Half Engineer / Half Business Guy

Starting Your Business And Becoming An Entrepreneur

Page 2 of 3

Quick Tip: Getting An Animation Made To Describe Your Business

Companies often want to have demo animations created to quickly and concisely describe their business on their home page or tech blogs. Below, I’ve pasted an email on the subject from Stephen Gill, Co-founder of Leadonomics, from a Philly Startup Leaders email chain.

Note the last line: Very early stage startups shouldn’t be using their limited cash on this in the first place.

DHM London does some of Google’s videos. They recently did this one.

Here’s a list of the best “explainer video” production companies that I’ve been able to find:


The good ones will interview you, write the script and produce the video. You usually pay by the minute and they charg more for music, animation, sound effects etc.

One of the better companies is (1/29), I got a quote and they range from $10-20k, but you always get what you pay for.

Epipheo is also good, they did Solve Media’s video. I’m not sure how much they run.

I’ve looked at a lot of companies on Elance and did not find anyone impressive.

The original common craft paper videos are upwards of $50k.

As a startup I would recommend just making a simple slideshow and thinking about a real video later on. Most likely your pitch will pivot down the road anyway.

Should You Raise Money And Where Should You Raise It

When many people go into fundraising for the first time, they don’t really understand the lay of the land. As a result, they waste time approaching the wrong people. Fundraising can already be a long and arduous process, so it’s important to focus.

A pretty simple rule of thumb for raising money: a VC won’t be interested unless you’ve got a $1B+ idea, and an Angel won’t typically be interested unless you have a $100M+ idea.


Venture Capitalists (VC)

  • A professional investment firm which raises large funds from which to invest in big ideas
  • Won’t be interested in less than a $1B+ opportunity

Micro VCs

  • A relatively new addition to the investment landscape
  • Raising smaller funds, and investing smaller amounts than traditional VCs
  • Opportunity required: somewhere between VCs and Angels ($100M-$1B+)

“Super Angels”

Sophisticated Angels

  • Individual investors who like to invest in venture
  • Have entrepreneurial or investment experience
  • Typically interested only in $100M+ opportunities
  • Many are part of larger Angel Groups who screen deals as one

Other Angels

  • Individuals who are interested in venture investment, but may not have entrepreneurial or investment experience
  • This does not make them “worse” than sophisticated angels – they will just think about investment opportunities differently

Incubators / Startup Accelerators

  • Provide mentorship, office space shared with other startups, legal advice, and in many cases “rent & ramen noodles money” (~$10k-$30k)
  • Usually a ~3-month “startup school”
  • Incubators gather “classes” of ~10 startups
  • Sometimes connected to investment firms, sometimes independent

Friends & Family

  • People who want to help out


This isn’t a comprehensive list, but it’s a few of the key points that should affect your decision:

Venture Capitalists

  • Can use industry knowledge and connections to help guide your business
  • Assuming you do well, will often help syndicate next round
  • If they don’t invest in next round, it’s a signal to other investors that you’re tainted
  • Require a larger exit than smaller investors to reach their fund’s expected returns, so may wait longer to sell than founders would like (e.g. wait 7 years for a $1B exit rather than 3 years for a $200M exit)

Sophisticated / Super Angels

  • Have similar connections and knowledge to Venture Capitalists
  • Often won’t invest unless there is a “lead investor” who they know has done full due diligence (usually VC or angel group)
  • Do not usually have funds to invest in a round after Seed Round, therefore no signaling problem if they don’t invest in your next round

Other Angels

  • Like sophisticated angels, usually require a lead
  • Typically won’t match startup network or experience of sophisticated angels
  • If not used to the entrepreneurial process, entrepreneur must be careful about setting clear goals, milestones and expectations


  • A bit of money to get you started – before raising a seed round
  • Amped up, constant mentorship from partners and industry experts
  • Give guidance on designing your strategy, perfecting your pitch, raising money, and make introductions to investors and mentors
  • Don’t usually invest in seed round, therefore no negative signaling issues if they don’t invest in you
  • See my post about the (many) benefits of incubators here


Bootstrapping means funding the business yourself (or with your co-founders), and not taking any outside investment.

The most obvious benefit of bootstrapping is that you don’t give up any of your company, and hence don’t lose any control or equity. On the downside, you may not have enough money to run your company.


This is an almost religious war, and there many arguments either way made by many smart people.

For the sake of argument, let’s assume that you could somehow fund your business to at least survive at some level without external investment.

To me, it comes down to this:

  • If you take external investment, you will have less power and a smaller percentage of upside. However, it can add rocket boosters to your company. You may have been able to slowly grow your business without investment, but taking it could allow you to hire a larger staff, pay for marketing, and grow your business faster than you otherwise could.
  • If you bootstrap, you may not build your business as fast, but you will retain full control, and a larger percentage of upside.
  • So really, it’s a personal choice, there’s no right answer. It’s a balance between how much money and control you want, and how much of this can be achieved without external investment.

I’ve heard plenty of stories in each direction: folks with billion-dollar businesses who saw no upside after selling all their equity to investors, and bootstrappers who’ve made hundreds of millions on businesses no VC would touch.

The bottom line is that “success” does not rely on raising outside capital, and in fact can at times hinder it. You must decide what success means to you, and understand what your business needs to get there.

(If you’ve decided to raise money – I’ve written a post here about the technical side of doing so)

I’ve Got An Idea For A Startup, Now What?

Many non-technical folks have a big idea, then immediately set off to find engineers and attempt to raise VC funding.

Slow down!

Before that, you should make sure the idea is really worth your time. It’s easy to fall in love with an idea, and you should really try to decide whether your business can accomplish your goals (save the world, pay $100k/year, build an exotic car collection, etc.) before you move forward.

In addition, it’s going to be really hard to raise money without figuring out quite a bit of detail first. Just ask a VC how many Next Big Ideas they see from excited co-founders without backup or any idea how they’re going to execute (hint: the answer is “too many”).

Once you’ve got an idea, your process should go something like this:

Of course, these materials and decisions don’t need to be sharp and finalized before you set off on your entrepreneurial adventure.

However, they’ll help you channel your energies into answering the key questions of your startup, decide whether you should really begin to build this business, and be armed with the information you need to excite your future teammates and investors.

A few pieces of advice that I’ve picked up along the way:

  • It’s going to be way harder and take way longer than you think
  • Now that I’ve adjusted your expectations, take that amount of time and effort and triple it
  • Problems that seem like certain doom for your startup will occur constantly

And if those seem ominous and negative, they shouldn’t. Starting a startup is really hard, and you should know what you’re getting into from the beginning, so you can prepare yourself and not freak out. Freaking out doesn’t help anything.

That said, what is likely driving you to entrepreneurship is passion for your idea, and that is one of the most important assets you have. Be sure to communicate that passion to everyone with whom you discuss your business.

One final tip: This is your business, so don’t act on a single person’s advice (mine included). Get as much advice as you can, synthesize the results, and make your own decisions.

Good luck!

More Visuals, Less “UI”

Why don’t more web apps do this?

Today, I saw what I found to be a really sweet bit of UI – the Yelp iPad app. And it got me to thinking, why don’t more “normal” websites do this? Particularly, increase visuals/immersion and stop bombarding me with “features”.

 More Visuals, Less UI

Now that I have most of the core content-websites I use in iOS app form, when I need to, say, book a dinner reservation, look up the hours for the restaurant and check out the menu, I just use my iPhone.

I get all the info I need quickly, with just a few taps of the thumb. And I don’t need to wait for a mess of twitter feeds and ad servers to load up to begin finding content. This would work equally well with a mouse or trackpad.

For me, this Yelp iPad app is perfect. Just the necessary info, with big, satisfying pictures to immerse me in the experience. I wish the web-based Yelp was the same.

Yeah yeah, I know what you’re going to say…

I agree that packing ads on the screen makes a lot of businesses a lot of money, and that users often won’t scroll down the screen or find something hidden behind a button.

However, the successes of iOS and Android suggest that, if designed correctly, simple, great-looking apps with limited feature sets can make users very happy…and still make money.

web apps that keep it simple and look good doing it

 More Visuals, Less UIAnother recent example of a website that just feels good is about.me.

They’ve captured all of the UI they need, and made it beautiful. Any of the bells and whistles they need (peeks at social networking personalities or blog posts) are hidden behind very obvious icons.

When I want to learn about someone, I just want:

  • A brief blurb about who they are
  • A picture / feeling of the person
  • Links to social media personalities
  • Other relevant links

About.me provides all of this info perfectly. (Also, 400K users and a sale to AOL 4 days after launch suggests to me that people are happy with the user interface design.)

Who could use a change

HuffPostWeb 300x258 More Visuals, Less UIThough there are arguments to the contrary, as a user, I would love to see a news site like Huffington Post shift a bit toward its iOS counterpart. Occasionally, I enjoy reading extremely biased political trash, but the websites of The Huffington Post and The Drudge Report just hurt my eyes.

However…the Huffington Post iPhone app is just so easy to use! Very simple, I can flick through stories and categories effortlessly, and all of the features I really need (save, email, search) are neatly hidden away.

huffpost 200x300 More Visuals, Less UI

FOR ME, there is no need for any more real-estate. I understand that research has been done suggesting that “out of sight, out of mind” holds true, and Huffington Post gets more headlines on the screen, raising the chances users will find something they like, etc…

But personally, I would love to see all this beautiful mobile design, whether mobile phone- or tablet-sized, brought into more “standard” web design.

How To Create Your Elevator Pitch


The Process:

  1. Build your pitch
  2. Say it out loud to others as much as possible
  3. Incorporate input and refine

One of the most important things you will do as a startup founder is build your pitch. You will tell it so many times to so many investors, customers, partners and friends that you just won’t care anymore. However each time, it’s your brand, and you want it to be clear and simple.

A mistake that’s often made by founders is describing the idea “correctly”. In the founder’s head, the pitch describes the business, and if an investor doesn’t understand, it’s because “they just don’t get it, they just need to discuss it more in-depth to really get it.”

Sounds reasonable – but it doesn’t work like that.

Most of the time, you’ll only get one chance with that individual before they make up their mind about you. If your pitch is too complicated, you need to refine it to something clear and easy to understand, so that your listener can decide if it’s something they even want to hear more about.

And what’s the easiest way to get it to that point? Practice, practice, practice, in front of as many people as possible, and incorporate their feedback. (Ask them to be mean!)


Note that there will be many different circumstances in which you’ll give your pitch. Brief 15-sec introductions in large groups, 90-sec pitches to investors, even ACTUALLY GETTING STUCK IN AN ELEVATOR (happened to one of the Betaspring teams this year).

You want to have the key to your business boiled down to as few words as possible, and have some backup in case people want you to go further. Each bullet below should be very concise, generally not more than one or two sentences.

Your pitch should include:

  • The Problem
  • The Solution
  • Your Differentiator
  • Illustrate size of the opportunity
  • Your progress

…and be prepared for the follow-up questions you’re typically asked.

Note that the first three points make up the barest version of your pitch. You’ll likely give many pitches at this length, for example when a room full of entrepreneurs are quickly introducing themselves. However, it’s very good to add the next few pieces if you have the opportunity, especially if you’re speaking to an investor.

And finally – do not just recite your pitch! If you’re not excited NO ONE will be!

The reality is, you will get tired of delivering your pitch. But whether it’s the 10th or 10,000th pitch, it should be delivered with the same energy every time. Show people that you are genuinely excited by your business!


The most important question a listener will have is “why do I care”? Even if you have an amazing product, it’s pretty clear that before your pitch, the listener is isn’t just sitting there, thinking about how much they need your product – you need to get them in this mindset.

A common way to describe the types of problems that a startup can solve are Vitamins, Advil and Morphine:

  • Vitamins – Your customer doesn’t need this or know they need this yet. (E.g. Foursquare – Still arguable if this is useful, but has a huge audience)
  • Advil – Customer has a mild pain point, your product helps. (E.g. iPod – Couldn’t carry all your CDs)
  • Morphine – Customer has a major point, you solve. (E.g. mobile phone – people needed to communicate outside of home/office)

The takeaway here is – you want your product to be morphine (or at least feel like it). The best effect is for your listener to have a strong emotional reaction and think “I WISH someone would DO something about that!”

Where I may diverge from the norm is that I believe in some cases, you should prepare different pain points for different audiences. As an example, the VC you’re speaking to may not “like, totally hate it when he can’t post his class notes to just his boys on his tumblr”, but will understand how painful it is when he can’t send a powerpoint deck to the LPs invested in his fund.


This is where you state your product. It seems like the most straightforward piece of the pitch, but it’s often a mess.

It should take one sentence, maybe two, and it should extremely briefly answer 1) what you are and 2) so what – how does it solve the problem?

Common Issues include:

Forgetting to describe what your product actually doesYou illustrate the problem and what needs to be solved, but don’t actually say how your product solves it

  • Example: “Today, we are connected by social networks, but not in the XYZ space. We make XYZ more social by adding augmented reality.”
    • Any listener would want to know: “How?”
    • And since augmented reality is relatively nascent, you may have to explain this from scratch – using jargon doesn’t usually help
  • Better: “We provide an immersive social check-in experience for bars and restaurants. Leave a message or picture at a bar that only your friends can see using our app, and treat the wall of the bar like a Facebook Wall.”
    • This includes a brief description, an example, and to clarify, an analogy to a successful product almost everyone will know
    • This product may work in a much wider range of places, but this is the initial target market, and people can quickly relate

Getting into the detailsThough most venture investors are intelligent, they may not know anything about your product or market. You should describe your product so that anyone can understand – a customer, a referrer, a non-technical investor, etc.

  • Example: “We perform XYZ analysis on ABC servers using the 123 algorithm, originally described by JKL. Our servers are optimized to run this algorithm more quickly than any other current provider of this software, given our use of multithreading and load-balancing.”
  • Better: “We provide the world’s most powerful software to analyze the servers used by large companies like XYZ and ABC, created in partnership with the lead researcher on Google’s proprietary server analysis system.”

Saying “we’re going to…”It doesn’t matter if you haven’t finished building it yet, tell people what your business is, get them interested. Of course, be honest about progress, but capture your audience’s imagination first, then discuss milestones and progress.


Even if people feel the pain of the problem, and understand that you’re building the solution, there are always competitors. Listeners will want to know why they should use your product, and investors will want to know why you can do well despite those competitors.

You can do this in one sentence, e.g. “no other company has feature XYZ, or works as quickly”, but it’s going to be very dependent on your company’s “special sauce”.


This is more for the investors you may be pitching.

Give them a qualitative or quantitative reason why they should believe the market is huge. Make sure you keep it very simple, and don’t use numbers if you can describe it in a more digestible way. E.g. “There are more [our market] than [other, related, obviously huge market]”.

For example, knowing that there are 100 million diabetics in the world is not a helpful stat to show someone how much your product-for-diabetics is worth. Knowing that diabetics in the US spend more than $3B on the treatment your product is rendering obsolete is much more useful.

Keep this section short and sweet, and use numbers that i) are believable, ii) you can back up, and iii) very clearly illustrate the size of YOUR opportunity.


If you’ve even got an alpha version of your product duct-taped together, it’s still farther than most people who’ve had the same idea, and you should make an investor aware of this.

Be careful, however, of making promises around specific future milestones. If you’re a technology company, be careful about promising a feature launch in X weeks, because you may find one last issue you want to fix, and don’t want to overpromise and underdeliver as your first impression.


As you practice your pitch, you’ll find that there are always a few common follow-up questions.

Typical examples include:

  • How will you scale?
  • How will you acquire customers?
  • Why will people pay you for that?

There are a huge number of questions you’ll have to answer eventually, but there will always be a few that most people ask first about your specific business. Make sure you have these prepared clearly and concisely, so you don’t end up with an “umm…” that could hurt your credibility and easily be prevented.

With these pieces in place, you’re on your way to solid pitch. To make it perfect, don’t forget to constantly SHARE and REFINE!

Customer Acquisition Is Your Biggest Problem

You’re not going viral, so stop it

There are three main ways first-time entrepreneurs seem to think they’re going to acquire users:

  1. It’s going to go viral (everyone needs it)
  2. I have a lot of friends who will use it
  3. I have a ton of facebook and twitter friends/followers who will share and retweet me

Unfortunately, telling a sophisticated investor that you’re going to go viral and that you’ve got Twitter/Facebook personalities is basically saying “I have no idea what I’m talking about.”

Even more unfortunately, that’s one of the most difficult things to convince a new entrepreneur.

Going one step further – if someone who knows what they’re talking about asks you “What’s the most important issue you have to solve for your consumer web business”, the answer is “Customer Acquisition”. (Shout out to Shawn Broderick of TechStars and Allan Tear of Betaspring, for giving me the smackdown on this one.)


It turns out, the most important inequality in your life is:


LTV = Lifetime Value of the Customer
CPA = Cost Per Acquisition

You need to determine if, over time, your business model can support a LTV higher than your CPA. If this isn’t possible, your business won’t turn a profit. Maybe more importantly to the budding entrepreneur, if you don’t have a good argument why long term LTV > CPA, you’re not going to raise any money.

At the beginning of your startup, you won’t have much data here. If there are similar, established companies in your industry, you can try to determine their numbers.

Ways to do this include:

  • Google AdWords costs
  • Financial statements can sometimes be used, if available
  • Blog entries or other primary research on their business
  • Ask folks in the industry, or investors who may have a general feel for that industry

But realistically, you won’t have much data at the beginning, and this will be difficult. That’s part of the reason why you so often hear of investors asking to see “traction” before becoming seriously interested in a relatively new entrepreneur. Not only do they want to see proof that you can get users, but you will begin to build data on your LTV and CPA that can help them understand if your business can be profitable.


There are a number of strategies with which you’ll acquire users (though obviously no magic bullet exists to capture either businesses or consumers). Major examples include:

  • Helping users find you (Inbound Marketing)
    • Search Engine Optimization (SEO) – Making sure you appear high up in search engine results for relevant searches
    • Blogging – Helpful with SEO, building brand
    • Social Media Marketing – Using social media channels to spread marketing messages, blog posts
    • Viral Effects – Rare, but possible. E.g. viral hooks used by Zynga (“Help your friend by…”). Only launch will tell if this can be achieved
  • Going out and getting users (Outbound Marketing)
    • Search Engine Marketing (SEM) – Purchasing search engine advertising like Google AdWords
    • Display/Video Advertising – Finding where your users are and paying to put content there
    • Email Marketing – Creating useful content and educating users about your product, and making it simple for them to buy
    • Direct Sales – Having a live sales force who directly reaches out to individual consumers (in person, via phone or web)
  • Getting help from others
    • PR – Getting into blogs, newspapers, journals, TV
    • Strategic Partnerships – Partnering with other businesses to market your product or service
    • Widget – Low-touch version of partnering – create a value-adding widget to be easily added to other websites to extend reach


One of the most interesting pieces of advice we received was from two media executives – one was the head of a major TV network’s interactive division, and another was the former CEO of one of the web’s most popular news sites.

Their tip: Early stage, pre-Seed Round startups shouldn’t have to spend ANY money on marketing. There are just so many ways to reach audiences, via inbound marketing, smart PR, and partnering.

In addition, paid advertising is in many ways dominated by large companies. Another advisor from one of the world’s largest online travel companies advised us: Don’t even try to fight the big guns at SEM – they have full teams of people with huge budgets who spend all their time optimizing Google AdWords spend. There are certainly places where SEM makes sense for smaller companies, but these are generally companies who have raised money or have significant cash flow to plow in. Paid advertising can be very important, but gets very expensive very quickly.


Eventually though, you will most likely have to pay for marketing.

At this point, even if you are able to find scalable ways to acquire users at a reasonable price, each incremental user will become more and more expensive. Given the size of your business and resources available, there will be shifts in the types of marketing you use, and which are most effective.

Keep this in mind as you plan your marketing strategy – it’s very unlikely that you will succeed with the same strategy in the long term, and you’ll want to understand how this strategy will shift to continue to accumulate users where LTV > CPA.

A few helpful resources:

Technical Aspects Of Raising A Seed Round

As we’ve prepared to fundraise for Catapulter, we’ve found that it’s very difficult to find the right resources on what exactly are the key questions and negotiating points in raising a seed round.

Fundraising at this early stage is quite complex for someone who hasn’t been there before, and I’ve found a very good selection of resources that I’d like to share.

In addition, sometimes, you just want to get a few datapoints on typical terms, but many bloggers are hesitant to put their foot down. Below, I’ll give a few datapoints from my research – but please note, these are single datapoints to be taken among many.


Many first-time entrepreneurs assume that all investment is done with equity. However, a relatively new and increasingly popular investment instrument is Convertible Debt, with Paul Graham of Y-Combinator famously tweeting this summer:

“Convertible notes have won. Every investment so far in this YC batch (and there have been a lot) has been done on a convertible note.”

As a result, I’ll focus a bit more of this post on convertible debt.


Equity investment is an investor purchasing a percentage ownership of your company. In order to do this, you need to value your company. There are a number of ways to value the company, but at the very early stages, you’re likely going to be looking at valuations and investments in similar companies to yours, adjusted by your experience (first time entrepreneur vs. sold two companies to Google) and the competitiveness of the deal (one investor vs. ten investors interested).

Financial models may be used as triangulation, but are generally less useful because of the huge volatility of companies at such an early stage. Early stage valuation is mainly figuring out the market value – not the intrinsic value – of your startup.

A couple of points to remember:

  • Valuation is not the only issue
    • When doing an equity deal, other terms included in the term sheet (the document containing the deal terms you’ll negotiate over) can create major shifts in value between the entrepreneur and investor. See the section on equity term sheets later in the post
  • Know the difference between pre- and post-money valuation
    • If an investor is putting in $500k, and your company is valued at $2M pre-money (before investment comes in), that would mean the investor is buying 25% of the equity of your company
    • If you’re valued at $2M post-money, that means your business is worth $1.5M pre-money + $500k in cash you’re about to receive. Therefore, the investor would receive 33% of your company
    • In a seed stage investment round, make sure you understand typical comparable terms, and whether they are pre- or post-money

Convertible Debt

I find the easiest way to define Convertible Debt is with an example:

Let’s say Angel Allan is investing $20,000 in your company, AwesomeCo, with Convertible Debt. Allan will give AwesomeCo $20,000 as debt, hence AwesomeCo owes him $20,000. When AwesomeCo decides to raise its next round of investment, say its first full Seed Round, it will be given some valuation (pre-money) by investors, say $2M. At that point, Allan will convert his debt into equity by applying that $20,000 to the $2M valuation. $20,000/$2M = 1% equity stake.

Because Allan is only getting the same valuation as the new investors, even though he put in money earlier (i.e. with higher risk), there are two ways to help compensate him for this risk:

  1. Discount – If Allan got a 10% discount, he would get to buy into the next round for (1-10%) = 90% the price that investors without a discount pay.
    1. Another way to say this is to buy $1 worth of equity, Allan would pay: [$ Allan Pays] = (90%)*($1).
    2. Rearranging the equation, we can see that Allan’s dollars are worth $1/$0.90 = 1.11 times what another investor’s dollar is worth. Therefore, he’ll get a ($20,000 * 1.11)/$2M = 1.11% stake upon conversion.
  2. Valuation Cap – If Allan had a valuation cap on his convertible debt, the valuation (currently $2M) at which he converts would be limited. Obviously, the lower the valuation cap, the better Allan does. If the valuation cap was $1M, he would get a $20,000/$1M = 2% equity stake, even though other investors value the company at $2M.

Generally, an investor will get one of these terms, not both. I’ll discuss terms in more detail later.

Many major blogger-investors seem to be split on the matter. Here are a number of blog posts on the issue by folks who know a lot more than me:

My takeaways on convertible debt have so far been the following:

  • Avoids pricing the company – good because:
    • Round goes quicker because less haggling over pricing
    • Valuation at early stage can be too low (leading investors in next round to demand too low a price)
    • Valuation at early stage can be too high (next round could be a “down round”, another bad signal to investors)
  • Since investor does not get equity until next round, they are included in the same “tranche” of equity as investors in next round
    • Having own tranche could give undue veto power in some circumstances
  • Convertible debt takes away some upside for investors
    • This can be mitigated somewhat with Discount or Cap
    • Unfortunately, Cap can be interpreted similar to pricing a round

    Like Paul Graham and Y-Combinator, our incubator has suggested we raise convertible debt.


    Typical Convertible Debt Terms

    This is one datapoint that I struggled to find as most investors and entrepreneurs I’ve spoken with have hesitated to lay down numbers. This should be taken with other inputs, not just mine.

    • Discount – From 10-40%
    • Valuation Cap – From ~$2-$9M, highly dependent on founders’ experience and track record
      • First time entrepreneurs can expect the lower end, if you’ve sold 2 companies to Google you can expect the higher end

    The most reputable source I’ve seen is this response, from a VC on Quora. Be sure to check the comments/responses to see all of the details: http://www.quora.com/For-convertible-notes-what-are-typical-discount-rates-and-caps-for-startups-that-are-pre-launch

    In addition, it’s important to note that there will be a difference between convertible debt from a sophisticated investor and from Friends & Family. It’s good to take Friends & Family money with convertible debt to avoid pricing the round, and give a discount, not a cap (as this will be treated by later investors as similar to pricing a round).

    Typical Equity Term Sheets

    For equity, here are some resources and standard term sheets released by top incubator programs that can be used as guidance. There are many more terms you need to be careful about, and even reading the articles below, it is difficult to catch all of the nuances without having been through it. You should absolutely consult a lawyer and other experienced fundraisers before raising money.


    While I won’t go into extreme detail here, it’s important to note that before you raise money, you’ll need to create an official business entity for your company. There is a significant tax advantage to creating your company as an LLC vs. a C-Corp. However, if you’re raising VC money, you’ll most likely need to be a C-Corp.

    The main issue to understand is that profits from an LLC are passed directly from a company to the owners (“members”) before tax, and taxes are applied to the members at the personal income tax level. Profits from a C-Corp are taxed within the corporation at the corporate level, then taxed AGAIN at the personal income tax level when distributed to shareholders (investors/founders) as dividends.

    The next important point is that most startup acquisitions occur as asset sales, not stock sales. Therefore, when you sell your company to Google, they don’t buy your shares and leave. They don’t want to take on every liability you’ve ever created, especially those you may have no idea about based on something you did in the early days of your company that you thought was legal. They will typically purchase the desired assets (IP, key personnel, etc.) from your company and leave the junk and unknown liabilities behind. Therefore, for a C-Corp, the “sale price” is taken as income (from an asset sale) to the company and taxed at the corporate rate, and the only way the shareholders (including you, the founder) can get this money in their pockets is by distributing it as a dividend, which is taxed A SECOND TIME at the personal income tax rate. For an LLC, profits from an asset sale would pass directly to the members, and be taxed a single time at the personal income tax rate.

    This would suggest startups form as LLCs…unfortunately, VCs typically will only invest in C-Corps. This is because the entities that fund VCs demand it.

    In short, many of the entities that give VC funds money to invest are non-profits (e.g. college endowments or state pension funds). By investing in a VC fund, these non-profits are “owners” of the fund’s portfolio companies. Since earnings from a for-profit LLC are passed directly to owners BEFORE tax, the endowment or pension fund would be making money, without paying tax, from a for-profit business. As a result those companies would have an unfair advantage vs. for-profit companies that do pay taxes, and hence the government can revoke the endowment or pension fund’s non-profit, tax-free status. Since a C-Corp is taxed within the company before profits are distributed to shareholders, this issue does not arise with C-Corps.

    Though you may not have much of a choice, it is important to speak to a lawyer before you select whether your company will be an LLC or C-Corp. I wanted to flag this issue, since a C-Corp can lose a lot of value for a founder/shareholder through taxes, but there are also many other nuances that are important to understand before making this decision.


    Please note: I wrote this post to be a starting point for someone raising a Seed Round. I am not a lawyer, nor an expert on fundraising.

    Before you raise money:

    • Get a lawyer
    • Talk to more entrepreneurs and investors
    • Read the articles I’ve linked to (among others)

    Good luck!

    How To Start Building Your Personal Brand

    adam about me How To Start Building Your Personal Brand

    I’ve seen too many of my friends begin to build an online brand by signing up for twitter and following the CEO of Zappos, Barack Obama and the NYT, then writing one blog post about how they’re starting a blog, only to let both identities falter.

    To build your brand, I highly suggest the following totally obvious (but usually overlooked) starting point:

    1. What are you trying to accomplish with your brand
    2. What do you need to show about yourself to accomplish that goal
    3. Get on the proper channels and use them in a complementary way


    The first step of building your brand is to stop tweeting for a second and ask yourself: What am I really trying to do here? Don’t just write about your favorite sports team or trip to the Bahamas (unless that’s somehow related to your goal).

    Examples of well thought-out goals:

    • Raise money for your startup
    • Get traffic
    • Hire a great team

    This isn’t always so simple. For example, you may be trying to accomplish all of these things at the same time, while also trying to set yourself up for a job. You at least need to understand which goals you’re targeting, so they can help guide the topics of your tweets or blog entries.

    As an example, at Catapulter, the founders have multiple blogs and twitter personalities.

    First, we have our Catapulter Blog and @CatapultTravel, with which we show domain expertise and help out our users to drive traffic to our business. We also have a section of our company blog dedicated to what it’s like to be a part of our team, so that potential hires can check us out and understand what we’re about.

    Separately, the founders have our own personal blogs to display a different side of us, more tailored to business relationships and just plain helping out the entrepreneurial community.


    Now that you’ve figured out your goals, it’s important to figure out what you need to show about yourself to accomplish these goals.

    For example, to get traffic, you’ll want to understand who are your target users (an entirely different issue), and what will get them to your site. As an example, our Director of Marketing, Jen, uses Catapulter’s blog and Twitter personalities to specifically target what is likely to get our audience of travelling students and young professionals to our site, and get us found via SEO. This includes posts on travel alerts, travel tips for major cities and travel providers, and the occasional light reading (e.g. crazy subway maps around the world).

    In comparison, my personal blog focuses on providing advice to new entrepreneurs, who have the same questions that frustrated me when I started out. Like most entrepreneurs, I take pride in helping out others (as other entrepreneurs have helped me) and that’s my primary goal. However, this blog is also useful to show my professional relationships how I think, who I am, and how we run our business.


    Finally, now that you’ve decided what your goals are, and what you need to show about yourself or your brand to accomplish them, you need to use the right channels, and use them correctly.

    A few key places to get started:

    1. Twitter
    2. Facebook
    3. LinkedIn
    4. Blog
    5. Quora
    6. About.me


    First, make a brief bio. Some people leave this blank, but it’s important to explain why people should listen to you.

    As you begin to tweet – I admit this should be painfully obvious – try to be insightful and interesting, and share info your target audience wants to hear.

    People won’t pay much attention to you if you are obviously selling (e.g. “Win a free iPad!”) or just writing about your day (e.g. “Back from the grocery store – Woo!”). One of my favorite blog posts on what not to do: 10 Reason I’m Not Following You On Twitter.

    One of the best ways to figure out what you SHOULD tweet about is to follow folks in the community you want to be a part of, and understand what types of things are interesting to (and retweeted by) that community.

    In addition, Twitter is a great place to share your more in-depth blog entries, and make it easy for people to share them (don’t forget to leave enough space at the end so people have room to retweet with “RT [your twitter name]” added!).


    Facebook is, like Twitter, another place to share who you are, and in most cases, the same rules apply.

    Most people already have a Facebook profile. As a result, since you’ve amassed 5 years of drinking pictures and family-unfriendly wall posts, you should go back and make sure that you share (through privacy settings or good old deleting) only what you would be ok with everyone in the world, including your target audience, seeing.

    And don’t quit Facebook. It’s like storming out of the room and slamming a door during an argument – doesn’t help, and you probably should have stuck around and worked it out.


    LinkedIn is basically a professional version of Facebook. It’s the place to put your resume online, and build up another social network. In addition, you connect with professional relationships through LinkedIn like you “friend” through Facebook (though LinkedIn etiquette suggests you actually know the person, slightly different than Facebook).

    For your brand, it’s important to have this profile, so people can easily search for and find your professional experience. If potential investors, employees, partners, etc. want to check you out, they’ll be able to find your resume here, and any connections (even 2nd or 3rd degree) you have who they may be able to contact to learn more about you.


    While you may share blog posts through other social media outlets (Twitter, Facebook, LinkedIn), your blog is a great place to let people learn about you more in-depth. Of course, continue to stick to your strategy of what you want to show about yourself.

    It’s always nice to see your personality (a good place to do this is in your writing style), but if you’re writing a blog to get folks to your travel site and a quarter of your posts are about finance or politics, you’re probably not doing yourself any favors – just muddying up your message.

    If you’re just starting, use one of the more popular, simple blogging services like Tumblr, Posterous or WordPress.

    For tips on what to write and how to get started, I defer to this great post by blogger Jason Baptiste.


    Quora is a service that lets people ask and answer questions, and answers can be voted up or down. It’s similar to Yahoo Answers except that Quora has a heavy bent toward entrepreneurship and a much higher quality of answers. In addition, you can follow topics, users or questions that interest you.

    One of the most compelling reasons to use Quora is that if you write a response to a question, you already have an audience consisting of the question’s author plus anyone who searches for that question or similar keywords. It’s similar to getting your blog found with SEO, but Quora is more concentrated than search engines, and quality answers are user validated.

    Interestingly, answers extend to recent events. For example, when about.me was purchased recently by AOL, there was a question on why the company had sold so early. The CEO/founder responded quickly.


    Given so many online identities, the recently launched about.me is a great way to pull all of them together. It allows you to upload a representative picture of yourself, write a brief blurb on who you are, and link to all of your social identities and websites. Though it’s relatively new, it had 400,000 users four days after launch, and is already quite well known.


    Finally, though I discussed staying on track with your messages and goals, this doesn’t mean you should be boring! Try to be entertaining and write about what you find interesting and important.

    However, building your online brand is one of the most important things you will do as an entrepreneur, so just make sure you think through what you want to show about yourself (and filter out what you don’t want to share), and start your brand out strong.

    When Should You Start UI/UX Testing? (Very, Very Early.)


    Very early in the life of catapulter.com, before we hired a designer, our team drew up a basic user interface that we believed would work well for the site. We haggled over details for a few nights, and finally came up with a pretty solid UI.

    Fortunately for us, one of our mentors set time for us to chat with a UI/UX expert before we hired one.

    The first thing he asked us was: “how many people did you test with?”

    Of course, we had asked a few people what they thought, but we hadn’t put together a preset, regimented UI/UX test. We had intended to have a designer with UI experience take our initial PowerPoint mockups and move to this step.



    It turns out, we didn’t have to go to that level. As a professional UI/UX guru, one of our mentor’s typical first steps is to hold very rough UI/UX tests:

    1. Sketch out a rough wireframe of your site, with every piece needed for the user to complete your target action
    2. Write up a questionnaire to be used consistently across users
    3. Find a bunch of people in your target audience who have no idea what the site is about
    4. Ask them to “use” the wireframe as if it were a website – e.g. for us “plan a trip”

    Admittedly, we weren’t entirely convinced this would be useful, with such a simple sketch of our idea…but once we started, we quickly realized that the important part was NOT having users visualize the site.

    The important part was that users knew what information they wanted next, and they expected that to be available. Just like on a live website, if the required info isn’t readily available, the user will get confused, frustrated, and/or leave your site altogether.

    Given this, much of the value in the test was not asking the user “what do you like/dislike”, but watching the user navigate, asking what they’re thinking at each step of the process, and recording as much information about their experience as possible.

    One of the best pieces of advice that we received during our intial design phase was from fellow Betaspringer Andrew Draper of Manpacks:

    “At every step of the way, get it in front of users as soon as possible. You think you know the main issues with your site, but as soon as you show users, you’re going to get bombarded by complaints, and see that the biggest issues are actually three things you never even thought about.”

    GET it “on paper”

    Our next step was throwing together a PowerPoint of the site. I admit that this is mostly because I’m an ex-consultant, but one of its best features is that you can create working links between pages, convert to a PDF, and send this linked mock-up of your website by email to users. If you don’t like PowerPoint, there are a ton of other mockup and wireframing options. Ones that I’ve played with include:

    • Cacoo – An online mockup tool that can be used collaboratively like a wiki
    • MockApp – A package of images of iPhone buttons for Photoshop or PPT that can be easily cut/pasted to create a realistic iPhone mockup (Hint: Use this in PowerPoint, print to PDF, and download the $0.99 GoodReader app to use with working links)
    • There are many other, likely better mockup tools that I haven’t worked with – A recent, pretty comprehensive list of other mockup tools can be found here

    As you go through the UI/UX tests, as Andrew said, you’ll notice there are a lot of things that need to be changed, many of which you haven’t thought of. At this point, you’ll begin to realize another very important rule of UI/UX design: you’re never done!

    The biggest misconception many first-time web designers have is that “we’ll design and build the thing, then we’re done.” Never. You’ll always have something that doesn’t work just right, new features that a ton of users want (expect, really), and you’ll need to continue to iterate.

    Therefore, the key takeaway is: don’t half-ass this initial mockup, testing and design phase.

    Test with good amount of users (10-20), incorporating their feedback and iterating as you go. Once you’ve begun to understand what your users want, not just what your team thinks they want, you can move on to spending your time and money on building the site.

    This way, you’ll start from a much stronger, user-validated initial design, you’ll understand what additional functionality users want you to build, and you’ll have already seen (and hopefully circumvented) many of the pitfalls that can make a user leave your site immediately and never come back.

    Overwhelmed By WordPress Plugins? Start With These 19 Essentials

    When I first set up my self-hosted WordPress blog, I had no idea how many plugins I’d actually need to just get up and running with some standard functionality (e.g. a live twitter feed and RSS sign-up), Google Analytics, and SEO basics.

    I started out by finding dozens of “Top WordPress Plugins” posts clogging up search engines, and many of them list cool plugins, but are hardly complete. I’ve tried to gather a well-rounded set of plugins that you should load when you start your blog, to:

    1. Set up killer SEO
    2. Track traffic
    3. Engage readers
    4. Fill in feature gaps

    You’ll be able to find more plugins later that are interesting to you, or make your life easier. In fact, many of these plugins are meant to work with very little input, particularly with respect to SEO. More customizable plugins exist, with many more features, though they can also be quite a bit more complex.

    Here, I’ve tried to avoid bells and whistles, and just cover what I find to be the most important stuff.

    Improving SEOThese plugins will help you get found in search engines

    1. All In One SEO Pack – This creates a new box in each post page for you to put the Title, Description and Keywords you want crawled by search engines. You may want to have a separate title for search engines (e.g. in the form of a question someone would type into Google like “How do I XYZ?”) while you want to have a pithy, interesting title on the actual post to draw someone in. Also, search engines will otherwise just take the first few sentences of the post as a description, while you can optimize much better for SEO by doing so manually
    2. Google XML Sitemaps – This helps major search engines better index your blog
    3. Efficient Related Posts – It’s important to have more links to other places in your site, to keep folks on your site longer. This puts context-based related posts at the bottom of each post
    4. W3 Total Cache – One of the things that can help your blog out with SEO is making sure it’s as quick to load as possible. Caching plugins like this one can decrease loading time significantly
    5. SEO Smart Links – Automatically links keywords and phrases between posts in your blog, based on context
    6. SEO Friendly Images – Automatically adds alt and title attributes to your images
    7. Redirection – When you change something like a post name or permalink formatting, this plug-in will keep track of your changes and automatically redirect the links you’ve already created, on your site and others. (This will happen more than you expect when you’re tweaking for SEO)
    8. Broken Link Checker – Not many things are more lame than links to nowhere (hurts SEO as well). This plugin checks your site and emails you if a link breaks

    Tracking AnalyticsYou need to track how people use your blog to understand how to improve it

    1. Google Analyticator – You’ll need a way to setup your blog with Google Analytics. If it’s good enough for Google to give a shout-out, it’s good enough for me. It’s also really simple – just pop in your Google Analytics ID and that’s basically it. You can also exclude authors from being counted as visitors

    Getting others to shareOne important way your blog gets traffic is by engaging others and encouraging them to follow you and share with friends

    1. Sexy Bookmarks – By Shareaholic, an excellent way to let folks share via any one of dozens of social networks or email. Looks great
    2. Subscribe Widget – If not already included in your theme, add RSS, twitter, etc. subscription buttons as a widget
    3. Feedburner FeedSmith – Your WordPress theme may not be optimized to show up well as an RSS feed. Once you sign up for a FeedBurner feed (which optimizes posts to be read as RSS), this plugin will redirect your “www.yourblogname.com/feed” link to FeedBurner. (Download it on Google’s site)
    4. Disqus – Becoming the standard for comments. Used on many major blogs like TechCrunch, Chris Dixon, Fred Wilson, etc.

    Why wasn’t this a default feature? – There are a number of plugins that you really shouldn’t have to load yourself…but you do!

    1. WordPress Database Backup – Backup is not an option. Use this simple plugin to download or email yourself backup files on a (very) regular basis. Accounts do get hacked, and hosting services can go down
    2. Image Widget – If this doesn’t come with your theme, you’ll want it to add picture links in the sidebar, like a linked company logo
    3. WordPress Importer – You’ll need this if you’re moving your blog from a free “yourblog.wordpress.com” blog to a self-hosted wordpress blog
    4. AmberPanther Favicon for WordPress – If you don’t want an ugly default Favicon (the little picture in the web browser tab next to your site name) get this to personalize yours
    5. Wickett Twitter Widget – A clean, simple widget to post your Twitter feed. I find many competing Twitter widgets are over-designed (don’t expect bells and whistles here)
    6. WP Mobile Detector – If your WordPress theme isn’t mobile-ready, this plugin auto-detects a mobile device and provides simple mobile theme

    Happy blogging!

    « Older posts Newer posts »