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daily articles for founders

Here are 10 quality posts from the Founder's Library:

Notes on raising seed money  

Chris Dixon's notes on raising financing. Solid, level-headed tips. Best read in conjunction with this article by Evan Reas, which proposes the following two-step approach:

You are never asking for money nor do you ever need it. You are either meeting with investors to talk about your business or asking them whether they want to be included in the round you are about to close.

Government grants  

Renowned VC Fred Wilson dismisses government grants:

The application process is usually long, involved, and distracting. And sometimes the grants come with strings attached; you can't move, you have to use it for a specific purpose, you have to hire a certain number of people with it, etc, etc.

(...)

I'm not a fan of this form of financing. First, in principle I think that government ought to stay out of the business of picking winners and let the market do that. But more practically, I've never seen an entrepreneur change the outcome of their startup with government money. It is never enough to really move the needle and the strings that are attached usually make it uninteresting to me.

Given that, these days, I spend most of my time getting tech companies government money, I can't quite agree with Fred here. Perhaps things are different in the US (in fact, they almost certainly are), but here's the situation in the UK:

Tax Credits

The first mechanism that the UK government has to help tech companies is a tax break. It can be quite complicated to apply for, and so many companies that should be getting that tax break don't apply for it. If you're spending at least £50k a year on developing your own software products, you can get a chunk of that reimbursed by the government.

It's easy to dismiss the amount (you might get about £10k back on a £50k expense, for example), as Fred does, but actually, several companies in our portfolio would argue differently. One of them was in the middle of raising funding when the tax credit (over £40k in their case) came in, and it gave them that extra couple of months of runway that allowed them to negotiate themselves a good funding deal.

In their own words, they were "on the floor, laughing" when they saw the money come into their account at that critical time. So much for not moving the needle.

How much work did it take them to get this money? None at all. We handled all the filing for them. It cost them money, but that money was a "success fee" - in other words, it was money they wouldn't have had anyway if it wasn't for our help.

But enough about these unsexy tax matters. What about grants? Are they really that hard to file for?

UK Government Grants

Currently, GrantTree specialises in one of those grants, the Grants for R&D, which comes in the form of match funding with very few strings attached.

Are they hard to file? Yes, absolutely. The application form adds up to about 10 pages of very dense writing. It takes a lot of effort, great writing, persuasion, and technical skills, and of course experience in going through the process, to do this well, and it really does need your full attention for at least a few days to just get it done.

I certainly agree that in most cases, it's absolutely not worth it for tech founders, who already have their hands full with building their business, to dedicate a week or two of their mind-space to learning about the grant and preparing the application.

But here again, they can get help. And here again, the work is done mostly on a success fee, so that the cost is basically coming out of money which they wouldn't have had without the grant anyway. So it works out, once again, as free money.

Moving the needle

Can these things move the needle for entrepreneurs? Absolutely.

One entrepreneur I spoke to over a startup-themed dinner a few months ago claimed to have raised over £2m of government grants for his business, over the space of a few years. The Grants for R&D mentioned earlier can effectively extend your runway by 45% to 60% depending on the grant you apply for. Some UK-based companies can and do claim hundreds of thousands of pounds of tax credits every year. Even for a decently sized, mature company, that makes a difference. Money can clearly "move the needle". If it didn't, then why would people give up precious equity in exchange for it?

The same entrepreneur who had raised £2m of government funding made a great point that night. He said that the US, and in particular Silicon Valley, had a huge advantage in the density of VCs and hyperactive investment culture. In the UK, where VCs are scarcer and more risk-averse, the advantage that we have is that the government is willing to directly support small, innovative technology businesses.

If you want to learn more...

I don't want to turn this article into a pitch for my company's services, but if you're a UK company and you want to learn more, do get in touch. There's no guarantee that we can get you money (many startups are just too small and scrappy and don't qualify for either grants or tax credits), but we're always happy to discuss your options.

Ultimate guide to dropshipping  

What it says on the tin. Dropshipping is one of the many ways you can build a modern business in 2013, but like many other tools it is not so straightforward as it might seem.

This guide to dropshipping, by Mark Hayes of Shopify, is probably a good starting point if you're thinking of starting this kind of business.

Basics of selling your company  

Fred Wilson, as part of his "MBA Mondays" series, provides this great article explaining some basic terms involved in sales of companies.

He covers: price, consideration, reps, warranties, escrow, integration plan, stay packages, government approvals, breakup fees, and timing.

If you don't know what some of those terms mean, this is worth a read.

Paths and deterministic design  

Brad Hargraves:

In a path-driven business, each experience that a user — especially a first-time user — encounters is designed with the singular purpose of pushing a user to the next experience and perhaps collecting some information along the way. In the case of web businesses, each “experience” is a page. To generalize, a path is deterministic in nature; a subject’s destination on any particular page has been determined by the page’s design.

(...)

I’m not arguing against design. But good design is hard, and design outside of the constraints of a deterministic path is really freaking hard. And if you’re a founder of an early-stage company, your job is already hard enough.

Seed stage valuation guide  

Here's a good post by Jordan Cooper, providing some ballpark of what sort of company valuation you should look for at different stages of your company. Jordan is Brooklyn-based, so not from Silicon Valley, and yet I think it's fair to say that in most places other than SV, the scale shifts at least one notch against the entrepreneur (i.e. pre-product raises nothing and a prototype built and in the market might raise a hundred thousand pounds):

Here then, is a summary of the stages Jordan proposes:

  1. Still at your old job: $0. Quit your job before asking for investment.
  2. Pre-product: $2M. Raise $300-$700k.
  3. Prototype built and in the market: $3-4M. Raise $400k-$1M.
  4. Product in market and shows signs of growth or revenues: $variable, Raise $1-5M.
Learn to think big and small  

Gabriel Weinberg:

You should learn to think big. It's the precursor to choosing an ambitious startup idea, which I also strongly recommend.

But...

However, [thinking small] may make you just as much money. And that's an important distinction. Thinking big and making money are not the same thing. If your goal is to make money then an indie company (like my last one) may be your best bet, or some other industry altogether like finance.

And...

The trickiest part about thinking big is you still need to think small at the same time while executing. You need that grand vision, but you also need to bring that back to today in the form of strategy, goals, priorities and of course your very next steps. Being able to articulate both the big and small in a succinct way that makes plausible sense is a signal of a great entrepreneur.

So actually, Gabriel's initial title ("Learn to think big") is not quite right, as he admits himself, though he mostly looks at the "think small in order to execute" side of things.

I'd focus on the second quote: if you want to achieve some kind of financial success through your startup (which probably should be one of your primary goals for your first successful startup, before you embark on moon shots and change the world), then think small. Think today, tomorrow, next month, think how do we make this fly now. Learn how to make the now work, and when you have that sorted, then cast your eye further out and start to think bigger.

That's the advice I'd give to a not-yet-successful entrepreneur. Think small, focus, make it work, then grow.

Business Model Environment  

Salim Virani, serial entrepreneur, Leancamp organiser and regular speaker at startup workshops and conferences, on the significance of the later part of the Business Model Generation book:

[The investors'] most consistent question beyond the value proposition, customer problem and target customers were about the growth and adoption trends, competition and market size. The investors were sizing up the opportunity by looking at the context and starting point for the business. It became clear that to explain the full opportunity quickly, the canvas had to be augmented with the Business Model Environment.

(...)

The Environment consists of 4 types of factor:

  • Market Forces
  • Industry Forces
  • Trends
  • Macro-Economic Factors

Worth reading if you're an aficionado of using The Canvas, as many are nowadays, and looking to get better at turning your business models into investor pitches.

How to develop your fund-raising strategy  

Mark Suster produces another one of this trademark, long-but-packed-with-info articles, this one about fund-raising.

Mark presents fund-raising as sales, and offers a whopping 13 mini-articles about every aspect of achieving this:

  1. Identify the right target investors
  2. Determine how to get access to them
  3. Meet early
  4. Meet in person
  5. Avoid the dead times in the year when no one raises funds
  6. Have a narrative / make it simple
  7. Create a sustained campaign
  8. Lobby - get referrals
  9. Don't neglect your other duties
  10. Test interest
  11. Take appropriate risks
  12. Understand the importance of marketing
  13. Create urgency

I'm not a fan of raising investment unless you already do know what you're doing, as I've discussed before, but if you do feel ready to go the funded route, this article is gold dust - a bucketful of it. Bookmark and read at leisure.

The bastards book of Ruby  

The best way, and reason, to learn a programming language is to do something with it. Here's a book that describes itself thus:

The Bastards Book of Ruby is an introduction to programming and its practical uses for journalists, researchers, scientists, analysts, and anyone else whose job is to seek out, make sense from, and show the hard-to-find data.

This does not require being "good at computers", having a background in programming, or the desire (yet) to be a full-fledged hacker/developer. It just takes an eagerness to be challenged.

This practical focus (also mentioned in comments on HN by people who have read/used the book), along with the fact that it's designed for people who don't know how to program, and also along with the fact that Ruby is a delightful language to program in (a completely non-controversial statement!), makes it a great starting point for people who are willing to shun Jeff Atwood's terrible advice and instead follow Sacha Greif's, Zed Shaw's, or even mine.

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