More and more, entrepreneurs are turning to the web to start new businesses because of low startup costs—often less than $1 million. Investors are helping drive the trend, in part because they have less money to invest. The average venture fund has shrunk from $166 million in 2007 to just over $120 million at the end of last year, according to data from the National Venture Capital Association and SVB Capital. Smaller funds tend to gravitate toward smaller funding rounds.
- Cheap Customer Acquisition
- A Cheap and Clear Growth Strategy
- A Clear Differentiator
These factors create an overall Better Bottom Line:
n the end, Andelman says VCs are pursuing more capital-light investments because businesses are being acquired for less now than a few years ago. “$50 million exits are not unusual these days, whereas $500 million exits are almost unheard of,” he says.
That’s a problem for venture capitalists who live off bets that return 10 times or more their initial investments. Why? The math doesn’t work when you’re writing big checks. Only the investor that bets $5 million (or less) in exchange for a 40 percent stake gets a 10x return on a $50 million buyout.
By focusing on lean web-based businesses, Andelman says he’s put his fund in a position to earn big profits on small exits. “What we found is that anyone can write a business plan that looks capital-efficient. The odds that it actually will be capital-efficient are much higher in the web domain,” he says.
In one instance, Rincon would earn 10 times its money on a portfolio company sold for less than $25 million. Entrepreneurs can benefit from this same dynamic. Capital-light businesses are more likely to be bought, Andelman says.
“I don’t think anyone gets into this business targeting $50 million exits,” he says. “But it’s nice to know that if the businesses in which we invest ended up there, it would still be considered a great outcome for everyone.”
Though only a fifth of start-ups survive long-term, they replenish the employment market, Kauffman’s Robert Litan reports.
Most of the jobs start-ups create remain as the fledgling companies age, creating a lasting effect on the economy, says a new study.
The Ewing Marion Kauffman Foundationstudy – titled “After Inception: How Enduring is Job Creation by Start-ups?” – found that although only a fifth of start-ups make it to their 25th birthday, employment figures stayed at 68 percent of the initial number. It suggests the number of start-ups that flourish and create jobs balances the jobs lost by companies that close.
The study is based on Business Dynamics Statistics, which is compiled by the U.S. Census Bureau and tracks the number of new businesses from 1977 to 2005. The organization defines start-ups as businesses that are less than one year old.
Although start-ups’ employment after five years is 80 percent of what it was when the companies began, many of those jobs remain long term. The study found that in the year 2000, start-ups created almost 3.1 million jobs. Only half of those firms survived to 2005, but the surviving firms maintained 78 percent, or more than 2.4 million, of the jobs that existed in 2000.
The study also analyzed entrepreneurship and employment during recessions. Companies starting up during recessions at first hired fewer employees than those started up at other times, but generally increased their hiring post-recession to catch up. But companies born during extended recessions – those lasting three years or more – created about 10 percent fewer jobs than companies that avoided a recession in their first five years. That’s about .2 percent of all jobs in the economy. (To hear the Kauffman Foundation’s take on why great companies tend to start during a recession, read this article.)
“While a recession has a negative effect on a company’s employment in its first few years, a recession does not impose lasting consequences on startups,” said Robert Litan, the study co-author, an Inc. contributing editor, and the foundation’s vice president of research and policy, in a statement.
(Article via Inc.com)
BetaFish is a 90-day startup accelerator program designed to help college students develop and launch web-based technologies. Our initial class will be available to 5 student teams. We plan to accept 10 applications at some point during Fall semester. The plan as of right now is to offer BetaFish during the Fall and Spring semesters. The 10 applicants will be split up between the two semesters. As long as the ideas we receive have market viability, it is will be first come, first serve.
We’ve chosen to focus on web-based startups for three main reasons : (1) they can be conservatively capitalized, (2) they can be developed faster and more agile using free (or close to free), open-source software, and (3) can achieve viral scalability. We are well aware that in today’s economic climate, 90% of startups fail; however, our research shows that the main reasons for failure is because that startups don’t always fully understand the problem their solving or don’t have a firm understanding on how to appeal to their target customers, both of which exponentially increase burn rate.
To succeed as a startup, one must rapidly iterate and test ways to effectively balance the creation of solutions (products or product modifications) and customer development without compromising the longevity of resources. For this reason, our program will thoroughly guide each team through product and customer development to ensure a marketable/fundable product or service is actually achieved. Our teams will consist of 2-3 individuals capable of building the web application or tool themselves without investment in additional developmental resources.
The program will conclude with a presentation day for each startup to demo their product or service to later-stage investors in an Ignite-style presentation format. Success of this program will be judged by the number of startups that either achieve market traction or receive follow-on investment. Market traction is considered at least one customer willing invest their time in testing the product because of an interest in purchasing it at its completion or a customer willing to pay for the product prior to it’s completion.
As we’ve noted, we’ll be focusing on web-based startups. Web-based as defined by us for the purposes of this program will be tools and applications capable of operating primarily from a standard web or mobile browser.
Each startup will be provided with the following:
- Dedicated workspace (i.e. The coIN Loft)
- Accounting services (i.e. bookkeeping)
- Legal services (i.e. incorporation, partnership agreements, term sheets, etc.)
- Product development mentors
- Customer development mentors (i.e. marketing, branding and sales)
- Investor pitch coaching
- Introductions to later-stage investors
- Graphic design and Web development assistance.
Activities between day’s 0-7 will need to be completed before teams are permitted to begin building their product or courting potential customers.
Days 0 - 5: Development Plan
- Project Summary
- Team Member Responsibilities
- Gantt Chart
- Critical Path & Risk Analysis
- Business Requirements
- Technical Requirements
- Implementation Requirements
- Change Management Plan
Days 5 - 7: Target Customer Analysis
- Who is the customer
- Customer Segmentation (by revenue potential)
- How will they be reached
- When will they be reached
- Competitive Analysis
- Who is the consumer buying from
- Where does the venture fit into the market
Days 7 - 15: Product & Customer Development, Company Formation, Establish Accounting
Day 15: Progress Presentation
Progress presentations will be made every 15 days. These presentations will be primarily used as capacity building activities, as well as an opportunity for each team to gain insights and feedback from mentors about the progress of their project. These presentation will also have an educational component which will involve guest-speakers from the local business community.
Days 15 - 85: Product/Customer Development
Day 30: Progress Presentation
Day 45: Progress Presentation
Day 60: Progress Presentation
Day 75: Progress Presentation
Days 85 - 89: Investor Pitch/Product Demo Development
Day 90: Investor Pitch & Product Demo Day
Day 90: Closing Event
By a raise of hands, how many people have ever been paid to develop a good idea? Kudo’s to those of you that have, but if you’ve not been given that special privilege and you have an idea worth money, BetaFish is here.
If you’ve ever wasted 3 months crafting an iron clad business plan, only to be smacked with the reality that no one cares about what you’re trying to sell them. BetaFish is here.
BetaFish is an incubator on steroids. We’re combining the benefits of a Coworking space (community, collaboration, openness) with lean startup methodology, to connect smart and talented people to investment opportunities faster than ever before in Delaware.
The idea is to find five, 2 person teams with a super cool tech idea; pay their living expenses for 90 days; give them space at coIN to build their “widget” and collaborate; and also provide the opportunity to pitch to accredited Angels and V.C’s when completed.
Organizations like Y-Combinator in California, DreamIT Ventures in Philly, and Techstars in Boston, are killing it right now. Coworking spaces like Gangplank, IndyHall, and The Factory, all have an steroidal incubator too.
I’d like to assume you already know what Coworking is, so I’ll briefly explain what lean startup methodology is all about.
Eric Ries is the grandfather of the term lean startup. He’s a 31 year old engineer, entrepreneur and blogger. The principles of the methodology are based on the lean manufacturing process, which was made famous by Japanese factories decades ago. The thought behind the methodology is to reduce waste, increase manufacturing efficiency, communicate with consumers to better understand their needs, and thus provide better value in a shorter period of time. BetaFish is no different. We’re all about building more and BS’ing less.
The Lean Startup process makes entrepreneurs focus 100% of their efforts on completing tasks that are absolutely vital to the progression of the idea. Traditional incubators teach startups how to write business plans, when in actuality, startups don’t need a business plan…they need a scalable, and repeatable business model. They need to focus all of their time on product and customer development. They need to rapidly test, fail, learn, and build new ways to generate money from day one so they can afford to perfect their products as customers give feedback.
There are 3 stages to the Lean Startup process:
- Customer Discovery: Ideation (You’ve found a problem. How do you solve it?)
- Customer Validation: Who will Pay? (You’ve started building a solution, but who will actually buy it? Why?)
- Customer Creation: Growth (Products a hit. People love it. How do you sell more without going broke?)
Our 90 day program will lead participants down a straight and narrow path from idea-to-marketplace. We’re providing them with every resource they’ll need to formalize their idea, incorporate, set up their books, solidify their marketing plans, acquire early adopter consumers, build a scalable product, and connect with investors willing to invest. The only requirement we ask of our participants is that they are fully committed to nothing else, but building their product and perfecting their business models, as well as, working at coIN 3 days per week between Monday and Friday.
When all goes well, we’ll be kicking out 2-3 funded companies every 90 days! Delaware will truly never be the same!
Stay tuned for more information.
BetaFish is a startup accelerator that is being hosted by The coIN Loft (a Coworking space). We’ll be launching this revolutionary venture on the second floor of The coIN Loft space in Wilmington, Delaware.
The program is a 90 day lean development program for up to 5 web based tech startups. We’re offering the lucky individuals that are invited to participate pre-venture capital to build their world changing products/services; access to vital resources; and a chance to collaborate with the brightest brains Delaware has to offer.
We are very proud to be a part of this game-changing project, and look forward to all the opportunities it will bring.
Stay tuned for updates!