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long story short: the paradigm shift is still going on

After we’ve screened hundreds of business plans and after we’ve discussed countless cases I would like to share some interesting as well as astonishing key findings of one of my partners Berthold von Freyberg.

There are Magic Numbers in the business plans of startups, numbers that are chasing us, numbers that are always there. Sometimes we are waiting or even expecting to run into these numbers when we are reading a business plan. When a management team is presenting the business case we are getting thrilled if they come up with these numbers.

After Berthold recognized these patterns and told us about it I checked my own old business plans and I amazingly found some of these numbers.

  • Are these numbers a sign for successful startups or just an accidentally calculated pattern?
  • Should every startup have these numbers in their business plan?
  • Are these numbers important for a VC?
  • And most importantly are these numbers stable?

Ok – enough with the foreplay! Here is the pattern of the Magic Numbers. This pattern is not scientifically generated; it’s just based on experience.

  • 2 million (EUR) investment is needed in the A-round
  • 6 months sales-cycle
  • 18 months competitive edge

2 million (EUR) investment is needed in the A-round

Why is a majority of the start-ups seeking for EUR 2m in the A round? Maybe because it is common knowledge that a VC likes to invest EUR 1 – 3m in the first round. Double-check your cash requirements. If you need more – ask for more. If you need less – talk to your potential investor.

6 months sales-cycle

Whether enterprise software or clean tech technology – most often the business plan shows a sales-cycle of 3 to 9 months and the sales-pipe calculation is based on an average sales-cycle of 6 months. To be honest, I made this mistake in one of my start-ups; I took 6 months into account. At the end we were facing 9 up to 10 months and we ran into cash-flow problems. Here comes my advice: try to be honest, not only because of the potential investor. It is even more important for your financial planning. Talk to experienced sales executives in your industry and find the correct number.

18 months competitive edge

Sure – it is sometimes complicated to estimate the head start of the own company in relation to its competitors. But why is it so often 18 months. Because it is not generally understandable we will ask for the reasons. So, be prepared ;-) and try to evaluate the correct competitive edge.

When I finished my studies in 1992 I can’t remember a single fellow student who was planning to become an entrepreneur after the exam. Even in the classes nobody was focusing on this potential career path. The tutors were always talking about careers at the big enterprises.

Fast forward to today – 17 years!

Today, the entrepreneurship centers and classes of the important universities are established and overcrowded. New additional business schools have opened the doors; students are joining start-ups for an internship and are not only interested in the big brands and enterprises. More and more students aren’t just joining start-ups after they finished their studies or – even better – they’re creating start-ups.

But there is still much to accomplish if we compare this positive trend with the business schools and universities in the US. In order to positively infect the students with the idea to become an entrepreneur the students have to see and to listen to more successful entrepreneurs during their studies. The professors can teach the theory but sharing the entrepreneurial experiences is crucial and important to motivate even more students to neglect offers from the big consultancies and investment banks (well, these offers are blessedly not that much interesting anymore).

Image representing Twitter as depicted in Crun...
Image via CrunchBase

To be honest I was a bit skeptical if Twitter is more than just telling my friends and followers that I am waiting for the next flight or other “interesting” and “thrilling” stuff .

Well, I gave it a try and started to post tweets two or three weeks ago. Sometimes I posted interesting links sometimes I shared my opinion.

Here comes the funny and somehow exciting story:

Some years ago I got an idea of a new business case. In order to not disclose the related companies I won’t explain which case it is.

I’ve tried to convince young potential founders in Germany to start such a business model. Well, nobody executed or even started.

About three weeks ago I’ve seen an announcement of a Silicon Valley start-up with more or less exactly the same case.

I wrote a tweet about this Silicon Valley based start-up. Just 10 hours later the CEO sent me an email. We never met and we aren’t connected on LinkedIN or Xing. My tweet found its way to him…

This event convinced me totally about the power and impacts of Social Media and especially Twitter.

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Social Media Revolution

just sit down, lean back, relax and enjoy – don’t get scared

This video shows perfectly how the web and social media have changed our life – and it still an ongoing process.

Form an investors perspective:

Did you see any “old” and established media companies in the list of social media drivers?

With the exception of Apple all named companies are rather young and have been funded by Venture Capital investors. ;-)

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Referring to my last post on this blog about the behavior of some VCs I need to show the other side of the medal – the behavior, characteristics and attitude of some start-ups and entrepreneurs.
I joined my first start-up 1999. Since than I started and led three start-ups until 2007. In addition I invested in several young companies and took board-seats in some of them.
This presentation shows in a funny and critical way how start-ups are acting  (maybe a bit exaggerated and a bit caricatured):

When I joined Target Partners in early 2007 I also changed sides of the table from being an entrepreneur to becoming “One of them”, a VC. During my time as an entrepreneur I had a lot of experience working with VCs and related investment managers.  Over time I became very critical of VC’s and investment managers because in my view some of them didn’t have the kind of operational experience needed to support their portfolio companies to ensure success. They were missing the “seen it done it” expertise and sometimes they had an arrogant attitude.

I promised myself that I would try to avoid making all of the big mistakes they made including the way they conduct themselves.

Today I found a presentation which really brings it to the point (maybe a bit exaggerated and a bit caricatured):

It about two years ago when I posted something about Web 3.0 and the differnences to Web 2.0. Since than I am screening and waiting for companies with the right technology and a sustainable business case.

If I compare the first months of 2009 with the last year it is obvious that we are seeing more companies with services and products based on open, structured data, more real-time apps and filters. Wolfram Alpha, Twitter, FriendFeed and Facebook are some examples.

Lets structure and summarize the new trends:

  • Open data
  • Structured data
  • Filtering content
  • Real-time
  • Personalization

Here is a short but interesting presentation about this matter:

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Big Thing: Social Gaming

I am screening this particular trend and market since some months and I will share some key findings about social gaming in my next posts.

The animation gives you a brief intro about social gaming:

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