By: Susan VanEpps
Paul Singh is a venture capitalist and founder of Disruption Corporation and the Crystal Tech Fund. This month from his blog we share some of his thoughts about the venture capital world, and tips for companies looking for investment.
How would you summarize the outlook for venture capitalists in 2014?
“Early stage startups have already changed. The first underlying factor that drives that change is that initial startup costs continue to drop. It no longer costs, for example, $1M, $2M or $5M dollars to start a new company like it did when founders started up 10 or 15 years ago. With that being said, though, the cost to scale a company is rising. There’s a funding gap between the Seed round and the Series A – and it seems to be getting wider. Rather than writing it off as the ‘Series A Crunch,’ I believe the investors that can systematically identify the most promising companies are positioned for great returns.”
How is this affecting entrepreneurial business?
“If you’re trying to raise money today, you already know that it’s getting harder: as the web gets bigger, the world gets smaller. More founders, from all over the world, are going after the same finite pool of money. The bottom line is that the investor sees (in some cases) hundreds of deals while you probably are only thinking about yours.”
What can businesses do to be informed and stand out from competition?
- “Above all else, be CRISP about what you want. If you’re looking for advice, be ready to ask the one question you really want me to answer. If you’re looking for funding, be ready to tell me what exactly you want. You may not get the answer you’re looking for but I guarantee you that we’ll both be happier that we got it out of the way quickly.
- Use AngelList to scout the market. You’ve probably already looked around to see who’s invested in your competitors but you should consider looking into which other startups are raising money in your space.
- Know your customer – and [pitch the problem, not the solution].
- Come to the table with the right founding team: you need some combination of the hacker, hustler and designer on the team.
- Don’t approach without a prototype (or previous success). I’m sure we all know “idea guys” – people that have been talking about an idea for a long time but haven’t ever built it. Don’t be that person.
- You don’t need hundreds or thousands of customers (though, that won’t hurt), but showing me that someone is actively using the product often and/or paying for it shows me that you’re building something that people want.
- Exploit online distribution channels. You’ve got access to 700M people via Facebook ads. You’ve got even more access to people via Adwords. And don’t forget about LinkedIn ads, Quora, Pinterest, Twitter, Android, iOS and other networks. Show me that you’re testing distribution models on those channels.
In general, stop chasing investor money. Eighty percent of your time should be spent making your startup awesome. Twenty percent of your remaining time will be spent fighting off investors.”
What sets the Crystal Tech Fund apart from others?
“Crystal Tech backs high-growth, [tech-enabled] entrepreneurs with up to $1M in funding. Disruption and Crystal Tech Fund are built by founders, hackers, and dataheads. In other words, we’re geeks funding geeks. We have the cash to fuel your growth; we have just the right mix of tools, resources and guidance.”