Why I’m Running an Accelerator in Rome

By Stephen Forte,
Photo via flickr

Got an awesome for-profit startup idea? You’ll get funded.

What about a great mission-driven idea? You’ll get funded, too.

How about a for-profit, mission-driven idea? Not so fast.

Typically Sand Hill Road venture capitalists in Silicon Valley frequently balk around mission-driven companies. Similarly, social impact investors rarely pour money into startups that emphasize the “for-profit” portion of the equation.

Why can’t companies focus on both?

In an effort to change investors’ views of mission-driven, for-profit startups — which I’ve encountered regularly over the last four-plus years at my VC fund Fresco Capital — I’m happy to announce that we’re running an accelerator in Rome this summer. It focuses on raising awareness about the importance of investing in companies that are aiming for huge profits while also caring about doing good in the world.

The Vatican cares deeply about mission driven for profit companies and has been part of the global conversation on impact investing and the future of impact investing. Also, in his recent TED Talk, His Holiness Pope Francis challenged tech companies to do better.

The Laudato Si’: On Care for our Common Home is His Holiness Pope Francis’s second encyclical that focuses on addressing the climate crisis. Pope Francis has challenged the world in Laudato Si’ to act.

When the perfect opportunity presented itself, I knew we had to act. This accelerator is our response to the challenge laid out in His Holiness Pope Francis’ edict by focusing on for profit mission driven companies that focus on the challenge and values of the Laudato Si’.

Why I’m Doing This

First things first: some definitions. A mission-driven, for-profit startup is a company that has a social mission at its core — compared to a solely for-profit company that is singularly focused on selling ads. Think of Aspire Foods vs Pinterest.

Currently, founders are caught between creating companies that solely exist to make profits and creating companies that are more concerned with social causes.

This ambivalence makes it next to impossible to raise capital. So, more often than not, founders are forced to turn to NGOs or a non-mission-based business model (you know, like Pinterest).

This is unfortunate.

As a five-time entrepreneur turned VC at Fresco Capital who has run accelerators in Hong Kong and Palo Alto I’ve seen this problem first hand. I’m motivated to start a global conversation in the investment community on the value of for profit mission driven companies. As a global citizen with young children, I’m called to respond to His Holiness Pope Francis’ challenge.

What does success look like with respect to this particular endeavor? Incubating several mission-driven companies that deserve VC dollars and eventually provide a handsome return.

Investors and companies in this mission driven space have done some great work and seen a nice return in the past. This list includes our investors: Ibrahim Al Husseini — Founder, The Husseini Group; Chade-Meng Tan — Co-Chair, One Billion Acts of Peace; Caitlin Sparks — Partner, FullCycle Energy Fund; Thomas Ermacora — Founder, Clear Village; Andrew Mangino — Founder, The Future Fund; Lola Grace — Founder & Chairman, Middle East Children’s Institute.

We intend to follow in their footsteps and make a difference.

How It Works

This unique accelerator starts virtually — right away founders chat with the program director on Skype about what metrics are needed to grow and mentors are assigned (we’ve got 100 mentors lined up) to help. Then from July 13th to September 9th, there is an in-person accelerator program in Rome focused on business development, growth (we have a “growth hacker in residence” as part of the program), and customer development. As part of the program, a $100,000 USD equity investment (6%-8%) is made (via our investors listed above). After September 9th we will continue for a few months virtually and finish with a Demo Day at the Vatican in December.

This accelerator is primarily seeking startups that have already enjoyed some traction but are pre-Series A.

In the spirit of the Laudato Si’, we’re looking for startups in the following domains:

  • Energy. Transform our energy systems to mitigate the most severe consequences of climate change. Preserve our common home.
  • Food. Reengineer our food systems to minimize their contributions to greenhouse gas emissions. Make them resilient to a changing climate. Guarantee food security for all.
  • Water. Adapt our governance, resource management, and technological systems to spatial and temporal changes in quantity and quality of freshwater to protect the well-being and livelihood of everyone.
  • Urban. Restructure our urban communities for carbon neutrality and resilience to climate change impacts in ways that are inclusive. Value local knowledge and culture regardless of income level or identity. Provide the opportunity for all lives to flourish.
  • Human potential. Minimize human suffering resulting from the migration, health, and humanity security impacts of climate change. Build bridges — not walls.
  • Conservation. Protect the world’s most fragile ecosystems. Preserve global biodiversity. Maintain healthy and thriving ecosystems across the globe.
  • Finance & industry. Reshape verticals, business models, and finance to mobilize $10 trillion by 2030 to invest in a carbon-neutral economy. Create a new ecosystem of businesses providing products and services to help individuals and communities adapt to climate change.

This is your opportunity to get in on the ground level of a multi-year, global initiative.

You can apply during the May 5–June 5 period. Be ready to take part in an in-person accelerator in Rome — taking place from July 13–September 9. Check out our website for some more info: http://www.laudatosichallenge.org

Join us this summer. Do it. We’d love to have you. One more time: Apply here.


Why I’m Running an Accelerator in Rome was originally published in Fusion by Fresco Capital on Medium, where people are continuing the conversation by highlighting and responding to this story.

Go Deep Then Wide

By Fusion by Fresco Capital,

A lot of startups and well established businesses struggle with when the right time to expand into new verticals or new geographies. The short of it: Not before you’re dominating your first vertical and first consumer segment.

There’s an old tale in Silicon Valley that goes something like this: When Jeff Bezos, founder of Amazon, pitched his initial idea to Kleiner Perkins Caufield Byers, he told the VCs there that he wanted to sell everything online; every product in the market converted to the online channel as the future of transactions. But one of the VCs suggested he refine that idea: First, you must go deep in one vertical before eventually expanding into the next. And how do you know when to stop expanding in a particular vertical? When you’ve stopped learning.

Such as the cycle continues, as you continue expanding to new verticals, you won’t have to go as deep and your time to entry will be significantly shortened each time around. Over time, your company becomes wide — on an expedited timeline compared to the first plunge — and not because the company fully understands the business model and market factors to success.

Ultimately Bezos, of course, took the advice and decided to go deep in books before he went wide. After drilling all the way down into books, Amazon owned the market — even forcing companies like Borders (who chose to useAmazon to handle its ecommerce efforts) out of business.

Up next were CDs and DVDs — all the things you’d buy in a store. Then on and on Amazon went, adding everything from diapers to espresso machines to its arsenal. The company kept pace with technology, too, adding Kindle, streaming music, and streaming video options.

Deep and Wide in Action

My first startup spent a really long time focusing on recruitment and job advertising. Eventually, we added real estate and auto to our offerings, and we only had to spend a fraction of time during expansion. Pricing was the same, acquisition was the same, and the backend database was the same. We spent six months on the first vertical and three months on the second.

Another startup, Telerik, also followed suit, going deep by going deep with a robust Microsoft developer tools and then wide with cross-platform developer toolkit marketplace. We then switched to building out solutions for CMS, but because it was radically different from what we originally built, we were forced to go deep again. This wasn’t as fast and seamless, due to the differences, and it took just as long to master.

When you go deep, the right way, you gain the expertise and infrastructure to expand into new verticals. Then you’re well-positioned to go wide — and quickly.

Lessons from Amazon

Amazon spent about three years on books before moving into CDs, then six months on CDs before moving into DVDs, then four months on DVDs before opening up Amazon Auctions (which competed directly with eBay at the time but pivoted to what is the Amazon Marketplace today).

When you go deep into the first vertical successfully (e.g., after one year), it should be a lot quicker (e.g., six months) to make progress into the second vertical. And it should be even quicker (e.g., three months) to make progress in third. And so on. If it’s taking you longer to make progress in a subsequent vertical, you’re probably doing something wrong.

In order to stick to the “half time to success” formula, here are three major things to keep in mind:

  • Move on when you stop learning. Don’t target the next vertical until you figure out the successful, scalable sales channel and business model before jumping to the next one. When Telerik hopped from dev tools to CMS, we faced challenges because the market and segment were both different. You must move into a market with a similar business model and segment to be able to go wide according to the shortened time frame. In Amazon’s case, books, CDs, and DVDs were no brainers.

  • You need to diversify. A lot of companies stay on the proverbial books, CDs, DVDs track and then get sold or collapse. Companies that IPO or become big, on the other hand, go deep and wide in several different industries.

  • Think outside the box. It’s no secret Amazon dominates the ecommerce market; the company was singlehandedly responsible for 60% of the United States’ ecommerce growth last year. After conquering ecommerce, the company wasn’t finished. It expanded deep into cloud computing with Amazon Web Services. Now, it’s going deep into brick-and-mortar with newly announced grocery stores you can walk into and out ofwithout standing in a line. It’s not hard to see them going wide there, too.

When you master one way to do something, it’s much easier to target a new vertical or a new geography with the same tactic. Go deep first, learn the tricks, and then go wide. That’s the ticket to a strong, sustainable business with limitless potential.

  Category: Thematic
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Fresco Capital Corporate Innovation 2017 Playbook

By Fusion by Fresco Capital,

The days of a single management guru having a neat and tidy model of corporate innovation are long gone. For 2017, any company serious about innovation must constantly be scanning the landscape from diverse sources. To help you get a head start on your 2017 corporate innovation plans, we’ve compiled the best ideas all in one playbook covering the following topics:

  1. Corporate Innovation Strategy
  2. Engaging the Ecosystem
  3. Innovation as DNA

 

1. Corporate Innovation Strategy

 

How should companies approach innovation in an unstable world?

“Every contemporary company has to be a balanced mix of established products and new products that are searching for profitable business models.” — Tendayi Viki

Tendayi introduces a useful five part framework for how established companies can manage the inherent tension of managing both established products and new innovation. Read more…

How to set up a corporate innovation outpost?

“Successful Innovation Outposts typically develop over a period of time through three stages. In the first stage the Outpost focusses on networking and partnering in the Innovation Cluster in which it is based (i.e. Silicon Valley, Boston). In the second stage, it moves into Investing, Inventing, Incubating and Acquiring technologies and companies, and in the third stage building product(s).” —Steve Blank

Steve shares the details of the three stages of setting up a corporate innovation outpost, including key questions and milestones. Read more…

Is your innovation outpost working?

“You have no dedicated system for keeping track of startup ecosystem interactions and information.” — Tytus Michalski

Tytus reviews this and four more warning signs about innovation strategy and outposts along with the solutions for how to fix these problems. Read more…

 

2. Engaging the Ecosystem

 

Why should large companies work with startups?

“The most innovative companies are also the most valuable.” — Kite

Both the data and the anecdotal stories combine for compelling evidence that the most innovative companies are engaging proactively with startups in many ways to create more value for all stakeholders. Read more…

How to build a successful innovation ecosystem?

“Just as momentum is the product of mass and velocity, the ecosystem with the most participants and fastest turnover of ideas will be the most successful.” — Martin Curley

Martin provides case studies, context and 12 principles for successful ecosystem innovation across companies, customers and other partners. Read more…

Where are the opportunities in the global ecosystem?

 “We love small businesses, we love young people, and we love women.” — Jack Ma

Jack Ma shares his views on global ecosystem opportunities and more during an interview with Stanford GSB. Read more…

 

3. Innovation as DNA

 

How to innovate like Google?

“To better understand how Google innovates, I took a close look at what it’s doing in one area: Deep Learning.” — Greg Satell

Writing for the Harvard Business Review, Greg uses Deep Learning at Google as a specific case study to learn about how the company has put innovation at the core of its DNA. Read more…

How to get started with intrapreneurship?

“Never before has there been such a push for employees to take ownership of their own corner of a company.” — Alyson Krueger

Alyson provides examples of intrapreneurship, overall context about why more employees are interested in this option and the benefits for companies. Read more…

What will change most in the next 10 years?

“That’s a good question. But a better question is: What’s not going to change in the next 10–20 years?” — Jeff Bezos

Peter Diamandis highlights this important point by Jeff Bezos about focusing resources on high conviction trends, and expands with his own ideas about what won’t change even in an unstable world. Read more…

What other content do you highly recommend about corporate innovation?

  Category: Ecosystem, Thematic
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How to Successfully Raise a Series A

By Fusion by Fresco Capital,

It’s no secret, the widespread idea is that there’s a Series A gap in startup funding. You can easily raise a $1 million seed round and $100 million Series D, but somewhere in the middle things get a little dicey.

But as I’ve said before, there’s really no such thing as a Series A gap. Some companies just try to swing for the fences a little too soon and don’t drum up a lot of interest. Rather, they don’t focus intently on what they need to prove to secure the Series A or they focus on things that they think investors want to see.

The key to understanding the supposed gap, is that if your startup is really ready for a Series A, you can most assuredly raise money. You just need to be able to prove that your company has a repeatable and validated business model that can be scaled before walking into those meetings.

And this doesn’t mean you need to have tons of customers and millions in revenue by any means — a common misconception in today’s startup world. To raise a successful Series A round, start by proving the pipeline — and making financial projections based on it.

The Difference Between Seed and Series A

Seed money is supposed to help your startup figure out its business model. Seed is where you tell the story of what you are going to do. Series A, on the other hand, is more about making sure your business model works. You’ll also want to execute your story, telling people what you’ve done and what you’ll do next.

Let’s say you want to sell new coffee cups. During your seed, you should first focus on landing one or two landmark customers; maybe a few Starbucks locations that are proving to be loyal and consistently fill orders. When you’re pitching the Series A, show the investors that you can scale your business to every other Starbucks in the Palo Alto region and beyond, as well as Peets and other coffee shops — and the investor’s money is what stands between you and accomplishing that growth.

The Wrong Approach to Series A

Today, because of the emphasis on hitting a revenue target to signal a new round of funding, a lot of startups are guilty of growing their revenue linearly.

Imagine Starbucks is buying your new cups and you’re generating $50,000 ARR from that account. Then you decide to do non-core business model activities that pad your overall revenue. Maybe you consult for Peet’s Coffee and help out other startups in exchange for quick cash to keep the runway looking a little better.

Sure, all those extra funds are lumped into your total revenue. But let’s face it, that’s not the organic, scalable growth VCs are looking for.

You’d be much better off getting that one customer that fits your model, making some revenue off that sale, and then trying to get one more customer to show the pipeline potential. Focus on your core business, and a Series A will become that much easier.

Startups Love Revenue

It’s no secret that startups will chase revenue wherever it’s coming from. When you’re chasing a Series A, you’ll try to make whatever money you can to prove you have a business that generates revenue.

But let’s face it, not all revenue is created equal. This doesn’t mean revenue is necessarily bad, but time spent chasing after any revenue in sight can be a dangerous game in the early days of a startup.

There’s a common misunderstanding in the VC/startup world that a $1 million run rate means you’re ready for a Series A. In reality, there isn’t a benchmark that indicates the exact time you’re supposed to start raising money. Your run rate doesn’t matter as long as you can talk to investors about projected metrics.

How does that work? Start with your pipeline and your pipeline’s future. Show repeatability and show scalability. Show investors your funnel and the pipeline that goes into that funnel and tell them how you’re going to get there. That way, when you ask for lots of money to hire a certain number of salespeople and marketing folks, your request will be validated by the data up on the screen.

Whether you’re in a SaaS, B2B, or B2C business model, the same rules will still apply. So if it’s projecting growth in sales, the viral coefficient, or whatever else to show future scale, investors need to see the pipeline view of that story as validation before taking part in the round.

Key Takeaway

If you’re still trying to tell your company’s story, rather than actually using sales data to project growth, you’re likely better off waiting and raising a seed extension round.

How do you do that exactly? First, go back and see if your original investors are willing to go further in with you to bridge the company through to the next round; this may require you to give up more equity, but it will also be crucial to keeping the proverbial lights on. Also take time to look for firms that aren’t necessarily specializing in “Series A and above” funding — there is an abundance of seed stage investors out there looking to fill that gap.

Once you have an idea of how your business model will become scalable, use the extra time and cash to refine that story, validate the numbers, and make it real before pitching to Series A investors. This allows teams to focus less on generating non-core business model revenue, and more on securing a few necessary customers to project a data-backed pipeline. Once that happens, and you’re getting great feedback that shows the product or service is truly valued, it’ll finally be time to show later stage firms a clear vision of what you plan to do next.

Unique Insights from Silicon Valley Bank for Successfully Entering China

By Fusion by Fresco Capital,

Can you list the names of Silicon Valley companies that have succeeded in China? Can you list the names of foreign banks that have succeeded in China? There is only one name on both lists: Silicon Valley Bank (SVB).

SVB operates in China through a joint venture with Shanghai Pudong Development Bank (SPDB), and one of the senior leaders is Oscar Jazdowski, formally with the title of Deputy Head of Corporate Banking. I first met Oscar in 2013 while we were speaking on VC and startup ecosystem panel together and quickly realized that he wasn’t your typical banking executive. Seeing the success of the JV over the years, I recently had a chance to speak with Oscar and ask him to share some of the unique insights from the SVB experience in China.


Can you tell us some of the things that Silicon Valley Bank did before entering China as part of the preparation and how that preparation made an an impact on what happened after entering the market?

In 2005 we brought a delegation of about 10 top VCs from Sand Hill Road to China (Shanghai and Beijing). Folks like John Doerr from Kleiner Perkins, Don Valentine from Sequoia Capital, Dick Kramlich of NEA and other leaders of the VC community. For most of them, this was their first time in China. They all knew that China was growing and the likely future of technology. SVB set up a week of meetings with entrepreneurs and government officials and other related parties. Our goal was to get these US VCs to set up shop in China so that they would start investing in China and thereby build the ecosystem for us, into which we could lend to startups. It worked.

SVB also rented impressive office space in Xintandi, right in the center of Shanghai. We rented more space than we needed and built out a number of ‘guest’ offices which we offered to our US VC friends to use. That made their exploration and ultimate transition to China much, much easier because they did not have to go and look for office space in a foreign non-English (more so then) city. We made it easy for them to work out of our office, and that allowed us to stay close to them and see what they were beginning to do and explore in China. It helped us develop even closer relationships with them.

Silicon Valley Bank has been using a JV structure in China. What are the key factors that can make or break the results of a JV in China based on your direct experience and what you’ve observed in the market?

Always staff your JV with the most senior person you can from the parent company. In our case the first President of the JV Bank was SVB’s retiring CEO and Chairman, Ken Wilcox. By sending such a high level executive to China, you demonstrate (by action) to your joint venture partner, the regulators and to the government that you are 100% serious about China and that you are prepared to devote your absolute highest, most senior talent to make this JV successful. You also want those senior sponsors to stick around. This is very often the un-doing of JVs because the executive sponsors either get promoted to another part of the company or leave, thereby leaving the new JV bereft of a loving parent. The two key executives who brought our JV together are still around and even sit on our Board.

You need to have senior level backing, but that’s a given. The success of a JV is not determined at the executive suite, but in the trenches. You have to have a strong determined working group that gets things done. But the real success of a JV is defined at the working level. At the beginning of our JV, we would have monthly working committee meetings with our counterparts at SPDB in order to work on specific deals and issues.

Be aware that the two parties in a JV will have very different motivations. Understand what each party wants and then work to achieve that for them and have them do the same for you…even though each parties motivations might be polar opposites. As example, China and the JV bank is extremely important to Silicon Valley Bank from a long term perspective. If we are to remain the main bank globally to the technology/innovation/life science/ clean tech/ VC and PE industries, then we have to be in China. What is important to SPDB is that they can show the government that they formed a JV with this quirky bank from California and were able to stimulate and invigorate lending and financial backing of the Chinese innovation ecosystem. Two very different goals but both achievable so long as both parties understand what is important to the other and work towards these goals.

How did you find your JV partner in the first place, and what sort of due diligence process should foreign companies use when evaluating potential JV partners in China?

I wasn’t involved in the search for the JV partner myself but I spoke to many of my colleagues about the process at length. The story there is that we spoke to a number of Chinese banks, and we were looking for a partner who would be responsive, creative, risk taking, innovative, etc., and we found those qualities in SPDB. It was also chemistry, which is key in any JV. Our CFO connected very well with their CFO, who is now the President of SPDB, so that was very helpful in terms of building the relationship.

We also realized that when we entered a JV with a Chinese bank, we’re really entering it with the government because the government has to approve it and support it. So it was understanding that we needed to work with both the government and SPDB.

What about you personally? You didn’t live in China before and many foreigners who come to China don’t stay very long. What helped you make the transition?

When I first came to China, I was flattered, excited, and also a little bit apprehensive. I came over in late 2012 to meet the JV bank in Shanghai. When I went around the bank and met these individuals who were now all my colleagues, I asked them all the same question, “what brought you to SPD Silicon Valley Bank and why do you like working here?”

They basically all answered the same way, “we like the culture of the bank”. Culture in SVB is very important, and they answered in a way that an employee in our Seattle or Israel or Denver or San Francisco office would have answered. So as soon as they answered that way, I said to myself ‘wow, I know who you are’ because they answered exactly the same way that my other colleagues would from anywhere else in the world. That made me much more comfortable that I was coming into a culture that was very familiar to me because it was an SVB culture.

The other thing to succeed in any overseas environment, especially one as unique as China, is as an individual you have to be curious, like to get out of your comfort zone, like to take risk and that is my individual personal profile. Having said that, I knew by the answers from colleagues that I knew who I would be working with, so that reduced the risk factor dramatically.

On the topic of culture, one of the challenges that foreign companies have in China is finding, recruiting and retaining top talent. Can you talk about these issues?

On the corporate banking side, it’s relationship management and analysts, with an average age of late 20s to early 30s, bi-lingual, with many who finished universities in the US or UK, and then have worked with other international companies. We’ve got a big advantage with them because we are an innovation bank. That is clearly the drum beat in China today. We also have the words ‘Silicon Valley’ in our name, and those two words are very powerful and attract a lot of people.

We actually find that we attract a high calibre of talent because they’re intrigued by our bank. Our retention rate has been very good. In the case of losing people, we’ve lost people to people starting their own business or to join a VC firm. So we don’t lose people to other banks because they like the culture and the sector, but we can lose them to the lure of entrepreneurship or venture capital.

On the operation side, we are about to open our Beijing branch very soon subject to the final regulatory approval, and we had to hire more operations staff. We’ve hired more mature people who have been successful in their careers and see our bank as very intriguing and different. So there’s an appeal there for these more mature people who have worked in traditional banks for 15 years or more, and they’re saying that this is an interesting bank.

One of the things we’re criticized for is we put people through too many interviews. We also have written tests as well. We don’t do psycho-metrics type testing, it’s really based on understanding each individual as a person.

How do you think about the balance between the global culture of a company and the unique specifics of the local China market?

We put a lot of focus on culture. We focus on people who are creative and can enjoy an environment where everyone has a voice. So it’s a very similar culture to what is seen in our other locations. A lot of our employees in China like working for us and so our unique culture helps to differentiate. Of course, we’re very careful not to be arrogant about this and we recognize that we have to localize. We know many foreign companies have failed because they brought in their culture and they haven’t adapted and localized enough. It’s a balance, and that’s why the joint venture works well, because each side brings its DNA together. One thing I look back at now — had we had a local co-head, that may have been helpful to deal with local specifics. So even for us, it’s certainly possible we could have listened more to our local colleagues to understand the local marketplace.

Looking at localization in China, slogans are very popular. You have a new product, you give it a catchy name. You start a new year, and you have a slogan, like the ‘Golden Year’. Those sorts of slogans are important to employees for inspiration. It’s a very simple example but it’s important. We try and do things like sports days, hairy crab dinners, the regular Chinese New Year parties, and all the obvious things. We have social committees made up of Chinese employees who come up with ideas for building the culture.

In our early days, we would also ask the employees to put together skits, mini-plays, to our employees regarding things like ethics and customer relations. These would be funny skits but the underlying theme would be serious. The employees very much liked it. As we’ve scaled, there’s unfortunately not enough time to do it anymore, but it worked well.

Looking at the macro trends, are there specific themes that are particularly exciting?

The hot themes today are artificial intelligence, big data and virtual reality — those are hot everywhere, including China and Silicon Valley. People are noticing that China may be adopting virtual reality faster than other markets. Not just for entertainment and gaming, but also for enterprise applications.

The demographic shift in China is also driving a lot of themes as well. One venture firm is investing in amusement parks in shopping malls. Something we wouldn’t normally see but these are top tier VCs because families are going to shopping malls for entertainment.

In terms of business model, it’s now less about scale and more showing profitability over time. Not necessarily now, but at least the path to a profitable business model.

For the joint venture bank, what kind of company is interesting for you?

The same things that VC investors look for — a great team focusing on a large market with a defensible business, whether through intellectual property or some other unique edge, that can scale quickly. It doesn’t have to be deep technology.

For us, it’s also the quality of the investors and most importantly it’s management, management, management. You can have a great company and it can still fail with poor management. Our old CEO used to say to us that “cashflow doesn’t pay back the loan, people do”.

Most traditional banks are still focused on collateral, not people. What do you do differently?

It’s our focus on building relationships. We spend our time and energy deepening personal relationships.


Building a successful China JV starts with getting the people right. Oscar’s answers highlight that it is possible to have a strong and unique global company culture that also respectfully adapts to the local China market. While the specifics of each company are different, the lessons about finding the right partner and managing local talent are very relevant to all companies entering the China market.

Photo credit: Li Yang

  Category: Innovation
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The Most Effective Way Governments Should Support Startup Ecosystems

By Fusion by Fresco Capital,

I once met an active angel investor from Europe who was convinced that government subsidies of investors were the most effective way to build startup ecosystems. Of course I asked the obvious question, “what about Silicon Valley?”

“Except Silicon Valley” was his reply.

Huh. Lightbulbs going on everywhere (at least in my mind).

The Best Intentions

Small scale grants to get startups off the ground in place of friends, family and fools money certainly makes sense. After all, most people actually don’t have friends, family and fools with enough money to support them.

What about when governments start subsidising rich angel investors with tax breaks? While this may be the result of genuine intentions to encourage risk taking, if investors are ultimately viewing startup investments as tax deductions, then this is a fundamentally flawed strategy. Instead of being investments, startups are transformed into tax loopholes.

Moving up the investment value chain, it’s certainly admirable for governments to actively support local venture capital because there is a positive knock-on effect of helping the real economy. This leads to a natural question:

How should governments support local venture capital funds in order to scale and build a local ecosystem?

One approach to building a local venture capital ecosystem is to provide rebates and other complex incentives where the government takes on more risk and leaves the private sector with extra return benefits. No matter what the fancy official name of this kind of program, it is effectively a subsidy.

As a venture capital investor, I’m supposed to jump at the chance of getting subsidised returns. Call me old fashioned, but I don’t want to receive subsidies to juice returns because it’s wrong for society (my altruistic side) and I don’t want my returns to be artificially boosted by subsidies (pure ego).

Fortunately, there’s a simpler idea.

Instead of tilting the risk / return in favour of funds via subsidies, government related capital should simply be open to investing in new venture capital funds on market terms. The boring reality is that most government capital is allocated through various intermediaries and by the time it gets to venture capital funds, many decision makers take the view of something like this:

New venture capital funds are too risky, so we prefer teams that have worked together for at least 10 years and are raising fund 5.

If you want to attract venture capital investors to your local ecosystem, it’s a lot easier to do so before fund 5. Rather than throwing around subsidies to attract funds, governments should take a hard look at how their existing capital is being allocated through various intermediaries to make sure that there is an allocation for emerging venture capital funds.

If done correctly, this market driven approach will actually increase returns, as there’s plenty of data to show that new funds are generating outsized returns. Instead of spending money to subsidize venture capital funds, governments can get more money through higher returns.

The Unintended Consequences

Beyond the obvious concern that governments should not be subsidising investors directly, there is also the problem of unintended consequences.

At the company level, since small scale grants for startups to get off the ground usually do make a positive impact, it’s very tempting for governments to scale that up.

Unfortunately, when companies raise institutional capital which was only possible because of subsidies tied to the investment either directly or indirectly, the incentive mechanisms tend to train grantpreneurs.

The reality is that all startup subsidies come attached with complicated forms because governments need to protect themselves from criticism. So there is no such thing as “simple startup subsidies”.

Grantpreneurs are extremely efficient and skilled at filling out the complicated forms and ticking all the right boxes for subsidies but unfortunately are a lot less skilled in building successful businesses.

People improve their skill through repetition. The worst case scenario is creating serial grantpreneurs, who are able to jump from subsidy to subsidy.

One of the goals usually cited by governments to subsidise investors is that this will then lead to more jobs. Of course, there are usually many restrictions on the people who may be hired.

This prescriptive approach to hiring can actually lead to increased inequality because it increases demand for a fixed pool of talent rather than increasing the overall pool of talent. Wages go up for those already with skills. Everyone else, not so much.

Throwing money at jobs is not the same as increasing the overall pool of talent.

A Better Way

Should we just throw our hands up in the air with the view that governments are always wrong and it’s foolish to mess with markets?

Not quite.

Markets are far from perfect and as the impact of technology continues to accelerate, cities and countries that do nothing to build thriving startup ecosystems are at risk of being left behind.

So what should governments focus on when it comes to extra support for startup ecosystems?

Ultimately, every government has limited resources and a key starting question should be “what is the best use of our resources for maximum impact?”

If the goal is to encourage innovation across society and the improvement of overall welfare, better to focus on talent.

What would a program to support talent look like? Rather than giving money to startups, which would empower grantpreneurs to fill out forms more successfully, governments should be subsidising individuals to learn new job skills. To be clear, this does not mean training everyone to become an entrepreneur.

Empowering individuals to make their own job skill education choices at least creates a pathway for them to find new job opportunities. It won’t work for everyone but it has the potential to enhance the overall pool of talent at scale. So rather than funnelling more money to the same number of people, there will be a broader base of talent.

Will there be inefficiency? Of course yes.

Will there be fraud? Probably.

But at least by focusing on individuals, the magnitude of any individual fraud case should be smaller.

Even with inefficiency and fraud, as long as the overall talent pool is improved, then this approach could create massive value for society.

The Unexpected Benefits

Beyond the direct impact of enhancing the talent pool, there is an important secondary benefit: increasing the quality of overall talent should attract more institutional capital.

Why does increasing the pool of talent attract more capital? Because capital follows talent.

Just take a look at the history of Silicon Valley. The talent moved first, led by pioneers like the Traitorous Eight, and the capital followed.

There are two factors behind this dynamic. First, great talent is still scarcer than capital. Second, it’s easier to move capital than talent.

So by focusing on improving the talent base, governments will naturally be building the foundations of attracting capital for the right reasons.

The First Steps

It’s tempting for governments to go big with a fancy launch party and lots of hype around a new program.

But for a talent subsidy program to actually be effective, better to act like a startup and start with a small test. Make it small because then the mistakes will be small and there is only one guarantee with a talent subsidy program: there will be mistakes.

Then this is the most important part: get feedback, learn from the mistakes, and don’t scale up until it’s actually working on a small scale.

This means less publicity in the short-term but ultimately much larger positive impact in the long-term. It’s a marshmallow test for governments who want to support startup ecosystems.

Lightbulbs are a metaphor for new ideas and innovation. If governments truly want to support startup ecosystems, they should be focused on helping people find their unique lightbulb moments.


For anyone else interested in figuring out how governments can help support startup ecosystem talent, please get in touch.

  Category: Ecosystem
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Fresco Capital Startup Sales Playbook 2016

By Fusion by Fresco Capital,

Although each startup is unique, there are many common lessons which apply generally. We’ve saved you the time and bundled together 9 of the best content pieces covering 3 areas of sales:

  1. Hiring and building a sales team
  2. Compensation, culture and motivation
  3. Strategy and tactics

 

1. Hiring and building a sales team

 

How to interview sales candidates?

“The challenge in hiring salespeople is that they are often excellent interviewers. They can be confident, persuasive, and engaging.” — Jeff Hoffman

Jeff shares his own experience about what can go wrong along with practical advice about how to improve your interview process. Read more…

What criteria should you use to evaluate candidates?

“Picking people is very similar to picking stocks. It’s so similar that like stocks, it leverages the same methodologies; technical and fundamental analysis. Like stocks or securities you can look for past trends of the candidate and ignore a candidates intrinsic value (technical analysis) or you can look to measure the intrinsic value of the candidate (fundamental analysis).” — Jim Keenan

Keenan goes on to explain the difference between looking at the surface level factors and the intrinsic value of candidates. Read more…

When to hire a VP of Sales?

“Although a new CEO and leadership team typically want to hire a proven VP of Sales from a very successful company, making a “Rolex” hire early in the company development — and paying Rolex prices for the talent — is not the answer.” — Stephen Forte

Stephen explains the alternative way of building your sales team, including the right time to bring on a VP of Sales. Read more…

2. Compensation, culture and motivation

 

What is the market rate for direct sales commissions?

“Survey results did not point to a significant difference in direct commissions between companies that predominantly use a field go-to-market strategy vs. inside sales. However, the median fully-loaded commission for field sales (12%) was higher than that for inside (10%).” — David Skok

That’s just a sample of the impressive data, charts and analysis in the 2016 Pacific Crest SaaS Survey. Read more…

What about motivation beyond commissions?

“I’m not saying that commissions are inherently bad. What I am saying is that we’ve got many orthodoxies in business that we never examine. One of them is that the only way people will sell is with commissions. That might be true in some cases, but it’s not universally true. Organizations that challenge orthodoxies — of any kind — are the ones that make big breakthroughs.” — Dan Pink

Dan literally wrote the book on this topic: To Sell in Human. You can get a preview in this interview with Matthew Bellows. Read more…

What can go wrong with culture?

“A number of them say they faced a stark choice: Create new accounts by any means possible, or risk being fired for falling short of their sales goals.” — Stacy Cowley

Stacy interviews former Wells Fargo employees about what it was like working under the constant pressure of selling. It’s important to understand how bad things can get with the wrong culture. Read more…

3. Strategy and tactics

 

What is a sales pipeline?

“Sales pipeline — a term that gets thrown around so much, you’d be forgiven for thinking it’s an empty catchphrase that simply makes salespeople who use it look like sales professionals. But your sales management operations can benefit from using a sales pipeline, and it could make a significant difference to your bottom line.” — Ayelet Weisz

Ayelet covers the specifics of how to structure a sales pipeline to get increased visibility about revenue opportunities. Read more…

Should you go upmarket with a solution sale?

“Understand that you can make 3–20x the revenues on a given enterprise customer with a solution sale vs. a tool.” — Jason Lemkin

Jason reviews the opportunities and challenges of becoming a solution sale if you have larger companies as your customers. Read more…

How should marketing and sales be connected?

“Marketing and Sales alignment isn’t about meeting each other’s gaze; the goal should be to share a common focal point. To achieve true Marketing and Sales harmony, both departments need to turn their focus outside the company entirely — to the customer!” — Jill Rowley

Jill helps you think through the key questions of marketing and sales alignment with thoughtful guidelines for making it happen. Read more…


What other great pieces of sales content would you recommend for startups?

  Category: Startup Tips
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Using the Virality Coefficient to Drive Business Decisions

By Stephen Forte,

You need more than hope and good intentions if your startup relies on viral growth. You need data and metrics to drive decision making.

Going viral isn’t an exact science, but data plays an important role in gauging how successful your customer acquisition efforts will be. Focus on the virality coefficient before all other metrics. It shows the impact of each product choice on growth. The formula, developed by David Skok, illustrates how each new feature impacts your customer base.

Virality-dependent businesses need to craft their strategy, and every decision they make, around the virality coefficient to be successful..

Otherwise, you’ll sound like these businesses.

(Not) Finding Growth

A number of companies have pitched me by saying they will “go viral” and attract users when it’s obvious that they have no believable plans to make it a reality. Many don’t even have share buttons on their apps!

One company made it so difficult to share their app with others that I never used it again. That’s a virality coefficient of -1. Clearly, their focus wandered.

Let me explain what that means.

The Virality Coefficient Explained

There are four variables used to determine the virality coefficient:

  • Initial customers (custs)
  • Number of invites sent out (i)
  • The Conversation rate of customers (conv%)
  • The number of days it takes to complete a full Viral Cycle (ct)

Combine these factors to calculate it using this spreadsheet.

Virality in Action

Let’s say you have ten users and send them ten invites each (100 total invites). With a 20% conversion rate, you’ll finish with a total of 30 customers after the first campaign. Using the sheet I linked to previously, that gives you a virality coefficient of two. Invites * the conversion rate or rather 100 * .2 = 2.

For the next campaign, send out 10 invites to the 20 new users (200 total invites). Assuming there’s no churn or change in the virality coefficient, a 20% conversion rate will bring in 40 new users for a total of 70 users.

Look at the below chart to see just how much of impact each campaign can have. Due to its compounding effects, even small changes in your virality coefficient will have massive impacts on your business.

Cycle 1 Cycle 2 Cycle 3 Cycle 4 Cycle 5 Cycle 6 Cycle 7 Cycle 8 Cycle 9 Cycle 10
Starting Customers 10 30 70 150 310 630 1,270 2,550 5,110 10,230
Invites Sent 100 200 400 800 1,600 3,200 6,400 12,800 25,600 51,200
Conversions to New Customers 20 40 80 160 320 640 1,280 2,560 5,120 10,240
Total Customers 30 70 150 310 630 1,270 2,550 5,110 10,230 20,470

 

There needs to be a coefficient of at least one for there to be growth. Anything less means you’re churning customers.

Crafting a Plan

To determine which feature to develop in your product backlog, sort the features based on the predicted increase in the virality coefficient. The backlog should look something like this chart.

Feature Increase of Virality
Share Button 2
Social Login 1.8
Cool Feature 1.5
Photo Sharing 1.4
Logout 1

 

You need a virality business plan to map out exactly how you’re going to acquire new customers. The plan should determine what features to prioritize, what incentives there are for users to share, and what level of engagement you want to focus on. Don’t forget to determine which promotion channels to use too.

Determining what makes user acquisition work might seem like an art, but using the virality coefficient can change that. Use your data to drive the decision-making process. Even a small increase could mean (hundreds of) thousands of new customers over time.

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Don’t Waste Your Time on Startup Tourism

By Stephen Forte,

Going on a trip to Silicon Valley with your MBA program or government incubator? Don’t fool yourself into thinking that those weeklong Silicon Valley immersion programs are anything other than startup tourism. Spending a week visiting Facebook and Uber and attending talks and events, while interesting and potentially educational, will not teach you what it’s like to build a startup.

Sure, you might make some connections and come closer to figuring out what you really want to do for a living. But if you really want to benefit from a trip to Silicon Valley, you are better off reaching out to one of the several early-stage startups here and asking whether you can intern for a few weeks.

You’ll Understand How Startups Work

While immersion programs are designed to introduce you to the world of startups, they don’t go far enough when it comes to actually shining a light on the intricacies of Silicon Valley. Sure you can see the free food at Twitter, swimming pool at Google, and the hiking trail at Facebook, but that is like visiting Disneyland and thinking it is reality.

By reaching out to a startup instead and interning there, you will develop real relationships and potentially kickstart a career. You will understand how startups work behind the scenes, and you’ll be influenced by their way of doing business. Actual work experience is going to look a lot better on your résumé than spending a week hardly scratching the surface of the startup world.

Think of it like studying abroad. There are two ways to go about it. One is to study at a university where the classes are taught in English, you have no homework, and you can hop around to a bunch of different countries every weekend. You get a broad overview of another culture, but no lasting and profound understanding of it.

On the other hand, you could spend a year in another country, live with a host family, and learn the language. You’ll struggle and it will be challenging, but in the end you’ll have an in-depth understanding of that culture, and how it differs from yours. At the end, you’ll belong to two cultures, rather than just one.

It’s up to you, but I’d take the latter experience over the former any day.

You’ll Gain Unique Insights

When you attend a weeklong immersion program, you’ll get a light taste of what you could expect should you move to Silicon Valley at some point in the future.

But by interning with a company out there — and living and working in the environment itself — you’ll gain unique insights that you can’t get anywhere else. You need to experience them on your own, organically.

How to Find Startups to Work For

You might be wondering how you can actually get hired? Maybe you don’t have startup experience yet. Maybe you’re a developer who wants to work for Google, but you’ve only been coding for a year and you just don’t have the necessary expertise.

Head on over to AngelList, the best place to learn about which companies are hiring out in Silicon Valley. AngelList connects startups with jobseekers interested in working for them. The site provides you a clear view as to what you can expect should you land a gig (e.g., salary and equity is disclosed up front).

The best part? By sending out one application, you can apply to over 40,000 jobs in one fell swoop. Talk about efficiency.

How to Get a Startup to Hire You

Don’t think any startups will take you? Don’t be so hard on yourself.

Pitch attractive would-be employers a short project that utilizes your skills. For example, if you’re a communications major, offer to come in for two weeks to consult and intern with them for free, in exchange for a reference. Most startups don’t have any communications or PR plan, and are happy to take free labor.

Are you a political science major? Offer to come and do an analysis on the effects new policy or the upcoming elections will have on them. Think no startups care about this? Just ask Uber what they think.

If you don’t have any “practical” skills whatsoever? Offer to clean the coffee machines and work your way up.

Maximize Your Trip to Silicon Valley

Those weeklong programs aren’t the worst thing in the world. I’ve even hosted them before at my office in Palo Alto. But the payoff is much higher if you actually immerse yourself in the experience for an extended amount of time.

Remember, if you’re part of one of these programs, your trip doesn’t have to end once a week is up. Stay a little bit longer. You won’t regret it.

Photo by flickr user christian.rondeau

  Category: People, Startup Tips
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