The Market for Mobile

Imagine you are walking in the US town of your choice.  If you stop everyone over the age of 13 you come across and ask, approximately 99 times out of 100 (approximately 257 million in the US) of them will tell you they have a cell phone.  50 out of 100 (127 million) will tell you they have a smartphone, and that number is growing.  So what’s the big deal?  Why does it matter that more and more Americans are using smartphones?

1. Smartphones aren’t just for calling.  In fact, a recent survey by the European Telecom company O2 indicates that the telephone is only the 5^th most popular app on the smartphone.  According to the study, in terms of time spent, browsing the internet was the most popular activity on the smartphone, followed by social networks (Facebook, Twitter), gaming and finally listening to music.
2. Accessing the internet via mobile is increasing.  According to mobiThinking.com, the proportion of global Web page views from mobile devices (versus PCs) in North America has risen from 7.8% in May 2011 to 8.6% May 2012, and continues to grow.  This means that mobile phones are starting to replace computers as the main vehicle for web access.
3. M-commerce is growing.  Nearly 1/3 of North American e-commerce transactions in July of 2012 originated from mobile devices.  This is another area where smartphones are beginning to replace pcs, particularly with localized goods and services.  For example, people looking for a deal from a nearby pizza place are more likely to use their smartphones on the fly than their laptops or pcs.
4. The market for web advertising via mobile is skyrocketing.  Currently, the market for mobile ads in the US is around $6 billion.  By 2016, it is expected to quadruple to nearly $24 billion.  As mentioned previously, much of this growth is fueled by location-based services such as mobile apps that combine with gps to find local deals.

What does all this mean for InnoVest Club?  InnoVest Club is positioned to capitalize on this growing mobile trend in several ways.  First, unlike the big players Google and Facebook, InnoVest Club is building mobile technologies from the ground up.  Each of our major product and service categories will have a corresponding mobile app which will be engaging and easy to use.

Second, the apps will include e-commerce capabilities in order to generate mobile revenues directly.  Finally, InnoVest Club is developing a novel mobile advertising platform.  As this market is relatively new and untapped, there is a great opportunity to help develop this space and attain a large market share.  Look for exciting things at InnoVest Club in the coming months!

Pitching Your Idea to Investors

The elements of a good pitch to investors are essentially the same as those in the executive summary and business plan.  The difference is in the level of detail.  Whereas the business plan should cover the topics of interest in some detail, the summary and the pitch need to hit the highlights and provide relevant information in a concise and effective manner.

David Rose, who is both an entrepreneur and investor, and CEO of Gust.com gave a talk on Ted.com.  From his talk and my own experience in pitching business plans, I’ve compiled the following are key points that every pitch should make:

1. Company Overview – Start out with a short (2-3 sentences), clear description of your company and what it does.  (Depending on the opportunity, I personally like to start with #3, the pain in the market, if it is particularly compelling.)
2. Management Overview – Briefly discuss the management team and how you are the right ones to bring the venture to fruition.
3. Market – Discuss the pain in the market, and the market conditions (size, demographics, trends,) that make the opportunity compelling from a demand perspective.
4. Product/Service Description – Introduce the product or service you are introducing, and how it relieves the “pain” in the market.
5. Business Model – Describe the revenue model, i.e., how will people pay for your product/service? What is the cost per unit?  How are revenues generated?  Via subscription, one time purchase?
6. Strategic Relationships – Do you have customer contracts in place?  Special discounts with suppliers or distribution channels?  Discuss any relationships that may enhance your competitive advantage.
7. Competition – Discuss your market position and competition realistically, and how you plan to overcome any disadvantages.
8. Barriers to Entry – Detail your competitive advantage and discuss how you will maintain it over competitors and would-be market entrants.
9. Financial Overview – Discuss financial highlights for 1-2 years prior, and projections for 3-5 years.  What are the drivers of those projections?  Sales projections, etc.
10. Use of Proceeds – How will the invested money be allocated?  When do you realistically expect to be cash flow positive?
11. Capital Structure – What is the investment opportunity?  How is it structured? What
    is the net present value of the company and what percentage will the investment purchase? How much have you invested? Friends and Family?  Investors want to know what they are getting for their money, and they want to know how much “skin in the game” you have.
12. Conclusion – Sum it up with a compelling reason why this is a golden opportunity.

As you build your pitch, keep in mind the basic points the investors are looking for, and hit those the hardest – what is the market opportunity, what you’re going to do, and how you’re going to do it.  Make sure it is well supported and realistic, and give relevant examples of others that your strategies have worked for in the past.

Make sure to avoid making any statement that isn’t verifiable or is untrue, or that the audience might not understand.  For example, if you are pitching something complex or scientific, make sure you’ve explained the basics and present analogies so that anyone can understand the main concepts.  Also, it should be a no-brainer, but make sure to avoid any inconsistencies or errors throughout the presentation.  A single occurrence can sink an otherwise strong presentation.

http://www.ted.com/talks/david_s_rose_on_pitching_to_vcs.html

Pitching Your Idea to Investors

The elements of a good pitch to investors are essentially the same as those in the executive summary and business plan.  The difference is in the level of detail.  Whereas the business plan should cover the topics of interest in some detail, the summary and the pitch need to hit the highlights and provide relevant information in a concise and effective manner.  The following are the key points that every pitch should make, and roughly in order:

1. Company Overview – Start out with a short (2-3 sentences), clear description of your company and what it does.  (Depending on the opportunity, I personally like to start with #3, the pain in the market, if it is particularly compelling.)
2. Management Overview – Briefly discuss the management team and how you are the right ones to bring the venture to fruition.
3. Market – Discuss the pain in the market, and the market conditions (size, demographics, trends,) that make the opportunity compelling from a demand perspective.
4. Product/Service Description – Introduce the product or service you are introducing, and how it relieves the “pain” in the market.
5. Business Model – Describe the revenue model, i.e., how will people pay for your product/service? What is the cost per unit?  How are revenues generated?  Via subscription, one time purchase?
6. Strategic Relationships – Do you have customer contracts in place?  Special discounts with suppliers or distribution channels?  Discuss any relationships that may enhance your competitive advantage.
7. Competition – Discuss your market position and competition realistically, and how you plan to overcome any disadvantages.
8. Barriers to Entry – Detail your competitive advantage and discuss how you will maintain it over competitors and would-be market entrants.
9. Financial Overview – Discuss financial highlights for 1-2 years prior, and projections for 3-5 years.  What are the drivers of those projections?  Sales projections, etc.
10. Use of Proceeds – How will the invested money be allocated?  When do you realistically expect to be cash flow positive?
11. Capital Structure – What is the investment opportunity?  How is it structured? What is the net present value of the company and what percentage will the investment purchase? How much have you invested? Friends and Family?  Investors want to know what they are getting for their money, and they want to know how much “skin in the game” you have.
12. Conclusion – Sum it up with a compelling reason why this is a golden opportunity.

As you build your pitch, keep in mind the basic points the investors are looking for, and hit those the hardest – what is the market opportunity, what you’re going to do, and how you’re going to do it.  Make sure it is well supported and realistic, and give relevant examples of others that your strategies have worked for in the past.

Make sure to avoid making any statement that isn’t verifiable or is untrue, or that the audience might not understand.  For example, if you are pitching something complex or scientific, make sure you’ve explained the basics and present analogies so that anyone can understand the main concepts.  Also, it should be a no-brainer, but make sure to avoid any inconsistencies or errors throughout the presentation.  A single occurrence can sink an otherwise strong presentation.

http://www.ted.com/talks/david_s_rose_on_pitching_to_vcs.html

Standing Out With a Video Resume

The standard job search typically involves a resume and cover letter.  With the high unemployment during this extended recession, however, it is more important than ever to try to have an edge over the competition.  One way to enhance (not replace) your qualifications on paper is to create a video for prospective employers to view.  Not only does it give you a chance to highlight certain qualifications in a way that goes beyond paper, but it’s also an opportunity to show a little personality.

Here are some tips on creating a solid video resume:

1. Know your Audience.  It goes without saying that you should define what you are looking for job-wise.  It may be a narrowly defined field, such as an insurance claims specialist, or it may be more general, such as a factory worker.  In either case, it is important to understand who your potential employers are, and what specifically they are looking for.  Demonstrating your knowledge of your audience’s needs and how you can fulfill them will go a long way towards creating a positive impression.
2. Look the part.  It should be obvious that a clean, well-groomed look is important, but it should also match the profession you are aiming for.   For example, a graphic designer for the web may be able to get away with an edgier look than an accountant.  Displaying some tattoos may be acceptable in some creative fields, but they are taboo in traditional fields.  If you are going to stand out with your appearance, make sure it is in a positive way that enhances your pitch.
3. Introduction.  Briefly state your name, and give your audience a brief summary about what you are about to say.  For example, “my name is John Smith, and I’m excited to introduce myself, and to share how I can help your company maximize promotional events dollars!”
4. Lead with the pain.  Following from number 1, identify at least one or two main areas that are pain points for your potential employers.  For example, a company needs a meeting planner who understands issues with vendors and is an expert negotiator.  The company wants to know that they are receiving the maximum return on investment on the hundreds of thousands of dollars they may be spending on promotional events.
5. Show how you are the cure.  You don’t want to recite what’s on your resume, but having identified the main pain points of your audience, you now have an opportunity to demonstrate why you are uniquely qualified to cure that pain.  For example, as a meeting planner you might highlight some specific experience and discuss examples that illustrate how you have maximized the events budget.  Results speak for themselves!
6. Sum it up with something catchy.  You have your audience’s attention, you’ve demonstrated your savvy, and now it’s time to close the deal.  Up to this point, it’s been all about the audience, but now you can really use your creativity to generate interest.  You might use something from current events or something that’s unique to the industry, but a timely message that nicely summarizes your story can help seal the deal.   And finally…
7. Call to action. Every sales pitch needs a call to action.  You’ve piqued your audience’s interest, hopefully gotten them excited, and now you need them to take action.   Of course, the action you would like them to take is to contact you for an interview, so you might say something like, “Now that I’ve gotten your attention, I would love to meet with you to discuss in more details how I can help your company grow.  I can be reached at (415) 693-2289 or at john.smith@gmail.com.  I can’t wait to hear from you!”

Crowdfunding Investment for Beginners

The new JOBS Act that enables equity crowdfunding investments by non-accredited investors should usher in a new era for the economy, and for the world of investment.  In loosening the reporting restrictions on companies, and allowing non-accredited investors (investors whose net worth is less than $1 million and/or whose income is less than $200 thousand per year) to invest in risky but potentially lucrative startups, the law should enable more companies to be created, creating more jobs and increasing the wealth-creating options of the average person.

The groundbreaking JOBS Act is not without its detractors, however.  Some regulators and experts worry that in loosening restrictions on financial reporting and informational requirements, the new law will open the door to unprecedented levels of fraud.  These experts believe that the new market of unsophisticated investors will be more susceptible to scam artists and poor investment strategies.  Experienced investors are already subject to the hazards of market uncertainty in that a majority of startups fail, as well as incomplete information and fraud, even with very strict regulations.  Thus, lower minimum reporting requirements and lack of understanding the inherent risks could make equity crowdfunding more like gambling than an investment strategy.

Understanding that the relaxed requirements may expose new investors to additional risks is key in developing a sound investment strategy for would-be startup investors.  Even if the investment is only a few dollars, it is important to know what information you need to help you make the best investment decisions.  The following tips are a starting point for crowdfunding if this will be your first time investing in a startup.

1. Evaluate the Opportunity – Start with what you know.  For example, if you’re a single, 20-something man with no kids in sight, you probably don’t know much about pregnancy-related products.  It’s better to stick to areas of interest, such as a hobbies, career or life-style related opportunities.  Then ask yourself, “would I buy what the company is selling?”  Are there competitors out there doing it better?   How much would you be willing to pay?  How many are there out there like you who would buy it?  Has the concept already been proven in the marketplace?
2. Evaluate the Team – Do the principles have the skills and experience to successfully launch the business?  Do they have all the necessary skill sets within the team – marketing, finance, technical – to run the operations smoothly?
3. Evaluate the Plan – Do they have a well-thought out business plan?  Is there a feasible and effective strategy for entering the market and securing market share?  Do their financial goals seem realistic?  Are there significant elements already in place, such as established distribution channels and supplier relationships? Have they sufficiently analyzed the market to identify risks (which are always an important factor), and identified contingency strategies?  Have they planned for worst-case scenarios?
4. Understand the Deal – Once you’ve established that the opportunity looks good on paper, it is important to understand what kind of return on your investment you’ll receive and when you can expect to receive it.  The longer you have to wait for your money, the lower its value because time increases risk.  This is especially true of early stage investors, who incur not only the risks of business failure and moral hazard, but also the risk of dilution in subsequent fundraising rounds.  Therefore, the exit strategy, time-frame, and anti-dilution strategies are of critical importance.
5. Due Diligence– After establishing that the opportunity is sound and the deal is favorable, it’s time to dig a little deeper into history and backgrounds of the company and its founders.  This is the area that most concerns skeptics of the JOBS Act, because early stage companies have little or no history, and the loosened regulations may make it even harder to investigate these privately held companies.  However, you can always ask for documentation, and do background checks on the principles.  Some of the documentation you can request includes:
   1. Tax Returns – if the company should be more than happy to provide its tax returns to prospective investors.  If the company doesn’t have them yet, the principles should provide theirs for the previous 2-3 years.  If they balk at this, it is generally a bad sign.
   2. Licensing and Certifications – the company should have city, state and federal licenses, tax id, etc., and they should be willing to provide them.  If not, beware.
   3. Affiliations – ask for associations to which the firm or its members belong, and try to investigate their tenure, track record, etc.
   4. References – the company should be willing to provide business references.  Follow up with these references.  If they turn out to be family or personal relationships rather than true business references, it might be a warning sign to proceed with caution.

Even the most sophisticated angel investors can be deceived, so it is important for new investors to be extremely cautious and arm themselves with as much information as humanly possible.  Over time and a wide variety of investments (diversifying is always a wise investment strategy), the new investor will develop the skills to efficiently vet opportunities.  However, in the early stages, especially once the new JOBS Act legislation goes into effect, investors should heed the ancient advice – caveat emptor (buyer beware)!

What the New JOBS Act Means for Startups and Investors

The Jumpstart Our Business Startups (JOBS) Act that was signed by President Obama last month ushers in a new era for small and growing businesses seeking to raise capital through a novel process called “crowdfunding” that will now allow business to more easily raise capital without excess red tape.  It also opens up access to potentially lucrative investment opportunities for “non-accredited” investors, traditionally shut out of venture capital markets by SEC regulations.  In short, the JOBS Act may significantly lower barriers to entry for would-be entrepreneurs and investors, changing the way America does business.

The JOBS Act is a set of amendments to the Securities Act of 1933, and the Securities Exchange Act of 1934.  Along with the establishment of the SEC, these laws were put into effect during the Great Depression as a set of safeguards to protect investors from fraud and mismanagement, and they have remained in force ever since.  These laws require securities issuers to provide investors with extensive financial records subject to review by the SEC, as well as a level of transparency and disclosure of certain risks.   In addition, these laws also require investors to meet stringent eligibility requirements, including minimum income levels in order to become “accredited” to invest.

Although the Securities Exchange Act rules are meant to protect consumers from moral hazard, they don’t always work (Enron, WorldCom), and the effect has been to keep all but institutional investors and the wealthiest people out of the market.  For example, startups are typically cash poor and find it all but impossible to afford the pricey legal and accounting costs of complying with SEC securities regulations, such as audited financials and PPM preparation.  More importantly, only a small portion of the population is eligible to purchase securities, so there are many more opportunities than investors.  Between the inherent riskiness of investing in any new venture and a huge number of entrepreneurs competing for limited funds, investors are extremely picky.  These issues make it challenging to even get investors to listen to an entrepreneur’s pitch, and inevitably leave the vast majority of startups unfunded.

On the investor’s side of the equation is the fact that by definition, individuals making less than $200k per year or with a net worth less than $1 million have until now been ineligible to purchase a new venture’s securities.  Aside from participating in institutional investments such as mutual and hedge funds, this left the average person completely out of the securities market.  The thinking behind this rule is that wealthy individuals are more sophisticated than the average person, and will either perform or pay someone to perform the due diligence necessary to ensure that their investments are as safe as possible.  Furthermore, it is assumed that wealthy individuals know how to diversify their investment portfolios to mitigate risks.  In other words, the wealthy were considered savvier than the average person.

The JOBS Act also streamlines reporting and disclosure for equity crowd funding, which allows access to a wider audience and greater flexibility in equity offerings.  For example, a company trying to raise capital could offer equity in the company through a funding portal where any investor could participate – say for as little as $10.  If the startup is seeking $100k or less, the streamlined regulations call for the entrepreneur’s tax returns for the year prior, and a financial statement certified accurate by the CEO.  For companies raising between $100k and $500k, the financial statement must be reviewed by an independent public accountant, and for $500k – $1 million, the financials must be audited.

Another major breakthrough achieved by the JOBS Act is an additional set of exemptions from the SEC 404(b) reporting regulation.  In addition to the existing exemption from the stringent audited reporting rules for companies with less than $75MM in assets, the JOBS Act extends the 2 year 404(b) reporting exemption for IPO reporting to 5 years, provided revenue and capitalization values fall within specified limits.  Although there are still reporting rules the company must follow, this new law streamlines the costly reporting process at the company’s most critical growth stage, saving the firm considerable time and money.

Overall, the JOBS Act opens up new venture investment to everyone.  It has limits and safeguards to protect investors, and it creates a viable new option for more would-be startups to actually raise seed capital.  Only time can tell how well the safeguards will work, or whether the new law will stimulate desperately needed growth in this economy.  One thing is certain – the law will change the way new ventures and angel investments work.