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).

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.

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.

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:

Do you still remember the first mobile game you ever played? And do you still know when you’ve played it the first time? If I remember right it was 2004 (about 5 or 6 years ago) with my Nokia 6310i. I was playing Snake and it reminded me of the first video game.

At the same time while mobile games were monochrome, published on screens and without any thrill millions of people were already playing highly sophisticated and complex video games on consoles and computers.
One group of players was playing complex video games on consoles or on the PC. Another group are casual player. Which means a faster gaming experience, short games, an easy to understand game concept and a fast learning curve within the games and most importantly the possibility to play various games without getting new CD-ROMs or game modules for the PC or console.
The answer was browser games. That’s the reason for the success of the numerous browser game portals (e.g. www.king.com or www.winner.com). Another reason for the success of such portals is the social gaming aspect. Players can play against each other (even for small amounts of money or virtual currencies), they can compare their high-scores and they can communicate.
Fast-forward to today. A mobile phone has turned into a mobile computer as well as into a mobile game console. The iPhone is just the beginning of a paradigm-shift.

I got my first iPhone a year ago and I was amazed about the screen-flow, the graphics, the application and…about all the interesting casual games available on the AppStore. To be honest I became a frequent casual gamer and I started to evaluate this particular market.

Today there are thousands of single player casual mobile games on the Apple AppStore. Some of the games are from large publishers but most of them are from very creative independent games developers.

Compared to the browser games with its social features the mobile games were still single player casual games.
Wasn’t it Nokia who claimed “connecting people”. Sure – if a person is calling another person both are connected. And they are connected with their mobile phones. Lets translate this to the gaming behavior. If one gamer plays a game wouldn’t it be much more thrilling to play against (asynchronous or synchronous) an opponent.
The main task of a game developer is to create the best gamer experience, thrilling games and screen-flows. It’s not his turf to run a transaction server in order to connect numerous gamers with each other.
Well, this task is been solved.

Scoreloop is exactly providing all the functions and features to the game developers. Scoreloop has a back-end-server which processes all challenges, keeps the high-scores, provides game stats to the developers, etc.  The game developer is integrating a lean SDK (software development kit) into his games (developers feedback: “took me an hour”) and his former single player game has been transformed into a social game.
Scoreloop launched its service in April. Only one month later game developers are launching new games with Scoreloop inside on a weekly basis.
I became a big fan of connected mobile games (phones are to connect with people!), some simple data streams out (high-scores, etc) AND links into existing social networks are actually likely to activate a lot of the potential in there.
Single User Mobile Gaming shifted to 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: