Category Archives: Finance

The Seven P’s of Raising Money from Investors

The Seven P's of Raising Money from Investors

GUEST POST from Arlen Meyers, M.D.

Budding sickcare entrepreneurs inevitably want to know, “How do I raise money for my idea?” Most of the time, they are not ready for fundraising prime time and they have not taken the necessary steps to begin to do so or understand when and if it is the prudent thing or right time to do.

Here are the 7 P’s of raising money from investors:

1. Preparation

You should prepare to raise money by 1) derisking your idea as much as possible and 2) understanding what it will take to raise money i.e. technical, clinical and commercial (traction) validation.

When you have an exciting new idea, it’s easy to focus on all its benefits and jump to action. But doing so can lead to failure. Your limited perspective may mean you’re not seeing potential hurdles — and you may be leaving other promising options unexplored.

If you want the best ideas to flourish, you need to open your mind to different people from people beyond your team, whom you don’t usually talk to — and ask open-ended questions. After presenting your idea, ask: What stands out to you, and what’s missing? What would our critics say? Consider the failure of your idea: What would your premortem reveal? Consider other people outside the room and ask: What would someone on the frontlines say? Finally, put yourself in your competitors’ shoes. What flaws or weaknesses in your idea would they celebrate if you were successful?

  1. Do you understand the regulatory requirements and rules for raising private money?
  2. Do you know how much money you should raise and in what form: debt, diluting funds or non-diluting funds, like grants, contracts or some proof of concept awards?
  3. Have you validated the underlying hypotheses of your business model and demonstrated product-market fit? Do you have traction? What is the evidence? But, is product-market fit really enough?
  4. Do you have a reimbursement or revenue plan?
  5. Do you have a plan to create and protect your intellectual property?
  6. Do you have a regulatory approval or compliance plan?
  7. Have you created the appropriate corporate entity and corporate governance documents?
  8. Are you prepared to bootstrap your startup and dedicate the time, effort and capital required to be successful?
  9. Have you created the necessary fundraising and marketing collateral like a website, executive summary, social media channels to create awareness, engagement and buzz about your company?
  10. Can you answer these three questions: Is the market for the problem you want to solve big enough to make your journey worth it? How many customers want it and are willing and able to pay for it or get someone else to pay for it? Can you win at it give market competitors?

2. Plan/Strategy

After answering these questions, assuming you decide to proceed, you will need a capital raising plan and strategy. A capital raising strategy is essentially a roadmap for how your organization will pursue and obtain the funds it needs to fuel its growth. The capital raising process can take a long time and it’s a serious undertaking. However, while you may stay up late at night searching for new investors, writing pitch decks, and pouring over financial spreadsheets, building your strategy is the simplest part of the entire process. Here are the parts to the plan.

3. Pitch deck

Your pitch deck should tell your story. Who are the villains? Who are the heros? How did they win? There are many resources available to help you craft and polish your short, medium and long pitches, depending on the circumstances and the audience. Here is something to start:

4. Platform

You will need a CRM or tracking platform to keep track of the people who have contacted and how you intend to convert them as leads to investors. Crowdfunding platforms are another resource.

5. People

Do you have the right people on your startup team who can raise money? Are the founders the right people to do it? Do you have robust enough networks and contacts? Do you need a fractional of full-time accountant, controller or chief financial officer?

6. Process

The process should describe how and who will execute your fundraising plan, whether you are starting a company or scaling one. Since what you are doing is selling and marketing your idea and your team, what is your marketing, sales operations and sales enablement process?

7. Performance indicators

Performance indicators help you measure your progress and inform your strategy and execution adjustments moving forward. Here are some fundraising metrics for non-profits.

Raising money from investors is a lot like renovating your kitchen. It will take much longer than you thought it would, the costs in time, money and effort will be much bigger than you assumed and, when you see the final results, you will wish you had done some things differently.

Good luck and be sure to follow the right rainbow.

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Silicon Valley Has Become a Doomsday Machine

Silicon Valley Has Become a Doomsday Machine

GUEST POST from Greg Satell

I was working on Wall Street in 1995 when the Netscape IPO hit like a bombshell. It was the first big Internet stock and, although originally priced at $14 per share, it opened at double that amount and quickly zoomed to $75. By the end of the day, it had settled back at $58.25 and, just like that, a tiny company with no profits was worth $2.9 billion.

It seemed crazy, but economists soon explained that certain conditions, such as negligible marginal costs and network effects, would lead to “winner take all markets” and increasing returns to investment. Venture capitalists who bet on this logic would, in many cases, become rich beyond their wildest dreams.

Yet as Charles Duhigg explained in The New Yorker, things have gone awry. Investors who preach prudence are deemed to be not “founder friendly” and cut out of deals. Evidence suggests that the billions wantonly plowed into massive failures like WeWork and Quibi are crowding out productive investments. Silicon Valley is becoming a ticking time bomb.

The Rise Of Silicon Valley

In Regional Advantage, author AnnaLee Saxenian explained how the rise of the computer can be traced to the buildup of military research after World War II. At first, most of the entrepreneurial activity centered around Boston, but the scientific and engineering talent attracted to labs based in Northern California soon began starting their own companies.

Back east, big banks were the financial gatekeepers. In the Bay Area, however, small venture capitalists, many of whom were ex-engineers themselves, invested in entrepreneurs. Stanford Provost Frederick Terman, as well as existing companies, such as Hewlett Packard, also devoted resources to broaden and strengthen the entrepreneurial ecosystem.

Saxenian would later point out to me that this was largely the result of an unusual confluence of forces. Because there was a relative dearth of industry in Northern California, tech entrepreneurs tended to stick together. In a similar vein, Stanford had few large corporate partners to collaborate with, so sought out entrepreneurs. The different mixture produced a different brew and Silicon Valley developed a unique culture and approach to business.

The early success of the model led to a process that was somewhat self-perpetuating. Engineers became entrepreneurs and got rich. They, in turn, became investors in new enterprises, which attracted more engineers to the region, many of whom became entrepreneurs. By the 1980’s, Silicon Valley had surpassed Route 128 outside Boston to become the center of the technology universe.

The Productivity Paradox and the Dotcom Bust

As Silicon Valley became ascendant and information technology gained traction, economists began to notice something strange. Although businesses were increasing investment in computers at a healthy clip, there seemed to be negligible economic impact. As Robert Solow put it, “You can see the computer age everywhere but in the productivity statistics.” This came to be known as the productivity paradox.

Things began to change around the time of the Netscape IPO. Productivity growth, which had been depressed since the early 1970s, began to surge and the idea of “increasing returns” began to take hold. Companies such as Webvan and Pets.com, with no viable business plan or path to profitability, attracted hundreds of millions of dollars from investors.

By 2000, the market hit its peak and the bubble burst. While some of the fledgling Internet companies, such as Cisco and Amazon, did turn out well, thousands of others went down in flames. Other more conventional businesses, such as Enron, World Com and Arthur Anderson, got caught up in the hoopla, became mired in scandal and went bankrupt.

When it was all over there was plenty of handwringing, a small number of prosecutions, some reminiscing about the Dutch tulip mania of 1637 and then everybody went on with their business. The Federal Reserve Bank pumped money into the economy, the Bush Administration pushed big tax cuts and within a few years things were humming again.

Web 2.0. Great Recession and the Rise Of the Unicorns

Out of the ashes of the dotcom bubble arose Web 2.0, which saw the emergence of new social platforms like Facebook, LinkedIn and YouTube that leveraged their own users to create content and grew exponentially. The launch of the iPhone in 2007 ushered in a new mobile era and, just like that, techno-enthusiasts were once again back in vogue. Marc Andreessen, who founded Netscape, would declare that software was eating the world.

Yet trouble was lurking under the surface. Productivity growth disappeared in 2005 just as mysteriously as it appeared in 1996. All the money being pumped into the economy by the Fed and the Bush tax cuts had to go somewhere and found a home in a booming housing market. Mortgage bankers, Wall Street traders, credit raters and regulators all looked the other way while the bubble expanded and then, somewhat predictably, imploded.

But this time, there were no zany West Coast startup entrepreneurs to blame. It was, in fact, the establishment that had run us off the cliff. The worthless assets at the center didn’t involve esoteric new business models, but the brick and mortar of our homes and workplaces. The techno-enthusiasts could whistle past the graveyard, pitying the poor suckers who got caught up in a seemingly anachronistic fascination with things made with atoms.

Repeating a now-familiar pattern, the Fed pumped money into the economy to fuel the recovery, establishment industries, such as the auto companies in Detroit were discredited and a superabundance of capital needed a place to go and Silicon Valley looked attractive.

The era of the unicorns, startup companies worth more than a billion dollars, had begun.

Charting A New Path Forward

In his inaugural address, Ronald Reagan declared that, “Government is not the solution to our problem, government is the problem.” In his view, bureaucrats were the enemy and private enterprise the hero, so he sought to dismantle federal regulations. This led to the Savings and Loan crisis that exploded, conveniently or inconveniently, during the first Bush administration.

So small town bankers became the enemy while hotshot Wall Street traders and, after the Netscape IPO, Internet entrepreneurs and venture capitalists became heroes. Wall Street would lose its luster after the global financial meltdown, leaving Silicon Valley’s venture-backed entrepreneurship as the only model left with any genuine allure.

That brings us to now and “big tech” is increasingly under scrutiny. At this point, the government, the media, big business, small business, Silicon Valley, venture capitalists and entrepreneurs have all been somewhat discredited. There is no real enemy left besides ourselves and there are no heroes coming to save us. Until we learn to embrace our own culpability we will never be able to truly move forward.

Fortunately, there is a solution. Consider the recent Covid crisis, in which unprecedented collaboration between governments, large pharmaceutical companies, innovative startups and academic scientists developed a life-saving vaccine in record time. Similar, albeit fledgling, efforts have been going on for years.

Put simply, we have seen the next big thing and it is each other. By discarding childish old notions about economic heroes and villains we can learn to collaborate across historical, organizational and institutional boundaries to solve problems and create new value. It is in our collective ability to solve problems that we will create our triumph or our peril.

— Article courtesy of the Digital Tonto blog
— Image credit: Pixabay

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Apple iPhone 6 Killer App Revealed

Apple iPhone 6 Killer App RevealedWhile most people are focused on what the new Apple iPhone 6 hardware might look like and what new gizmos it might have, the real killer app for Apple’s latest refresh of their flagship mobile device will be an App and a little tiny NFC chipset.

Rumored for the iPhone 5 (rumors which were heightened by Apple’s acquisition and subsequent inclusion of fingerprint sensor technology), mobile payments may finally be a built-in feature of the Apple’s newest handset, the iPhone 6.

Apple has been reportedly out talking to the likes of Visa, American Express, Nordstrom and others, and if that is all true then expect part of Apple’s Tuesday September 9th announcement to be focused on the new mobile payment capabilities of the iPhone 6.

I was one of those who thought that mobile payments might launch as part of the iPhone 5’s capabilities, but obviously the technology, or more likely the relationships and contracts, were not ready for prime time a year ago.

Will mobile payments authenticated by your fingerprint finally appear in the iPhone 6?

If so, soon we will finally be able to stop carrying around wallets and switch to money clips and mobile phones, as such a feature will not only replace credit cards, but loyalty cards, insurance cards, and more.

Yes, Samsung may have done it first with the Galaxy S5, but you know Apple will do it bigger (and better).

I guess we’ll find out next week.

Image credit: Ricardo Del Toro


Build a common language of innovation on your team

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Where is your Innovation Friction?

Innovation Perspectives - Where is your Innovation Friction?How should firms develop the organizational structure, culture, and incentives (e.g., for teams) to encourage successful innovation?

When it comes to creating an innovation culture, often people make it far too complicated. If you’re part of the senior leadership team and you’re serious about innovation then your job is simple – reduce friction.

If you’re serious about innovation and you’re not a senior leader, then your job is to do what you can to convince senior leadership that innovation is important. Then, gently help your execs see the areas of greatest friction in your organization so they can do something about it.

When it comes to creating a culture of innovation, the most frequently cited area of friction in organizations is the acquisition of resources for innovation projects (the infamous time and money). Senior leaders serious about innovation must eliminate the friction that makes it difficult for financial and personnel resources to move across the organization to the innovation projects that need them (amongst other things).

But this particular impediment is just a part of a much larger barrier to innovation – the lack of an innovation strategy. When senior leadership commits to innovation and sets a strong and clear innovation strategy then policies and processes get changed and resources move.

A couple of years ago I ran a poll on LinkedIn asking people to identify their organization’s biggest barrier to entry. 566 people responded and 58% of respondents identified either the absence of an innovation strategy or the psychology of the organization as the biggest barrier. ‘Organizational psychology’ came out on top with 32% of the vote, with ‘Absence of an innovation strategy’ a close second (26%). Other choices in the poll included – ‘Organizational structure’, ‘Information sharing’, and ‘Level of trust and respect’.

(poll results timed out on LinkedIn)

A second major area of innovation friction is the movement of information. Too often there is information in disparate parts of our organizations that remains separated and unknown to the people who need it. Organizations that reduce the friction holding back the free flow of relevant information to where it is needed will experience a quantum leap in not only their product or service development opportunities, but in many other parts of their organization including sales, marketing, and operations.

So, what are the areas of friction that are holding your organization back from reaching its full innovation potential?

What are the barriers to innovation that have risen in your organization as you struggle to maintain a healthy balance between your exploration and exploitation opportunities?

I’ve explored the idea of barriers to innovation further in my book Stoking Your Innovation Bonfire from John Wiley & Sons. It’s been called “accessible and comprehensive” and companies have been acquiring it in bulk to both identify and knock down barriers to innovation, but also to build a common language of innovation.

Build a Common Language of Innovation

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Innovation Costs of Reducing the Flow of Immigrants and Travelers to USA

Innovation Costs of Reducing the Flow of Immigrants and Travelers to USA

September 11th was a traumatic event for the psychology of the nation but also for its innovation capacity. After 9/11 the United States started admitting fewer highly skilled immigrants, invited fewer students to come study here, and companies and consumers cut back on their travel budgets.

These factors, along with many others, combined to reduce the amount of face to face collaboration and created new innovation headwinds for the country.

In 2001, Michael Porter of Harvard Business School published a report ranking the United States as #1 in terms of innovative capacity. By 2009, the Economist Intelligence Unit had dropped the United States in its innovation rankings from #3 between 2002 – 2006 to #4 between 2004 – 2008. The most recent Global Innovation Index has the United States falling from #1 in 2009 to #7 in 2011 — behind Switzerland, Sweden, Singapore, Hong Kong, Finland, and Denmark.

If you’re the United States, not being #1 anymore is a definite concern. Innovation drives job creation, and any decrease in the pace of domestic innovation will ultimately lead to lower economic growth. As the United States slides down the innovation rankings, restrictive immigration policies suddenly look less smart.

The number of foreign student visas increased by a third during the 90s, peaking in 2001 at 293,357 before dropping post-9/11 by 20 percent nearly overnight. It took five years before foreign student visa numbers recovered to 2001 levels. Last year, 331,208 foreign student visas were issued.

But a drop-off in highly skilled immigration does not account for the entire drop in America’s innovation leadership. Another headwind that hit post-9/11 was the drop-off in travel in America. In August 2001, 65.4 million airline passengers traveled to the country. It took three years for passenger growth to resume.

Travel — both corporate and leisure — is important to innovation for three main reasons:

  1. People see and experience things that spark new ideas
  2. Face-to-face meetings deepen human connection and improve productivity and collaboration.
  3. Innovation partnerships and acquisitions are often made in-person.

The United States is at an innovation crossroads. We must commit to attracting more innovators to this country, and to traveling abroad more. Not doing so is guaranteed to exacerbate America’s slide from innovation leader to laggard.

This article first appeared on The Atlantic before drifting into the archive

Build a Common Language of Innovation

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Business Model Innovation?

Business Model Innovation?

Nearly five years ago I wrote this article, but I think it is worth dredging it up out of the archives because there is such misunderstanding out there about what business model innovation is. This article highlights some of the misconceptions people have about what business model innovation truly is and looks quickly at a couple of more appropriate examples of business model innovation. But of course I’d love to hear your thoughts in the comments, including your favorite business model innovation examples.

Here’s the article from 2007:

I came across an article on BusinessWeek.com that I just have to write about because it asserts that GM has achieved a business model innovation by shunting its retiree medical obligations onto the Union (and getting away with only contributing 70% of the outstanding obligations to the fund).

This is not a business model innovation, but purely a negotiation outcome and nothing that will give GM any sustainable competitive advantage. Ford and Chrysler will end up doing the same thing and the parity of competition amongst US manufacturers will be restored. A business model innovation is Southwest Airlines establishing a new airline focused on providing low fare point to point air travel instead of creating another airline based on a hub and spoke model, or Saturn selling their cars for a fixed price, not GM pushing obligations off their balance sheet.

GM is not losing in the automobile industry because of health care costs for retirees. They are losing because their operations result in cars that less and less people want to buy. GM needs to stop complaining about peripheral issues and trying to be like Toyota and instead focus on how they can be better than Toyota.

When workers come back on the job, nothing will have changed in their business, the business of designing, manufacturing and selling cars. If anything the workers are going to come back to work feeling like they have just given even more away to the corporation, just so that the CEO’s balance sheet look better. This is not a business model innovation. The Big Three will not avoid the inevitable by simply squeezing their union workforce, they need to design and manufacture better cars. This deal with the unions may slow the inevitable, but not avoid it. Toyota is passing GM, the Korean manufacturers are quickly improving their quality, and the Chinese will begin entering the US market in the next few years. One of the Big Three will go out of business in the next ten years. The real question is which one?

Build a Common Language of Innovation

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4 Days to Innovate

4 Days to InnovateThe clock is ticking on the congressional “supercommittee” – a panel comprised of six Republicans and six Democrats charged with issuing a plan to balance the nation’s budget. The bipartisan gathering has only four days until their deadline to submit such a plan. But how well can they, or anyone, innovate while the clock is ticking?

Continue reading the rest of this article on The Washington Post

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