photo credit: jurvetson
There can be two cases when it comes to startups; first that the founder chooses to be the CEO and second is the case where the CEO is appointed by the founder.
In the second case, founders usually start their company and hire a CEO when things get going and handling everything by themselves becomes difficult. CEO’s do a lot of corporate navigation, formulate plans and strategies, basically with their experience they give a strategic outlook to the growth of a startup. Founders on the other hand, have a passion for their product which is a major driving force for a startup. Both are vital to the existence of any business, but when it comes to choosing between the both? What if for some reason either of them has to leave?
Of course, all businesses are different, and people may leave for different reasons. But VCs invest in founders as much as they do in ideas, so for a company to lose that passionate individual that the VCs initially trusted might send out bad signals. On the other hand a startup will lose direction if a CEO decided to quit.
If someone needs to go, who should leave? The CEO or founder?
There is an interesting read on the above topic at ReadWriteWeb
Regardless of the nature of the breakup, it got me thinking about the dichotomous relationship some startups have between founders and CEOs, and which, if either, is more expendable.
photo credit: woodleywonderworks
Investors and entrepreneurs may not always have the same needs and motivations, hence it’s a common phenomenon that investors might reject your startup idea because it’s not a right fit for them. It is important for both parties to know how to deal with this rejection.
One suggestion here to entrepreneurs is to never ask for referrals. When your pitch is rejected, the worst thing you can do is ask for a referral. It won’t work in a professional business context. The venture capital community is a very close-knit group that has a high amount of trust and reliability in one another, so it is quite irrelevant to ask for a referral. Entrepreneurs should be careful with this.
Just as the entrepreneurs, investors need to know how to deal with a rejection as well. Following “honesty is the best policy” approach will be the best here. Be clear, concise and honest to startups. Entrepreneurs, on the other side of the table should take rejection for what it is, and not push back for a referral.
A note to startup entrepreneurs – don’t take rejection personally ever. And don’t forget to look on the bright side of a rejection; something better is waiting for you always.
For more insight on this matter, we suggest you read this post at ReadWriteWeb
Bijan Sabet suggests. Sabet says that had he not been turned down for his first job application, he may not have found himself where he his today, both professionally with becoming an investor, and personally with meeting his wife.
photo credit: striatic
I will first start by explaining what a ‘Crocodile Salesman’ exactly means – a person who doesn’t listen, only talks (sells). Big mouth and no ears, they’re people who are always (mostly) talking. Perhaps they have the best product/service to offer, but only pitching without listening won’t do them any good.
Mark Suster explains the ‘Crocodile Salesman’ in three scenarios in his recent post. Here is a brief outline of what he had to say:
1. When You are Selling
As a startup entrepreneur ‘selling’ starts coming to you naturally. Entrepreneurs are so engrossed in promoting their product/service that listening to others becomes practically impossible. Startup founders are in sales mode from the launch day.
A humble advice to all startup entrepreneurs here is to ‘listen’ and understand. Everyone understands you have something great to offer, but blatantly pitching without listening can be very harmful. Recognize a problem and offer a solution, don’t keep offering solutions to problems you don’t even know about. Crocodile sales are seldom productive. They just make you sound desperate.
2. When Hiring Sales People
It’s the time when your startup decides to hire a sales person. Beware of the crocodile salesmen in such a scenario. How to identify them? A most common trait among these people is that they keep talking about themselves and their achievements for what may seem like ages. More than wanting to know about their role, they will be busy bragging about how good they are. The interview remains one sided – such people can’t encourage discussions. They may be really good but not apt for a sales position in a startup.
3. When Pitching a VC
Raising money for your startup is definitely selling your idea. But also make sure you research your idea, build rapport and credibility and understand what the VC has to say. Avoid being a crocodile salesman.
I know because many entrepreneurs I spend time with I can tell are in their own brains when we’re meeting rather than trying to understand what my position is.
photo credit: billaday
The Wikipedia definition of a Term sheet – a bullet-point document outlining the material terms and conditions of a business agreement
It can be described as a non- binding document (like a Letter of Intent) which records two or more parties’ intentions to enter into a future agreement.
Venture Capitalists (VCs) backing out of a term sheet agreement for any reason can be very harmful to a company’s reputation.
If the VC has agreed on the conditions of a term sheet earlier, and then for some reason has backed out, then it’s not his fault. The term sheet by no means is legally binding upon any party involved in the contract.
VCs generally have valid reasons before they decide to back out from investing. Any void term sheet can be devastating for a startup company. If one VC backs out of an offer, then other ‘potential investors’ will look at a startup suspiciously and raising investment will become difficult.
Just remember – be diligent, don’t over promise and NEVER forget that a term sheet is not legally binding.
Read the following articles for a greater insight on the matter:
http://www.readwriteweb.com/start/2010/02/how-your-term-sheet-affects-yo.php
http://cdixon.org/2010/02/03/backing-out-of-a-term-sheet/
It was at Bessemer that I learned you never back out on a term sheet except in cases of fraud etc. I never saw them back out on one nor have I heard of them doing so
photo credit: Jeff Belmonte
A startup’s model/product usually undergoes a significant change from the point of founding to the point of funding. How the capital flows into a startup is very critical and quite difficult to manage.
Startups can either have too much capital, too little capital, or poorly applied capital – and execution of the startup model in presence of any condition mentioned above can be harmful to the business. Capital investment of a startup determines two crucial things; health of a startup and more importantly, the relationship between a startup and its investors. The concepts of capital discipline and slow capital provide a framework for managing this relationship.
Capital Discipline – to raise and use capital wisely. Take a lean oriented & customer – focused approach. A minimum-product viable strategy will be ideal to get money and feedback from early adopters. Raise ‘just enough’ capital and try being independent from the time framework since sometimes it may takes years to achieve what your startup model actually aimed for.
Slow Capital – A sense of urgency is important for capital investment but don’t rush to conclusions. This point is particularly beneficial for investors as well-thought investment decisions are precisely what they’re looking for.
Start with small investments and grow with the company.
Capital should be poured into a startup depending on its stage of development.
Capital should be consistent, transparent and disciplined. This is the key for a startup to be successful and to get off on the right foot.
We suggest you read the article at GigaOM for more detail
And that requires a new sort of relationship between startup and investor, one in which the historic friction associated with bringing capital into a startup over time is reduced or eliminated.
