During the past two years we met with eager startup founders, who shared their ideas and allowed us to be part of their learning experience and growth. One of our latest investment is a company called Servify, whose ambition is to be the platform that brings together all eco-system partners to deliver consumer happiness through great after-sales service. How do they do it? Using the world’s most advanced self-learning post-purchase service platform to deliver great customer experience, they integrate multiple partners of the post sales service ecosystem on a tech-driven unified intelligent platform. Servify provides Device Lifecycle Management Services for all devices that touch our daily lives.
This is only one of the startups we were proud to be a part of and the knowledge we have gained is priceless. We thought of sharing this informative article with you, to help you understand a bit better the fascinating new startup world.
It’s easy for anyone new to the startup scene to be overwhelmed by all that is going on, particularly new founders coming in from a completely different background. What we feel is important is to get familiar with the key terms of the scene, so that you use this knowledge to better understand what is happening around you and also to convince key stakeholders that you know what you’re doing.
For those in that phase of the journey, here are some of those key terms.
Accelerators and Incubators
It takes a lot of expertise to build a company and not many people are blessed with the knowledge to do it all without external help. That’s the main reason why many startups turn to available programmes to help them build the skills needed to help their business grow and thrive. These programmes are split into accelerators and incubators. The difference between those two, lies in their name.
Accelerators tend to work within a constrained period, typically cramming the whole work programme in the space of a few weeks or a couple of months.
Incubators, on the other hand, take a laxer view of how long a startup stays within the programme, providing the support over a longer period of time.
Both have their merits and if the opportunity is there, are worthy of investigation by a startup.
Perhaps the most important measure for any business, but in particular a startup, is the amount of cash it has available. Knowing how much money your startup has in the bank is essential, however, is just one side of the consideration. The other key aspect is how much money the startup is spending monthly compared to the revenue is making. This figure is referred to as the burn rate which essentially refers to the rate at which the startup is burning cash. If the amount of cash is divided by the burn rate, the result is referred to as the cash runway. Again, this is a very important measure which provides an indication of the number of months that the startup has before it runs out of money.
Having spent so much time and effort in building your startup, you become attached to it. You focus to do all that it takes to make sure that the startup grows and flourishes and ensure that investors can profit from it. It’s important for founders to have a clear idea on how investors can get their return, if the startup is successful and reaches its potential, what we call an exit strategy, how to exit the business. Typically, it includes the sale to a bigger operator or else an IPO (listing on stock exchange). It would be easier for potential investors to appreciate how they can make a return on their investment if the startup can provide a clear exit strategy along with examples of similar businesses with successful exit strategies.
The term Intellectual Property used to define the creation of all that makes a product unique. It can range from designing to programming an app. What is important for a startup isn’t the definition but rather the ownership of this intellectual property. There are many possible pitfalls here and one must be careful in making sure that the startup owns all the Intellectual Property that is developed by it and take the necessary steps to protect it.
Minimum Viable Product (MVP)
There is a big gap between an idea written down on a paper to actually developing it. Starting from that idea and managing to build something that works – a Minimum Viable Product (MVP) – is the first significant step for a startup. When this idea is shared with others along with an MVP, not only does it allow them to get a better feel of what the founder is going for, but it shows that there is a certain level of substance to the startup. An MVP must have the basic functions so that users get an understanding of what it is trying to achieve (minimum), it must be a working model (viable) and it must be tangible for users to play around with (product).
This is the most basic document that any startup should have available. Essentially it is a presentation style document that outlines what the idea is all about, the problem it is trying to solve, the stage the business is in, an overview of the people involved with the startup and an idea of the financial situation – both current and projected. There is an art to the pitch deck, it needs to achieve the perfect balance between too little and too much information, that allows the audience to get a clear idea of what the startup is and what it wants to achieve.
When an investor agrees to put money in a startup, a term sheet is drawn up. This is a non-binding document which outlines the basic terms and conditions of the investment. It will include items like valuation, the amount of money the investor is going to put in and how much share of the company that money is going to give back.
Building and developing a working product is in many ways the easy part of any startup journey. The hard part comes when that product is actually launched and the startup is looking to gain customers, particularly paying ones. This is the make or break point which will define whether the startup has any real future. Getting customers on a steady, ideally accelerating, basis is something that investors look for and what they are after when they refer to a company’s traction. It is worth pointing out that there are instances where traction is used as a proxy for momentum. As such, if the product development is proceeding at a good speed, there too could be said that a company has good traction.
This is a magic ingredient that most investors look for in a startup. There is a significant risk in investing in a startup but those who do are aware that if the company manages to find a big market for its product, they will make a profit that pays back for that risk. And this is what scalable refers to: a startup’s ability to tap into a new or growing market, allowing ample room to grow.
Angel and Venture Capital
Investors can be split into two broad categories; angel and venture. The difference between the two tends to be the size of the fund behind each investor.
Angel investors tend to be either an individual or a group of individuals who put together their money to invest in startups.
Venture capital investors almost always hold a collection of funds from a number of individuals and companies, giving that investment group a significant pool of money to invest.