Startup Idea Secrecy: Why fearless learners change the world. And how to be one…

An open letter to entrepreneurs who think their idea is worth stealing…

Dear smart person with $$$$ idea,

Well done on your $$$$ idea. I don’t know what the idea is (you won’t tell me!), but I’m sure it’s good.

Ideas are the motors of innovation; they move the world forward, often to a better place. Without them, civilization stagnates and withers away, pining for its former glory. Innovation is as essential to the world as food to our bodies, as love to our souls. So, thank you for your inspiration and for providing momentum to the great human mission.

Your idea is worth a lot. $$$$, as I understand it. In fact, it’s worth so much that telling people about it is a huge risk. What if they steal your idea? And with it your chance for $$$$? What a miserable outcome that would be. All your clever idea-making for nothing.

This line of reasoning produces the following reaction in many entrepreneurs:

They tell no one.
They don’t ask anyone for help, input, feedback, partnerships or funding.
They take the $$$$ idea to the grave.
Safely.

No one will find it there.

idea secrecy 1

But what if you want to realise the dream? To execute your idea? That’s great. You’re the type of person who takes risks to make a difference. Your fearlessness to try and to be wrong again and again until you are right is supreme.

This is the crux of the matter. An idea alone means very little. No matter how innovative or original your idea seems, someone else has probably had the same idea. In fact, hundreds have probably had it.

What matters then is execution.

Execution over Idea. This phrase is now so often quoted that it seems cliché. But many people still fail to act on its message. So, why does execution trump idea?

As you start out on the journey of making your idea reality, every person you speak to will offer a slightly different perspective. The input of some will have more value than others, sure. But until you ask, it won’t be clear from which data points you will derive most value.

This is so important. What matters is that the more people you ask, the more data points you collect for decision-making. The more informed your decisions are, the better your execution will be. Without ‘talking’, how do you verify assumptions?

How do you know you are doing the right thing?

idea

The truth of it is that no product matches the original idea born in the ‘lightbulb’ moment. Ever. No good product is the same as its first version or its second etc, necessarily. Products which survive and thrive are updated, continuously. Changing customer demands require constant innovation. To execute well, companies must be alive to this. They must be able to listen to feedback and iterate if need be.

This is widely understood and accepted for products which already exist in the marketplace. But, many people don’t see that this holds true for products which are still ideas. Executing well from idea-stage to completed product should be a similar process to updating an existing product based on customer needs.

Otherwise, you are building something without knowledge, without guidance, based only on your own opinion and assumptions.

How can that be good?

It can’t.
Consider this:

Your mother is retiring after 45 years. Her hard work ensured that you were fed, educated and entertained in warmth and security. Every good memory you have can be traced in some way to the opportunities her labour afforded you. You have a lot to be thankful for. You want to find the perfect gift to encapsulate how much she means to you.

Do you:

a) Go with the first idea that comes to mind.

b) Jar of dirt with a rude note about your deprived and wretched upbringing.

c) Brainstorm a few ideas that seem good to you. Then approach people who know your mother and ask what they think of your ideas and/or what they would give her in your position.

No prizes here!

Maybe one in a thousand times you’ll be blessed with a moment of visionary inspiration and option a) will work. But, those are not good odds. Especially when your mother’s happiness or the success of your dream business is at stake.

idea secrecy buddha

Consider this too:

Imagine a hypothetical situation in which you have the choice of investing in one of two companies at concept stage. Which would you choose for a £100,000 investment?

1. An average idea guaranteed to be executed outstandingly

OR,

2. An outstanding idea guaranteed to be executed averagely

While it is possible for great ideas to be successful through semi-competent, muddled execution, in the game of probability, your best bet will be to focus on a concept which is being executed efficiently and powerfully.

This ties in with a point I made in my post “How do investors evaluate startup pitches?” The article was based on a piece by Silicon Valley investor Paul Graham on his blog. The core point was that good investors spend a large portion of their due diligence analysing the merits of the team behind the project. Why? Because they know that the idea in its current form will have to go through many iterations before it can be truly successful. Given this, they want to be sure that the team are good enough to navigate the choppy waters of building a great product to fit their market.

In other words, they want to be sure that the EXECUTION is going to be on point.

You should not be concerned about someone stealing your idea. You should be concerned about someone executing it better than you.

Some of the best businesses are simple ideas.

Google’s core concept allows people to search for stuff on the internet. But it wasn’t the first internet search engine. Henry Ford built the most successful car manufacturing company of the 20th Century. But he didn’t invent the automobile.

What made them so successful?

You guessed it.

Execution.

Google brought the dynamism associated with startups to the corporate level. This means that it can measure and respond to changing user demands rapidly (and that it is an attractive place for top talent). There is a great article on TechCrunch about this called Why Google beat Yahoo in the war for the internet. (Worth a read if you have time).

Henry Ford helped revolutionise factory efficiency by sponsoring the development of the assembly line, and in so doing, he was able to mass produce the first affordable car.

They did the idea best. There was no pretence to ownership of the idea; no notion of ‘my’ idea. They just found an idea and executed it. That’s how they now own it.

This is not to say that the idea isn’t important. Terrible ideas don’t get very far. But how can you truly know whether the idea is good or bad until you share it and learn?

I am not suggesting that it’s okay to be totally indiscreet. There is merit in hiding what you are doing from competitors etc. You should be judicious in your choice of people to share it with. But not to the point of telling no-one!

We sometimes encounter this problem on Angel Investment Network. An entrepreneur wants to raise money for their concept. They sign up and submit a pitch. But they don’t want to reveal too much in case someone pinches the idea. And their pitch ends up containing no interesting info for our investors.

The result? Surprise, surprise. Zero investor leads. And some-number-more-than-zero complaints directed at us.

idea secrecy sad

If you want to raise money from investors, you should be prepared to sell your idea. And to sell, you must tell; the story, the numbers, the notion. Otherwise, someone else will. It’s that simple.

In practical terms, there are protective measures available:

– NDA’s – You can ask anyone you show the idea to sign a Non-Disclosure Agreement. This means you have a contract with them. This can work out fine. But it is also a huge turn-off and friction point. Most VCs will tell you to get lost – they understand that execution beats idea!

– Teaser Pitches – you can try to write your initial pitch as a teaser which reveals enough to get people interested to sign an NDA. But this a real art form and there is a danger that you undersell the business and lose out on valuable feedback and/or leads.

– Patents/Trademarks – depending on your business, you can consider getting legal patents and trademarks for the idea.

These can all be useful ways of protection in some cases. But they do not grant 100% protection. And they can be impediments to getting useful feedback – the sort of feedback, which means your execution is good. The only way to get close to 100% protection is to make your business better than the rest! And to keep doing so. That’s what the best companies do.

In summary…

I commend you for your $$$$ idea. But I urge you to be brave. To hold your idea up for scrutiny. To listen to the feedback that will allow you to execute well; the feedback that will transform your idea into a successful and lucrative reality.

It is the fearless who change the world. Those with the courage to learn and listen; with the courage to face criticism; with the courage to be continuously wrong until they are right. And when they are right, they get it so right.

The startup community is an admirable one. You can expect a warm and attentive reception – the feedback will be critical, but that’s why it’s so useful. So, I encourage you to take full advantage of this. You can be sure your competitors will be (unless you still think they are trying to steal your idea).

I look forward to your feedback.

Happy Christmas!

Oliver

How do investors evaluate startup pitches?

An angel investor’s task is to predict the potential of a company based on early indications and very little else. There is no infallible process for doing this. This is the risk investors face; and the fear they must overcome to invest. Only then can they give themselves a shot at the returns available from a shrewd investment.

Your task as an entrepreneur seeking finance is to mitigate and alleviate that sense of fear and so lower each investor’s risk threshold. The two basic ways of doing this are:

1 – Demonstrate that the perceived risks are smaller or more easily overcome that they initially appear.

2 – Set out a credible vision for the success of the business such that the returns outweigh the risk.

This, you might argue, is easier said than done. And you’d be right.

In my experience, entrepreneurs who understand how investors assess deals, find it easiest to raise money. It’s part of the reason why people who’ve raised money before find it easier to do it again.

SO THIS BEGS THE QUESTION, HOW DO INVESTORS EVALUATE STARTUP DEALS?

As I touch on above, this is a hard thing to get right for investors – a company may tick all the boxes, but still fail down the line. But this is often a matter of luck and down to factors beyond the investors’ control.

In their evaluation steps, investors can take measures to ensure that the companies they do go into have the best chances of success.

So here’s a simple evaluation framework that we recommend to investors on Angel Investment Network. We base this on our own experience from 12 years’ hand-selecting startups for our brokerage division. Companies we’ve worked on include: SuperAwesome, SimbaSleep, Novastone, What3Words, Opun and Cornerstone.

Two of these were just named in the Independent’s Top 10 startups 2017.

A SIMPLE EVALUATION FRAMEWORK:

1. TEAM

A team for inestors

We interviewed Jos Evans who has made a number of successful investments through us. Jos gave the following advice:

“Everything comes down to the quality of the founders. If the people are excellent they will succeed regardless of whether the initial business idea works. Meet as many people as possible and cross check your network for people who might know the founders of a company you are considering investing in.”

This is sound advice from someone who is making a career from angel investing.

It is the people behind a company led by the founders and validated by their advisory board that will optimise its chances of success. If the founders are relentlessly resourceful they will find the iteration that makes the company a winner.

In their due diligence, investors spend a long time researching the founders’ backgrounds. They also often try to spend time with them on the phone and, if possible, in person. The qualities that come across go a long way to giving investors confidence and lowering their risk threshold.

Similarly, the strength of the company’s advisory board can be a very strong index of potential:

1 – It reflects well on the founders if they have managed to persuade impressive people to back them.

2 – The fact that impressive advisers have backed the idea lends credibility and validation to it.

3 – The financial and social clout of high- profile board members means that the idea will struggle to fail. propelled on by a strong support network, companies tend to find a way.

2. MARKET

Which is the more significant indicator of success – the team or the idea/market? This is an ongoing debate between investors.

Renowned US investor, Ron Conway, believes, like Jos, that the team are the foundation. The idea is liable to change, but the team’s motivation, talent and competence will remain to drive the project to success.

Other investors argue that great founders in a bad market are far less likely to succeed than bad founders in a great market.

But to polarise these two points of view misses the point a bit. Good founders will find good markets – otherwise they are not really good founders.

So, in your pitching docs you need to make sure you give clear details on the market opportunity. Are you pitching a scalable opportunity in a market of sufficient size and growth trajectory? And are you doing it at the right time?

Here is the advice we give to investors when they evaluate the market section of a pitch:

“…you want to research the market to ensure the opportunity is or will be as large as the founders claim. If your findings confirm theirs then you can feel comfortable that a) there is a significant market and b) the founders know what they’re on about!”

Remember, your pitch/business is as representative of you as you are of it. In trying to sell your pitch to investors you need to sell yourself and vice versa.

3. TRACTION

Investors want a startup investment to have as much real world proof of concept as possible.

What better way to give confidence? If you can exhibit positive feedback, high user retention, growing revenues, etc at an early stage, it proves the venture (as far as possible!).

The more traction a company has, the more ‘proven’ it appears and thus the less likely it seems that it will fail. When we remember that persuading investors is about lowering their risk threshold, it’s clear how important traction points are. Traction points instil confidence in the vision and its execution.

They are as close to evidence as an early-stage startup is likely to get.

An obvious concern for early-stage companies is that they feel they may lack traction. They are especially likely to feel this way if they are not generating revenue.

So what constitutes traction?

Traction is anything that validates your business. This will depend on the business: sometimes it will be revenue; sometimes it will be downloads or subscribers; sometimes it will be page views or awards.

In their efforts to provide traction points for their startup, entrepreneurs often make the mistake of relying on ‘vanity metrics’. For instance, an app may have had 100,000 downloads in its first month. But if 97% of those users never use the app again, the initial metric flatters to deceive. Most investors will work this out very quickly.

So the traction points you choose must actually prove the value of your business or they will undermine your pitch.

The best way to think about this, I have found, is to work out what your North Star Metric is. North Star Metric is a term coined by Growth Hackers to describe the one authentic value which shows that the business is doing what it set out to do.

4. IDEA

The points above help qualify the idea itself as valid. But we should not underestimate the effect of gut feeling when it comes to an investor’s initial assessment of an idea.

The timeless human fondness for the ego means that an initial gut feeling can have a powerful effect on the ultimate evaluation of the investor.

If an investor feels that an idea is good, they want to be proved right.idea for investors

So when an investor first reads about an idea, if they think it is a real solution to a real problem in a real market, they are likely to pursue the opportunity. They want to vindicate their instinct.

This is a classic example of cognitive bias. This is the term used in psychology to describe when it is hard to undo your initial judgment because your brain will keep finding evidence to support that judgement.

It’s why the hotel industry focuses so hard on the initial impression it creates in the lobby. If the atmosphere and décor feel high-end and luxurious and you are handed a complimentary glass of champagne, your whole stay will be filtered through the lens of this initial assessment. If the lobby is grubby, your bias will lean in the opposite direction.

This can be capitalised on by entrepreneurs. When you set out what your business actually does, do so in such a way that plays up to this bias. Make a clear and powerful first impression.

How?

The visual impression of the design of your pitch deck is very important. But so is the clear articulation of your value proposition.

We tell investors to assess whether the business is offering a real solution to a real problem. So, entrepreneurs should set out their idea using this ‘Problem/Solution framework’.

Here’s a quick example of what I could write for Angel Investment Network:

Problem: The startup industry is huge, but access to finance and investors remains difficult for entrepreneurs…

Solution: Angel Investment Network’s platform connects entrepreneurs with 130,000+ angel investors from around the world so that they can realise their potential and grow a lucrative and successful company….

The principal value of the service comes across clearly and concisely.

5. WHAT DO OTHER INVESTORS SAY?

We have seen how the advisory board can be considered a metric of sorts for future success. It follows from this that other investors can be invaluable sources of insight.

Many investors say it takes away a lot of the stress if you can share the experience. That’s why syndicates, both official ones and groups of like-minded friends, are so popular. Others may have spotted some key index of potential (success or failure) that one investor on their own may have missed.

If you already have investors on board, it is, therefore, a good idea to ask them if you can share their contact details with prospective investors.

This transparency is likely to give investors confidence in you. And allow them to allay any fears they may have by talking to people who have already invested. One caveat to this is that a prospective investor may point out a flaw that the existing investor may have overlooked!

Summary

There are many factors that any individual investor may take into account when they evaluate an opportunity. This article has aimed to cover the most general and universally useful for entrepreneurs.

But you should expect each new conversation to be different. Every prospective investor wants to see whether you are a good fit for their personal investment agenda.

On that note, it is worth saying that you should never take it personally when someone decides not to invest. It is a) a huge waste of emotional energy and b) pointless. There are so many reasons why someone may choose not to invest. One of our entrepreneurs once became despondent because a good investor had withdrawn. Little did they know it was because of a divorce!

Rejection is also a good opportunity to get candid and constructive feedback from people with real expertise – sometimes what hurts the most is the most useful in the long run.

I originally wrote this article for Toucan.co blog. It was well received so I thought I would share it again.

Proposal Tip of the Week

What’s the point of a proposal? Why use sites like Angel Investment Network? Why not just send your full business plan to people you want to invest?

Well, for a start, not everyone has the contact details of a large number of investors just sat in their inbox. Networking/Connection sites like Angel Investment Network hold the key to advertising your latest business venture to thousands of prospective investors so that you can find the right ones to suit the nature of the project. That sounds a little sales-y, I know, but it’s important to understand in order to realise the significance of the short proposal instead of the full-blown business plan.

When you’re marketing an idea to thousands of people, not just in the fundraising community but anywhere, you cannot simply take it for granted that people will actually take time to consider your idea; in any marketplace thousands upon thousands of ideas are competing to grab the attention of the onlookers. Precedence is not always, and certainly not necessarily, defined by merit, but rather by the ability to capture attention.

Don’t think ‘I know my idea is brilliant, so why wouldn’t investors read my business plan? They’d be stupid not to…’ That attitude will help you raise the square root of nothing. Think instead ‘How can I make it so that investors literally cannot wait to get their greedy paws on my business plan and start properly digesting my idea?’

Here’s where your short proposal comes in. It is meant to be pithy and concise. Something that can be easily understood and result in them wanting to know more. It is the first rung on the ladder towards them investing; and that can often be the hardest part – getting them to step onto the ladder. Once they’re on, of course some may fall off on the way to the top, but at least you’re beginning to win them over and it becomes progressively harder for them to get off.

As such you should consider your proposal as a ‘hook’, to use Nir Eyal’s term, or in internet-speak a CTA (call-to-action). In your proposal make them love your idea enough to take the next step. Tell them the best bits. Don’t swamp them in superfluous detail.

Proposal Tip of the Week

It’s funny what working near a beach for 3 weeks will do to one’s ability to keep their blog updated! But I’m back in the office now, back to the grindstone so your weekly dose of pitching/proposal advice is back up and running.

The previous 4 tips have talked in general terms about the ideal structure for your proposal: Tip #1 advised you to put your achievements first, Tip #2 encouraged you to then articulate the problem you solve, Tip #3 how you solve that problem and Tip #4 told you to make it clear how big the market opportunity is.

This week I wanted to talk about tone. How should your pitch come across? Funny? Serious? Detailed? Light?

When I arrived in the office this morning one of my colleagues was bragging about how he had re-written someone’s proposal for them after they had got no interest from investors after 90 days on Angel Investment Network. Now the business wasn’t bad at all, but it wasn’t an Uber or Facebook by any stretch of the imagination. The reason the guy had done so poorly was that the way he had written his proposal was about as exciting as watching paint dry in prison.

My colleague made no drastic changes – the fact of the business and its products (innovative power tools) were beyond his control. And yet his changes resulted in 82 investors contacting the entrepreneur. 82. When previously he’d got zero.

What did he change? He injected some life, some enthusiasm, some excitement into the proposal. The subject matter remained the same, but he gave the proposal a buzz. He infused it with a sense of success just around the corner; and that’s what intrigued the investors.

So give yourself a fighting chance and make sure you strike the right tone…

Success Story: Reward Gateway acquires Yomp

Yomp • Engaging People • Rewarding Wellness from Yomp on Vimeo.

Yesterday Techcrunch posted an article announcing that Reward Gateway had acquired gamified health startup Yomp for an undisclosed figure. Techcrunch mention the £200k seed round that Yomp filled last year, but neglect to mention that £150k of that came through Angel Investment Network (the whole SEIS allowance) !

But that’s of little importance. Our investors are over the moon at such a rapid ROI. As you would be. The figure hasn’t been disclosed yet, but our £150k went in at a valuation of £1 million; and we’d expect someone of the calibre of Reward Gateway to be able to acquire for £3-5million. By that reckoning, our investors are getting a 3-5x multiple return in just over a year.

Fundraising Event Report: Last year’s successes encourage this year’s investors

Last Tuesday we held our first fundraising event of the year at the Olswang offices in Holborn. Treated to a complimentary feast of canapés and drinks on the top floor, investors enjoyed pitches from 7 of the hottest UK startups.

James Badgett, Founder of Angel Investment Network, opened the proceedings by calling to mind some of the notable successes from companies who pitched through us in 2015 as well as the general growth of our site.

Here’s an overview of what he said:

Our Website in 2015 – The Numbers
– Reached 450,000 registered entrepreneurs
– Reached 100,000 registered investors
– Averaged 1380 new proposal submitted each week by entrepreneurs
– Over 2 million proposal views
– 75,000+ connections made between investors and entrepreneurs looking for funding

Companies that Pitched in 2015 – Where are they now?

SuperAwesome, a child-safe marketing platform, completed a funding round with us at a valuation of $3million and subsequently completed a $7million raise at a valuation of $25million. They are now raising at a valuation of $70-100million. That’s a potential return for our investors of 20-30 times in a little over a year!

What3Words, an extraordinary piece of software that’s changing the world’s address system and for whom we filled the seed round, recently received $2million from Intel Capital. They also won the Innovation Grand Prix at the Cannes Lions International Festival of Creativity.

Acquisitions:
As covered in a previous blog post, Uncover were acquired by Velocity resulting in strong, quick returns for our investors.

Draper & Dash, a high-end business intelligence company with an absurdly impressive track record, and PASSNFLY, an innovative airport check-in application, are both under offers for acquisition.

After this introduction, it was fascinating to observe the investors sit forward in their seats and treat the latest cohort of entrepreneurs pitching to their undivided attention!

The future is certainly looking rosy for both investors and entrepreneurs…

The Biggest Reason Startups Fail

Ask a sample group of people why startups fail, and, assuming they have a vague understanding of the modern world,  they’ll give you a host of different reasons. Misfiring team. Poor product. No market. No business model. Delusional founder etc. And undoubtedly, they are all true depending on the circumstances in which the particular startup failed.

But there is a root problem to many of these problems. And it’s a simple one: a lack of tracked data, or perhaps simply a wilful ignorance of it. Data is the only means of empirically measuring the performance of your startup and building good practices upon proven foundations. In other words, tracked data gives you actionable insights where you would otherwise be guessing. Build upon what you already know to be true and your chances of avoiding ultimate failure will be much greater.

What this means is that failing on a low key level can be invaluable for the knowledge it provides; and as such, a failure can be considered a success if you properly understand and learn from the data you receive. Knowing what not to do can thus be as important as knowing what to do throughout the early stages of your venture.

This is the important point about success and failure. Micro-failures are useful stepping stones to ultimate success provided the data is tracked and learnt from after each attempt. As Elon Musk, CEO of SpaceX and Tesla Motors, puts it; “If things are not failing, you are not innovating enough.”

Here’s the article that got me thinking: Why do Startups Fail?