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Reprinted from Forbes.com. See the original article here.
By Adriana Galue
I have the good fortune of living in Boulder, Colorado – home of TechStars.
For those not familiar with it, TechStars is the largest US accelerator focusing on technology companies. They fund an average of 50 companies per year. Each selected company receives $100K of seed money in exchange of common stock. I like the fact that they actually take common and not preferred stock. The TechStars model has been replicated in several other cities in the U.S. In addition, they just launched a Global Accelerator Network.
How easy is it to get in with TechStars? Well, 1% of the applicants are funded. The accelerator receives an average of 4,000 applications per year. The good news is that TechStars co-founder David Cohen has recently set up a $28M fund. 50% of this capital will be devoted to fund companies that go through the TechStars program.
With startups appearing on a daily basis, how do investors differentiate between a flip and a flop?
Here are some tips that might help entrepreneurs be in the flip side of the equation.
1. Build something that people want. In other words, know your target market.
2. Team + Team + Team + Traction + Revenue. The quality and experience of the team is key. With the well-known fact of “developer hopping” the investor wants to know how your team was formed. Have you known each other for quite sometime? Is your team diverse enough? Do you have the domain expertise required? What is your passion level? What is your vision?
3. Traction: Does your product or service has enough traction in the marketplace? In other words, are you viral? For a typical consumer Internet company, investors might expect a 5% growth/week. This number should be sustained over months.
4. Bootstrap: Your minimum viable product should be bootstrapped. The days of asking for $500K to build a prototype are gone (unless, of course, you have wealthy friends and family).
5. Be realistic about your valuation. A pre-revenue startup sits typically in the range of $1M-$4M pre-money valuation. Your positioning on this range depends on the quality of the team, the vision and the demo traction.
6. When hiring, consider waiting a year before you actually give equity away. Those who are truly passionate about your product will show commitment before expecting stock.
7. Be attached to the problem you are solving, not to the solution you are providing. This is the best advice I have ever received.
8. Pay more attention to your data and less attention to your ego. In this regard, read the story of StepOut (fka Ignighter). It is the perfect case study about the importance of paying attention to the data your customers provide everyday.
9. Study trends. It is essential to be strategic from day one.
10. Understand opportunity. We are moving towards a Human Computer Interaction (HCI) model. Ideas navigating in this space might have tremendous funding potential. Funding opportunities are also available for API-driven companies who establish a utility model for improving a method.
Last but not least, the data-utilization space is very underdeveloped. Figure out how to use data pass just storing it. We currently store massive amounts of data that sleep in some server completely unutilized.
Always remember that investors continuously think in fuel economics. How much fuel do I put in and how much output do I get? At almost $4.00/gallon, passion, performance and efficiency are key.
Adriana Galue is a co-founder at Mint Consulting. She is a scientist, techie, entrepreneur, lover of nature and immigrant whose genes trace back to the Middle East, Africa and Spain. She was born in Colombia and educated in Canada. Adriana writes about her perception of the world, education and startups. She holds a MBA from the University of Colorado at Boulder Leeds School of Business. Follow her on Twitter at @AdrianaGalue.
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