Freshwater Investor

Mark Peter Davis, venture partner with New York-based High Peaks Venture Partners: “You have to look outside yourself for your company to succeed.”

“When an entrepreneur tells me he’s run out of money, I think, ‘No, you just couldn’t get anyone to trust you enough to give you more money.’ There’s a bridge of trust that’s missing,” says John Greathouse, partner at California-based Rincon Venture Partners. “The truth is, there’s plenty of money in the world. Your business should be solid enough to be getting some of it.”

“I see it all the time. A company will hyper focus on, say, making a really cool technology, and not at all on customer acquisition,” says Kathleen Utecht, of New York-based Comcast Ventures. She says this is especially true if your company is in a crowded market, where customers have several choices. “You need to get in the customers’ heads. Know the market.”

Can’t imagine altering your idea? That’s a problem. “Anyone who falls too quickly in love with their idea and can’t evolve, will fail,” says Utect. Bryan Roberts, a partner in the Palo Alto-based venture capital firm Venrock, adds: “The market moves so quickly that if a company doesn’t pivot well, it usually won’t survive.”

In the long term, the promise of riches isn’t enough to keep a business– or an entrepreneur— going. “Sure, in the short term it can help, but you’re going to run into very tough obstacles,” says Greathouse. “So I always want to know a real reason a person is starting a company. I want someone who has something to prove.” Don Rainey, a General Partner with Virginia-based Grotech Ventures, agrees: “The best entrepreneurs are the ones who have danced with real trouble in their life. You don’t have to tell a single mother why she needs her company to succeed. She knows.”

Whether you like it or not, selling your business begins on day one. If you’re not the type that can light up a room or charm potential investors, experts say you must hire someone with these skills. “It’s great when a company has a really smart but quiet founder. That guy should get a CTO who’s charismatic and outgoing,” says Utecth. “It’s all about the team.”"

The study, released by Humantelligence, a behavioral science research and consulting firm that provides online tools, found that just over 60 percent of those studied showed that valuing their freedom and doing things their own way was a dominant motivator—a mere 1 percent see themselves as wanting to create or adhere to structure.

Two Humantelligence directors, Andres Blumer and Ryder Fyrwald, presented these findings last week at the three-day Kairos Global Summit 2012 held at the New York Academy of Medicine and hosted by Kairos Society, a non-profit organization seeking to foster entrepreneurship amongst those ages 18 to 22. The organization brings together the best and brightest young entrepreneurs in the world.

“For us, studying Kairos members was a no-brainer,” says Blumer, also one of the earliest members of the Kairos Society and the director of international development at Humantelligence. “This is such an amazing group of people. When I come to these events where everyone is gathered, I find myself surrounded by all these young brilliant people who really are changing the world—they are truly unique.”

Humantelligence aims to aid companies in understanding, communicating and connecting with their employees. They begin this process with the Humantelligence Scan, a 36-question test that focuses on the four lenses most associated with success in the workplace—uncovering the main motivators and strengths of employees while also providing critical feedback of areas to improve. After the study, Humantelligence then helps companies use the information from the study to improve their employees’ work environments.

As Humantelligence strives to improve work environments and company organization, they base their methods on positive psychology and behavioral science—framing findings in a positive manner, which is reflected in the results of the Kairos study.

“We strive to help companies provide their employees with the best possible workplace—a place where they can find success and happiness,” says Blumer.

“We found that when looking at the profiles of the Kairos members there were a number of qualities we have found consistent amongst many entrepreneurial leaders we have collected data on,” said Fyrwald, director of strategic partnerships at Humantelligence. “Many of them go against the status-quo and challenge convention—approaching their work with a flexible attitude, based on getting it done.”

The study showed that 64 percent of Kairos members prefer work requiring them to think outside the box and avoid rules and existing procedures. Additionally, almost 65 percent of those studied prefer work that allows them to solve problems on a regular basis.

“This is a highly motivated group of young people, who have all these unique and thought-provoking ideas,” says Blumer. “We always say, ‘you can’t change the future, but you can create it.’ That’s what this group is doing.”

Humantelligence reported that “coupled with a drive, behavior and ideal work profile that involves doing it their own way, Kairos members also hold a deep-seeded value for uniqueness. That is, they seek to stand out from the crowd and become energized when their drive for creativity is triggered.”

Beyond showing signs of uniqueness, a little over 30 percent of those scanned had decisiveness as a dominant characteristic—which Humantelligence reports as slightly unusual for this age demographic, found more commonly amongst “seasoned professionals.” Conversely, only 3 percent of the 250 Kairos members showed signs of being “results driven or practical.”

The percent of Kairos members driven by wealth was similarly low, with only 5 percent of members having it as a main motivator and 10 percent of those surveyed had helping others as their motivation above all else.

For those studied, there was a high emphasis placed on achievement, personal development, adventure, creativity—but most notably friendship. Friendship has never before come up as one of the top priorities for any group analyzed by Humantelligence.

Wrong. It’s about executing.

Sure, you need good tech. It must solve a problem. But once it’s built, you have to execute. That’s a whole different skill set than writing code and drawing wiring diagrams. Think about how many awesome technologies went the way of the dodo because the company simply failed to execute. Lots of them.

So how can you get better at execution? Here are a few thoughts:

Define a strategy

Know your market. Know the problem you’re solving. Know what differentiates you from competitors. And stay focused. Many entrepreneurial ventures and small businesses implode due to lack of focus and meandering strategy. Strategy is about saying “no.” Define your approach to the market and stick to it until the market tells you you’re fundamentally wrong and need to change.

GIVE UP EQUITY AND BUILD A TEAM!

I’ve seen the “I need to own it all” dynamic cripple many a business. News flash oh budding captain of industry: yes – you own 100% but it’s 100% of ZILCH! If you can’t pay cash, share the equity. Bring on talented people earlier rather than later and have them help you build the business – fast! The best defense against competitors is scale and market penetration. That requires speed. Speed requires bandwidth. Bandwidth requires people. People require compensation. This isn’t hard to wrap your head around. Do it. You’re in bootstrapping mode!

Sell. Sell. Sell.

Don’t give me this “if we just get 0.05% of the quadrillion dollar market we’ll be billionaires” crap. Sure, that works at a high level. But from the bottom up, you have to sell EVERY customer. That means build a pipeline relentlessly and push it forward every day. You will not convert every lead. That means you need a ton of leads to turn them into revenue. Always look to advance the sale and drive toward contracts at every turn. As Giovanni Ribisi says in Boiler Room “ABC – Always be closing.” If you pull the “x% of a huge market” thing, you’re demonstrating one of the five reasons your idea pitch sucks.

Focus

Personally, I suck at this. I take on too much and spread myself too thin. That has implications for my businesses – I can’t build them as quickly as I would like. At the time I’m writing this I’m the Managing Director of thoughtLEADERS, author of One Piece of Paper, CEO of TiXIT, Principal at weBuild, founder of FreakJet, and founder of SimpleMile. Yeah. FOCUS! I know all of those would be much further along if I focused my efforts better. The same holds true for any business you run. Even within a single business, ruthless focus is critical.

Quit being a control freak

If you bring people on to do a job, LET THEM DO THEIR JOB! Yes, you started the company. No, that doesn’t mean you have to do every task. Give people freedom to operate. Get some leverage. Use them as a force multiplier. If you’re paying them to do work, let them do work. They *want* to do work. Stop being a micromanaging control freak.

As she told the story of the preceding few weeks, a time when several different venture capital funds were vying for a spot, pestering her with phone calls, lunch offers and even the occasional gift, it struck me. My friend had, after four years of struggling to get her business off of the ground, become the belle of the ball.

“Finding the right investor is a lot like the dating process,” said Dhana Goldstein at February’s Pipeline Fellowship Conference, a meeting of seasoned and aspiring angel investors at the law offices of Goodwin Procter in Midtown, Manhattan. Is every date going to yield a long-term love affair? “You like them and they like you back. You think they’re cute, and so you go out a few times and get to know them. But… getting married is a commitment.”

Alexa von Tobel, whose personal finance site LearnVest has raised over $24 million in funding since its launch in 2007, most recently $19 million led by Accel Partners in July of 2011, is well-versed in the ritual of seeking and securing funding. “At many phases we’ve been in a position where we have a lot of opportunity,” von Tobel says, in reference to the multiple venture capital firms offering investment in LearnVest’s Series A and Series B rounds. “But early on I received the very good advice to be very, very thoughtful about my decision on who to partner with, because taking an investment was going to be a multi-year, maybe even decade-long arrangement.”

It’s easy to get caught up in the hype and energy of so much opportunity, she says, but by viewing her relationship with potential investors through the lens of a long-term relationship, even a marriage, helped her to stay focused on the future, rather than the fleeting excitement of signing a multi-million dollar contract.

“The action stage of investing is the wedding,” says Robert Delman, managing director at Golden Seeds, an angel fund that focuses its investments on women-led ventures. “The marriage, of course, is much, much more important.” And so, he says, the decision-making is just as tricky for investors as it is for the entrepreneur who stands to benefit.

If the road to financial backing is a thrilling and emotional one for entrepreneurs, for investors, especially Angel investors, who regularly part with their own money, rather than an impersonal fund, it can also be especially fraught. Parting with money is undeniably personal. What if the decision is made too quickly? When do you know to follow your gut?

“Intuition only gets you so far,” said Delman, continuing the romance theme. “I like to spend a lot of time with the entrepreneurs I’m considering funding, testing them and challenging them.” For him, it’s about asking the right questions—of the start-ups team members as well as friends and colleagues to gauge the entrepreneur’s promise, humility and coachability. “Like any relationship,” he says, “It’s best to really get to know each other before you go to bed. Because once the papers are signed you’re going to live together for the next five to seven years.”

Think of investors doing due-diligence as the most thorough stalking job you could imagine, one prospective angel investor joked to me. Their job is to look into your business plan, projected numbers and history of success through dozens of phone calls and meetings with former employers, advisers, bankers and even rivals in an attempt to evaluate the likelihood of your success—and potential returns to the investor. Once she’s satisfied, like any high net worth relationship, there’s one final step before walking down the aisle: the pre-nuptial agreement.

Well, not really. But almost. “I wouldn’t say the term sheet is exactly a pre-nup,” says Delman, “But in terms of structuring the deal it’s pretty close.” A term sheet is meant to lay out, in no uncertain terms, each party’s ownership in the company, and road-maps milestones and possible succession plans for further down the road. In short, it’s a very complicated—and legally binding—contingency plan for both parties that consummates your long-term relationship… for better or for worse.

For von Tobel, her experience since taking her first outside dollar in 2009 has been positive, something she credits to her relationship-minded approach to finding the right investors. “It’s really important to think not just about who you can stand to be in a long-term relationship with, but who you’ll be excited by years down the road,” she says. “Because of that, because of my thoroughness through all that excitement, we picked the right team, and I can say with all honesty that I have true and genuine trust in my board and my investors.”

From my vantage point, there continues to be confusion about the definition of private equity and venture capital, the distinction between the two, and whether Romney’s track record makes him a hero or villain. With the economy the No. 1 issue of this election, let’s look at Romney’s role as an investor to see how he might turn the country around.

Venture capital is all about a vision for what the world might be like in the future and helping entrepreneurs build businesses to get there. A venture capitalist doesn’t run the business; instead, the VC creates an environment for an entrepreneur to succeed, by providing guidance, capital and insight, while removing obstacles. Venture investors buy a minority ownership position in a company, and influence the outcome of the business through their role on a company’s board of directors.

The Kauffman Foundation released a study showing that two-thirds of net new jobs created are by young businesses — those less than five years old. According to the National Venture Capital Association, venture-backed companies account for 14 percent of all private sector employment and 21 percent of the U.S. gross domestic product. Staples, Domino’s Pizza and Sports Authority are examples of companies Romney helped start during the early days of Bain Capital, when Bain was doing classic venture capital start-up investing. This venture capital experience suggests that he has the background to put in place policies and create an environment in which new business formation will blossom.

As a result of Bain’s early success in its venture investments, it raised more money from investors, seeking strong financial returns, and Bain Capital became a premier private equity firm. Private equity is different than venture capital, as PE firms buy an entire company (often troubled or underperforming companies), using a combination of equity and debt. As owners of the business, they have the ability to pick the chief executive and set the strategy for the company. PE investors make money by growing the business, and making it more profitable. They do this by adjusting three fundamental levers: price (how much you charge for your product — although the competitive market often has a strong say here), volume (how many products you sell) and cost (what it costs you to make each product). Choosing which lever to pull, and pulling it, isn’t always obvious or easy, but businesses today compete in global markets, and have to make tough decisions, quickly.

Private equity is capitalism personified. Winners succeed and losers fail, much as in life itself. To succeed in PE investing, your successful companies have to outweigh those that fail, and make no mistake, failure is a part of business in a competitive world. Bain Capital’s returns during Romney’s tenure were among the best in the industry. His formula worked.