Comments on: iFunding is hard http://www.alexcurylo.com/blog/2008/05/27/ifunding-is-hard/ Alex Curylo, iPhone Programmer Tue, 07 Feb 2012 06:22:00 +0000 hourly 1 http://wordpress.org/?v=3.2.1 By: Tobin http://www.alexcurylo.com/blog/2008/05/27/ifunding-is-hard/comment-page-1/#comment-347 Tobin Thu, 29 May 2008 07:43:59 +0000 http://www.alexcurylo.com/blog/?p=91#comment-347 I don't think it should be easy. Without knowing too much about what you had submitted here are my thoughts about the iFund. Like most venture capital (Angel or VC), you're going to be betting on the team and the business model. What is your success record? Do you (and your team) have the ability to create a high growth application? Is your market identifiable and reachable? Do your ideas have a clear and easy to understand business model behind it? Is your exit realistic? What is your unfair advantage? Take a look at both the pelago and iControl team. Their leadership consists of seasoned technical and business executives. Investors love serial entrepreneurs who have experience in the various stages of a startup. KPCB is going to manage the iFund just like it does any other fund and have some lofty expectations on return of investment. Over 600,000 companies are started every year. 350,000 of those are funded founders (savings, salaries, debt), 200,000 are funded by friends & family. And less than 2,000 of those 600,000 are funded by a VC firm such as KPCB each year. Another thing to consider is growth and exit. VCs want high growth investments. And ideally they like to see their investment times 30 at the company's exit. If KPCB offers $100k in seed capital, they are going to want the company to be valued at and exited for $3,000,000 after 3-7 years. When you submit a plan to them, they are going to look to see if your business has that sort of potential. The reason why the ROI is so high is because of out of 10 investments the following usually happens: 5 of those will have 0x return ($0), 2 will have 1x return (original investment), 2 will have 3x return. That remaining investment needs to make up the difference and performance of the other companies. If everyone performed well, they would typically give the investor 3.5-4x ROI. So make sure your team, market, business model, and idea have legs to grow that fast. If you put $10k into your own business, what would your projected ROI be for the use of your own money? If you can confidently answer that, then can you scale that up to a $100k-$1m investment and get the same ROI? If so and you can communicate it well such that a non technical person (read, analyst) could understand it, I'd suggest taking another stab at it. I don’t think it should be easy.

Without knowing too much about what you had submitted here are my thoughts about the iFund.

Like most venture capital (Angel or VC), you’re going to be betting on the team and the business model. What is your success record? Do you (and your team) have the ability to create a high growth application? Is your market identifiable and reachable? Do your ideas have a clear and easy to understand business model behind it? Is your exit realistic? What is your unfair advantage?

Take a look at both the pelago and iControl team. Their leadership consists of seasoned technical and business executives. Investors love serial entrepreneurs who have experience in the various stages of a startup.

KPCB is going to manage the iFund just like it does any other fund and have some lofty expectations on return of investment.

Over 600,000 companies are started every year. 350,000 of those are funded founders (savings, salaries, debt), 200,000 are funded by friends & family. And less than 2,000 of those 600,000 are funded by a VC firm such as KPCB each year.

Another thing to consider is growth and exit. VCs want high growth investments. And ideally they like to see their investment times 30 at the company’s exit. If KPCB offers $100k in seed capital, they are going to want the company to be valued at and exited for $3,000,000 after 3-7 years. When you submit a plan to them, they are going to look to see if your business has that sort of potential.

The reason why the ROI is so high is because of out of 10 investments the following usually happens: 5 of those will have 0x return ($0), 2 will have 1x return (original investment), 2 will have 3x return. That remaining investment needs to make up the difference and performance of the other companies. If everyone performed well, they would typically give the investor 3.5-4x ROI.

So make sure your team, market, business model, and idea have legs to grow that fast. If you put $10k into your own business, what would your projected ROI be for the use of your own money? If you can confidently answer that, then can you scale that up to a $100k-$1m investment and get the same ROI?

If so and you can communicate it well such that a non technical person (read, analyst) could understand it, I’d suggest taking another stab at it.

]]>