Josh Kopelman wow’ed the crowd on Monday’s NJ Tech Meetup. Thanks to NJ Tech Meetup members Noah Smith of Open Capital Exchange and Simon Hopkins of IBE.net for sharing their notes on his talk:
From Noah Smith of Open Capital Exchange:
- Piece of counter-intuitive advice: There are often opportunities in crowded markets, if you can shrink the market. e.g. encyclopedias before the internet. $1.2b mkt. Britannica etc. MS brought Encarta to the market. Turned it into a $120m mkt. Then Wikipedia shrunk it to almost nothing.
- Similarly: Half.com took what might have been a $30 sale of a hardcover and got individuals to resell books for a fraction of that, multiple times.
- For pitching to seed investors v VCs: Seed guys fund validation projects; VCs fund growth. Pitch accordingly.
- Good phrase for putting an obvious value proposition to a customer: “It’s not a decision. It’s an IQ test.”
- Key drivers of a startup’s value: size of market, risks. When you decrease the risks you increase the value.
- Key entrepreneurial instinct: Discerning the unkowns that contain the maximum risk
- Chief reasons I don’t invest: 1) team, and 2) not venture-scale opportunity. You’ll never hear the first but that’s usually what it is.
- We like teams that cover each others blind spots. Don’t all think alike.
- Marketing is key. Be unconventional. Figure out how to get someone’s attention. If you have something that’s unique and exceptional you can’t be conventional in your marketing.
- We like to fund heat-seeking missiles. Entrepreneurs who lock onto a target-rich environment and are constantly surveying the field, absorbing feedback and adjusting course.
- We also like investing in story tellers. When I look at the entrepreneurs who we’ve funded who are successful they’re often the best story tellers. You need to convince so many people of your idea if you’re going to succeed. Team, media, investors, customers. Story-telling is key.
- When pitching the average entrepreneur practices 5 hrs. That’s no where near enough. Should be more like 100. If you’re not on draft 18 of your deck you’re not ready. We ourselves spend 10 hours w companies we’ve backed before they go out to pitch for follow-on rounds.
From Simon Hopkins of IBE.net:
The seed money should be used by companies to:
Validate a business concept
De-risk the company
Disprove the business concept (i.e. fail fast)
VC money should be used by a company to fuel growth, not to prove a business concept.
Entreprenneurs need to ask themselves “What are the unknowns that contain the maximum risk for my venture?”
Their most important job is to then minimize those risks
Biggest mistakes that entrepreneurs can make:
- Failure to work out and capitalize on key inflection points
- Engage in poor marketing (there is no such thing as a “viral” button)
- A unique, unconventional, innovative product requires unique, unconventional & innovative marketing
- half.com city rename story (half.com found a city and persuaded them to rename it to “half.com”)
- Failure to develop an effective customer acquisition strategy
- XML survey story (final question “what does XML stand for?”)
- “Education” is hugely expensive in marketing (if the audience don’t “get it”, you will never be able to educate a market)
What do VCs look for
- Story tellers
- you must be able to tell a good story, it’s the one thing that all of his portfolio companies have in common
- same applies to customers, employees, press as well as investors
- Convince people that your vision of the future is correct.
- The story must be compelling (it must speak to a jaded, cynical audience)
- Team, as opposed to an individual
- team must have complimentary skills
- Idea doesn’t need to be new and revolutionary
- may companies grow rapidly by doing something faster/better/cheaper
On pitching to VCs
- Surprised how little time entrepreneurs spend practicing their pitch
- Expect at least 100h of practice
- His portfolio companies are required to present internally at least 7 times before being let loose on VCs
- Competition is fierce. Fundraising is a full time job.
- Don’t do it unless you are fully prepared. It is a huge mistake to go out unprepared
- there has been 10x seed money going into start-ups. All of those start ups are looking for a series-A raise. The amount of series-A funding has not increased… you do the math
- Go into any fund raising round knowing what the slide deck for the next raise should look like (be one step ahead)
Successful entrepreneurs/companies
- Have a deep belief in a secret that they believe is right, and that the established players do not.
- Air B&B story (an unconventional idea)
- Make the idea SIMPLE. Don’t over-complicste it
- Don’t necessarily need to increase a market, can be successful reducing a market in an asymmetric way e.g. half.com, encyclopedias
- Find an experience that sucks, and turn it into something magical
- Build something that people want.
- Make customers happy
- Be a “Heat seeking missile”. “Heat seeking missiles” adjust course to hit target. It’s what strong CEOs do.
