"How much to buy your baby?"

All mothers think that their babies are beautiful. OK, if not really beautiful, then certainly much more special than all the others... There is something primal in humans that makes us seek to find endearing qualities in our offspring. How much would you be willing to sell your baby for?

I have had 3 different calls this week from entrepreneurs asking about how to value their startup companies with early investors. How do you put a “fair” value on your startup company?

Valuation is certainly one of the most difficult aspects and many deals die here. Ask for too much and the investor will turn and run. Ask for too little and you lose your motivation & end up with nothing. The saying is that the only suitable investors for early stage companies are the 3 F’s: Friends, Family and Fools. Early stage investing is risky. Very risky, but if you are going to pitch your business to early-stage Seed or Angel Investors, then you need to carefully consider the valuation that you will propose and remember that your baby may not be as special as you believe.

There are really two different objectives of an early-stage investment. The first objective is obviously the cash. You need enough to support your activities until the breakeven point where you will have enough sales revenues to pay for your growth plans. A second objective is that an early-stage investor will become one of your closest partners and have a direct effect on the success or failure of your business. Too many entrepreneurs only focus on getting the money and forget that choosing an early investor is just as important as hiring a key colleague or choosing a wife. Establishing a fair valuation will set the stage for fair treatment by your investors. Doing the opposite is a proven recipe for disaster and court battles that the entrepreneur seldom wins.

Ron Conway, a famous angel investor from Silicon Valley, was recently quoted as saying, "I will not talk to an entrepreneur about valuations for more than five minutes. If they want to talk more than five minutes, I probably do not want to invest."

Conway's logic is so simple and straightforward and built on so much commonsense it is difficult to dispute. The valuations for pre-seed startups, regardless of the ups and downs of the economy and venture marketplace are level and consistent… Oh, sure, there's the exception, but if you're a rational entrepreneur or investor, you wouldn't want to bet on identifying it before investing.

Much more important, as Conway's logic seems to run, is the capability of the management to grow the company to, say, $50 million. An entrepreneur who spends time focusing on pre-seed valuation probably doesn't understand valuation, which probably means the entrepreneur does not have the vision and ability to put a company on the path to high growth.
From the article entitled: Is Valuation a Key Issue in Funding Startups?
by George Lipper, Editor, National Association of Seed and Venture Funds (NASVF)

A study in 2007 by the US National Venture Capital Association showed that the average pre-money valuations of early stage startups has been surprisingly consistent over the years. The values in 2009 are surely a bit lower, but the interesting thing to note is that the values increase dramatically depending on the development stage of the company. In 2006, the average pre-money valuation of a startup was $3.38 Million. Note that if a company was at the point where products were already developed and ready for market, that the average value was $15.50 Million. If a company has already started shipping products, but was not yet profitable, then the average value jumps to $22 Million. After breakeven the average valuation is $27.65 Million. The most interesting lesson here is for entrepreneurs to understand how important it is to wait as long as possible before seeking funding and setting valuation. What development stage is your startup company at? What can you do to move to the next development level (and thereby get a much higher valuation)?

How you actually determine the valuation (ROI, Future Cash Value, Risk assessments, etc.) is something for another and a more detailed article. In the meantime, get clear on your objectives with seeking funding and choose your investment partners carefully… And make your baby really special!

Want to turn-around your business and achieve results in record time? Contact me to discuss Executive Coaching, Group Facilitation and Management for Hire services for technology companies. You can learn more at www.ricksalmon.com and at www.xelerator.com.

Rick Salmon is an energetic entrepreneur who believes that this beautiful world that we have created needs our help. Subscribe to this newsletter to receive frequent updates and tips.

Picking the Winners

How do you pick future champions while they are still young and developing? How do you identify a talented team of entrepreneurs at an early stage? How do you measure the real potential of a startup business?

In the world of sports it has long been a quest to pick the future champions from among the young. There are DNA tests, muscle tests, enzyme tests, psychology/personality tests, but in spite of a lot of fancy technology no one has really figured out how to do this effectively. It comes down to a gut feeling about the innate qualities of a competitive athlete. Yes, there are physical issues to consider, but once those basic criteria are met, then it comes down to the spirit – the mental game. How tough a competitor is this kid really? In sports you will sometimes find kids who are big – bigger than the other kids their age – and therefore better at their sports. Will these kids be the top performance athletes later? Most of the time the answer is no. Look for the little guy who has had to work twice as hard as the bigger kids – the one who has an unstoppable attitude – and you will find the future winners.

I have recently been asked to be the President of the Selection Jury for the 2009 European Venture Awards and I am thinking a lot about selection criteria. Over 700 startup companies have competed in this year’s competition. They are all smart people. They are all talented in some field. They are all entrepreneurs seeking assistance to give birth to their companies, but how can we pick the real champions? Hint: It’s not about the technology. It’s not about the products or the services or the implementation and adaptation of science… It’ about the people.

Find the little guys with unstoppable attitudes and you will find the future winners. I saw a report by the US Venture Capital Association last year where they had statistics on the valuations of early stage investments by Seed and VC investors. Only 10% of the value was attributed to IP, patents and technology. 5% was attributed to the actual market that the company was targeting. What surprised me most was that 85% of the valuation was attributed to the team. It’s all about the people.

Author Jim Collins (http://www.jimcollins.com) has proposed THE BUS THEORY. It states that if you can just get the right people on your bus and get them into the right seats, then you will figure out how and where to drive the bus in order to succeed. Your business is your bus. Get the right people onboard and you can easily fix a faulty business model. Get the wrong people onboard and you will quickly drive it into a ditch. Picking winners is all about the people.

Want to turn-around your business and achieve results in record time? Contact me to discuss Executive Coaching, Group Facilitation and Management for Hire services for technology companies. You can learn more at www.ricksalmon.com and at www.xelerator.com.

Rick Salmon is an energetic entrepreneur who believes that this beautiful world that we have created needs our help. Subscribe to this newsletter to receive frequent updates and tips.

Be Careful What You Believe

Henry Ford is one of my heroes. He was a pioneer of large-scale mass production, he founded the Ford Motor Company and produced the Model T in 1909 - a product that forever changed the world’s idea about what was truly possible.

In 1900 automobiles existed and most people had seen them, but they were very expensive and available only for the very rich. Henry Ford had a dream of making the automobile available for the common man. To build a single car at that time it took an average of 13.4 hours. Each car was basically assembled by hand. By creating innovative new manufacturing techniques, Henry Ford reduced the average production time to 93 minutes. He continually worked to improve production methods until he was eventually able to produce a Model T every 24 seconds and over a 20 year period he produced 15 million Model Ts. The sudden availability of these cars changed the American economy by encouraging the rapid movement of people and goods. It also changed the American people’s beliefs about what was possible when creating businesses, about manufacturing and about prosperity.

Henry Ford was once quoted as having said “Whether you believe that you can do something or whether you believe that you cannot do something, then you are correct”. If you believe you cannot succeed then you are probably correct. If, however, you believe that you can succeed, then you are also correct.

If you believe that it is difficult to start a business, then you are correct. If you believe that because you live in Europe, that it is much harder to succeed than if you lived in California, then you are correct. If you believe that without a PhD, then no one will listen to you, then you are correct. If you believe that you are not smart enough to succeed as an entrepreneur, then you are correct. If you believe that it is difficult to be an entrepreneur, then it is.

What we believe can limit us more than any other thing in life. Be careful what you believe. Be careful what limitations you put on your thinking, because this – more than any other factor - will determine what you experience and what you are able to achieve.

Since we are talking about the early 1900s, there is another good story. At that time Andrew Carnegie was a billionaire industrialist. He challenged an unknown and poor journalist named Napoleon Hill to write a book. Carnegie did not offer him any payment, but only letters of recommendation to some of the 100 most influential businessmen of the time. Napoleon Hill interviewed people like Henry Ford, Alexander Graham Bell, Thomas Edison and many others in order to try to discover what was the secret of their success. In 1934, in the midst of the Great Depression, he published the book Think and Grow Rich, which is one of the most sold business books of all time. The secret to the success of all these great men was really quite simple. Hill wrote:

“TRULY, "thoughts are things," and powerful things at that, when they are mixed with definiteness of purpose, persistence, and a BURNING DESIRE for their translation into riches, or other material objects.”

If you want to change the world, then your first step is to start to believe that you can. If you want to create a hugely successful business, then start by believing that it is possible.

“Whether you believe that you can do something or whether you believe that you cannot do something, then you are correct”.

Want to turn-around your business and achieve huge results in record time? Contact me to discuss Executive Coaching, Group Facilitation and Management for Hire services. You can learn more at www.ricksalmon.com and at www.xelerator.com.

Rick Salmon is an energetic entrepreneur who believes that this beautiful world that we have created needs our help. Subscribe to this newsletter to receive frequent updates and tips.

Rick Salmon appointed President of Selection Jury for 2009 European Venture Contest

(Oslo, Nov. 12, 2009)

Europe Unlimited has appointed Rick Salmon as President of the Selection Jury for 2009 European Venture Contest Finals which will be held on December 14th and 15th, 2009 in Barcelona. The Jury will consist of 30 distinguished members representing the Venture Capital community in Europe. The mission of this annual venture contest is to find, evaluate and award world-class innovative companies with the potential to dramatically impact their industry and contribute to increasing European competitiveness and growth. This year over 700 startup companies have competed in the contest this year and the top 25 have been chosen to go to the finals in Barcelona.

Jury members will select a winner in each of the 3 categories of cleantech, life sciences, and ICT. From the top 3 companies, 1 overall winner will be selected and awarded a cash prize of EU 90,000. The companies will be evaluated on the basis of 7 factors (including business potential, team experience, investment potential, competitive position, presentation, etc.).

Rick Salmon competed in the 2008 European Venture Contest as CEO of RPR Technologies AS (Norway) and was selected as winner of the Cleantech category. This year, he has been asked to be the President of the Jury in order to represent and promote the entrepreneur viewpoint and to acknowledge his work with empowering European entrepreneurs.

If you are an entrepreneur who plans on raising capital or expanding your network in 2010, register now for the 2010 Eurecan European Venture Contest. For more information about Europe Unlimited, see: http://www.e-unlimited.com

Worshiping Genius

“Italy worships Genius, but has not yet figured out how to create a culture of entrepreneurship”.
This was an interesting statement made by the CEO of the Italian Angels for Growth, Lorenzo Fanchini at last week’s semi-final of the European Venture Contest (EEVC) held in Turin. Italy is a country filled with brilliant scientists and engineers. There is a huge supply of new technology, brilliant engineering and mechanical precision but unfortunately a shortage of businessmen – those boring guys in business suits that focus on cash flow instead of electron flow. Don’t get me wrong. There are good businessmen in Italy, but as an outsider, I am struck by the inequality in the number of engineers.

At the event I listened to 12 startup entrepreneurs pitch their companies to a panel of judges representing venture companies. Most of the entrepreneurs were heavy-duty techies but lightweight money-guys. Why is it that technology is so sexy while a moderate but healthy cash-flow draws only yawns? I watched one biotech company presentation where the entrepreneur race through 26 disorganized slides in just 8 minutes. 25 were about technology and only 1 was about business. It stayed on the screen exactly 1.8 seconds because it painted such a dismal picture. These were scientists that live off government funding, not businessmen who produce quality customer-driven products in return for a solid profits. There was no business plan, only a lot of fancy technology. There was a second company that presented a solid business model based on already-developed products that will reach breakeven quickly and continue to generate new patents and also a healthy cash-flow. The first company got an award. The second company was sent home and told to find bigger and more sexy markets. Should investors worship genius or invest in good, solid performance companies?

At the University of Colorado School of Business I studied with two other buddies. Two of us left school and went to work in the computer industry. We have spent our careers chasing hot and fancy new technologies. The third buddy started selling coffee machines to business customers. We mocked him. We laughed and felt so superior as we worshiped our marvelous technology advances. Today, he is the one that is outrageously wealthy while we others are perhaps still chasing.

If we worship “Genius” but fail to provide seed funding for sound businessmen, then we will never create a sustainable culture of enturepreneurship.

If you are an European entrepreneur and want more information, help and assistance, suscribe to this blog. I write frequent articles about the startup companies and events that I participate in.

Want to turn-around your business and achieve huge results in record time? Contact me to discuss Executive Coaching, Group Facilitation and Management for Hire services. You can learn more at www.ricksalmon.com and at www.xelerator.com.

Rick Salmon is an energetic entrepreneur who believes that this beautiful world that we have created needs our help. Subscribe to this newsletter to receive frequent updates and tips.

For more information about the EEVC European Venture Contest,
see: http://www.e-unlimited.com

For more information about the Italian Angels for Growth,
see: http://www.italianangels.net

If you are so smart, why are you not rich?

“If you are so smart, why are you not rich?”

I saw this written on a T-shirt yesterday at a gathering of entrepreneurs. It was a blatant challenge and it made me stop and think. In looking back on my 20 years as an entrepreneur, have I failed if I am not rich? Is that really what has driven me all these years? No, not really.

I immediately wanted to change the T-Shirt to read: If you are so smart, why haven’t you changed more lives? Why haven’t you helped more people… Created more jobs… Saved more children… Made a difference in the world?

According to a recent article in the International Herald Tribune, a rising new trend is the emergence of “Social Entrepreneurship”. Young entrepreneurs are realizing that just seeking wealth will not really make them happy. Finding meaning in what you do on your route to making money is ultimately much more rewarding and fulfilling.

I may not have yet acquired the riches of a sultan in all my years with startup , but I have been able to create companies and I have had the freedom, the drive and the turbo-motivation that comes from giving birth to ideas that grow to be corporations.

If your highest personal value is the creation of wealth, then remember Howard Hughes who died alone, isolated and lonely after building one of the greatest fortunes of the last century. Go ahead and make money, but also create a better world in the process. If you are so smart, then you will get this.

Want to turn-around your business and achieve huge results in record time? Contact me to discuss Executive Coaching, Group Facilitation and Management for Hire services. You can learn more at www.ricksalmon.com and at www.xelerator.com.

Rick Salmon is an energetic entrepreneur who believes that this beautiful world that we have created needs our help. Subscribe to this newsletter to receive frequent updates and tips.

A Crisis is a Terrible thing to Waste (Part 2) – Smoke Signals

When I was a boy I loved to watch “Cowboy and Indian” programs on television. The plots were always the same. They usually started with a group of settlers – who were traveling in their covered wagons towards some dream of a better life in a faraway place. Then would come some sort of a crisis. The crisis was usually the Indians. First the Indians would signal their attack by sending up smoke signals that would be visible from far away (because the Indians didn’t have mobile phones). The smart cowboys would see the signals and take cover, but most cowboys would ignore the signals and keep right on moving along until the Indians swooped down from the hills and attacked the wagon train.

When a business ends up in a crisis, it is usually because they fail to pay attention to the smoke signals. Most of the time the signals are there on the horizon, clear and easy to see, yet they choose to ignore them. And then when the Indians swoop down upon them, they are just as surprised each time.

The first stage of any crisis is the realization that a crisis has emerged. Just like with the Indians, it usually comes as a shock but still takes a while before the reality sinks in.

So what can an entrepreneur do to see the signals? What are some of the practical things a startup business can do in order to avoid ending up in a deep crisis?

1. Take frequent Reality Checks. Ask yourself tough questions about your business and give yourself honest answers. It is better to face the facts and get prepared than to avoid them and just hope that things will improve.
2. Guard your Optimism, but Be Prepared. The Arabs have a saying “Trust in Allah, but tie up your camels”. Optimism for an entrepreneur is essential, but it can sometimes lead to difficult situations. I have observed this many, many times with startup companies.
3. Practice sound Financial Planning. I have seen over 100 entrepreneur venture pitches over the past 6 months and very few had done sound financial forecasts and cost analysis. There is a general lack of planning with startups and this is perhaps one of the biggest reasons so many struggle to get early-stage funding.
4. Hire a Board of Directors. Most startups have a Board that consists of the 2 young founders and Uncle Bob. You can avoid crisis if you have a good board of advisers who are also minority shareholders and interested in helping your company prosper and grow. Give away shares if you need to, but get the best possible people you can find and ask them to be tough on you. If this is the only thing you do from all the suggestions in this blog entry, then you will still have made a big change.
5. Stay close to your customers. Even if you don’t have customers yet, stay close to your target market. Talk with them. Ask them questions. Get their feedback. Make sure you are providing products and services that they don’t just need, but that they really want. I may need a new car for the purpose of basic transportation, but I really want that Audi TT sports car.
6. Think Long-term but Act Short-term. What I mean here is that you must keep your focus on the long-term goals and aspirations you have for your business, but you must take short-term action that provides the cash flow and resources to survive and ultimately grow. Many technology companies spend a long time developing their products, but run out of money either before they are completed or before they have been able to sell products and prove that they can generate revenues. It is much easier to get an early-stage investor to put money into your business if you can demonstrate sales revenues. Even if revenues come from services and not product sales, this does not matter. Think long-term, but act in the short-term to bring in revenue and lessen the possibility of a financial crisis for your business.

If you see smoke signals on the horizon, take action immediately. The sooner you do, the less the consequences and the pain of a crisis. If the situation has already swooped down upon you like a tribe of angry Indians, then in the next blog entry I will discuss how to circle your wagons and stage a defense. In the meantime, remember that becoming a successful entrepreneur is about the learning to master the game… and A Crisis is a Terrible Thing to Waste.

Want to turn-around your business and achieve huge results in record time? Contact me to discuss Executive Coaching, Group Facilitation and Management for Hire services. You can learn more at www.ricksalmon.com and at www.xelerator.com.

Rick Salmon is an energetic entrepreneur who believes that this beautiful world that we have created needs our help. Subscribe to this blog to receive frequent updates.