. So roll up your sleeves and dig in!
The Center for Venture Research has published their 2008 report of angel investor activity in the U.S. The report contains both good news and bad news.
The Good News: The number of active angel investors in 2008 and the number of deals they invested in remained comparable to 2007. In 2008, a total of 55,480 ventures received angel investment, down only 2.9% from the previous year. The number of active individual angel investors remained steady at 260,500.
The Bad News: The total dollars invested in 2008 fell 26.2% to $19.2 billion. This indicates a contraction in average deal size, presumably due to lower valuations.
The six sectors receiving the most angel investment are as follows:
In 2008, 45% of angel investments occurred at the seed or start-up stage. Only 10% of the deals brought to the attention of angel investors succeeded in obtaining an investment.
Note that the study only includes accredited or “sophisticated” angel investors who invest through angel investing groups; the study excludes investment activity by informal “friends and family” investors.