With dot-com bubbles bursting and the NASDAQ nosediving, you might think that nobody's going to start a new company anytime soon. But, despite the faltering economy, entrepreneurs everywhere are active. Similarly, venture capitalists still are willing to plant seed money in promising young companies.
While on Darden's week-long Global Business Experience trip to Sweden over Spring Break, I met with Swedish venture capitalists and entrepreneurs in the information technology sector. While our countries are different in many ways, both the United States and Sweden share a love for entrepreneurship.
If you are one of those entrepreneurs who dreams of being your own boss, here is some advice from Sophie Rietz of startupfactory.com. Startupfactory.com is a venture capital firm in Stockholm that provides seed capital for new companies and was kind enough to give a presentation to our group of Darden students. Though Rietz was Swedish, her "Ten Commandments" for entrepreneurs looking for start-up capital are applicable globally. Here are some of the highlights from her speech.
Rietz's first suggestion was to pick a small but growing market. Explain who your customer is and why he or she needs you. Starbucks is an excellent example of a company that virtually created its own market. The company single handedly made coffee an item that Americans should not only savor, but need as a part of their professional workday.
The next rung on the ladder of venture capital acquisition is to build a great team. When starting out, Rietz said to look for people with industry or functional experience and who share your passion. Once you get your company off the ground, be prepared to grow.
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Have plans to bring new outsiders in. And, going forward, be humble enough to realize that you may no longer be the right person to run the day-to-day operations of the business. This honesty in self-appraisal and team building is what drove The Motley Fools Web site (fools.com) toward success in 1993.
Although the quirky online financial advising group is now facing recession difficulty like many start ups, the founders, brothers David and Tom Gardner displayed shrewd teambuilding recently by stepping down as the CEOs so that someone else can handle the details of daily management.
Think strategically. Show your potential funders not only that you have thought carefully about which direction you're going to take, but also what milestones you'll pass along the way. And when you present your strategy, show how passionate you are about your idea.
Another key to marketing your company as a candidate for venture capital is to know your competition. Can you name them? What do you know about them? And, can you explain why and how you will succeed in beating your competitor?
For example, Nike must differentiate from Adidas, Burger King from McDonald's, and Coca-Cola from Pepsi. Although the companies have similar products, the secret to outdoing the competitor is being aware constantly of how you're better than them.
Numbers matter, too. The financials are always important, but if you're talking to people whom you want to give you money, you ought to be prepared to show them why. Talk to them about how you will develop cash flow and how much you intend to spend on key areas like staffing and product development. Show that your assumptions are clear and reasonable and that you've thought through different scenarios.
To remember all these things, start-ups must write a great business plan. If you're doing a dot- com start-up (bless your heart), don't write a term paper on the history of the Internet. No matter what industry or sector you are planning to join, write a concrete and concise business plan to show investors (even if it's your mom and dad) that you've thought extensively about what might happen and possible outcomes.
Pick a good audience. Mom and dad might be good at the start, but if you're truly serious, you need to spend time now finding the right venture capital with interest and experience in your chosen field - it will pay off later.
You were just wondering how to find these venture capital firms, right? Use your network. Rietz says that of 1,500 proposals her company received, they invested in 10 - ones they heard about through referrals.
Last year, venture capitalists threw around money like it was going out of style. Those heady go-go days are long gone. Now, cooler heads prevail.
Some might say that this is a problem. It's not - it's an opportunity for you to show how thoughtful and passionate you really are. Take advantage of this search for value and make yours the company that beats the odds.
(Julie DeFranco is a second-year student in the Darden School of Business.)
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