Thursday, August 08, 2013

I won't and can't secure funding, for now

I was guilty of taking a few shots at the "free money" provided by Government Fund, but I never seek VC money before. Though I was disappointed with the outcome, but I am glad I didn't get funded as I would probably end up like Adam. After many years, I come to understand accept I probably didn't deserved to be invested in (though it didn't means the other applicants are more deserving).

I don't need the money

I have some ideas, and I was tempted by the idea of "free money", so why not spend some time to take a shot at it. In the beginning while I was still under employment, the fund would act as a nice cushion of allowances while I work on the project. When I was freelancing, the fund seems like a good extra income. Today, the "free money" is not worth the paperwork and bureaucracy I have to endured.

I didn't truly need a lot of money to kickstart most of my idea (Internet and Software related). I just need to summon some courage to spend at least 3-6 months working on an idea (leap of faith), perseverance in coding without supervision and good at SEO (now known as Growth Hacking).Besides, I "wired" my mind to not work on any ideas which required tons of money in order to succeed (e.g. e-Commerce).

My intention to apply for the fund is not truly genuine. I just wanted some freebies, a safety net. I didn't need the money to kickstart, and there is no growth to fuel. Servers are cheap nowadays, and I can code. There is nothing to stop me except myself.

I can't Pitch

The ability to start a successful business and the ability to secure money from investors are two very different skill sets. Some people have common idea and unproven execution capability, but they could win pitching contest easily as if they are professional "pictcher". I probably have some common idea as well with some coding capability, but I definitely can't pitch or sell. I could explain ideas and benefits, but I don't have the killer instincts to close the deal. I didn't dive into the mindset of investors and understanding their needs. I share my ideas and plans from the perspective of a coder and a consumer.

To succeed in pitching to investors is like going through examination. You don't have how are you going to apply your knowledge in life, you just need to know how the examiner is going to score the answers.

At a later stage I came to witness the importance of networking with the investors. Stupid coder like me thought that we could barge in into the room full of investors we didn't know, show a slide deck and talk for 10 minutes and walk away with the money. Too young too naive, haha. The smarter way would be find some ways to talk to potential investors before hand, understand what they are looking for, what they think of your idea, how you could improve on the idea and let them know you personally. Else the minutes you finish your presentations, they will bombard you with a high dosage of skepticism, doubts, misunderstanding and distrusts.

My naive idea of pitching is just to share what I love doing, and hopefully you might like it as well and put some money into it. I don't like to hard sell, or pretend to be someone I am not just to please you. Sadly the VC world don't work this way, these people invest to make profit, not a hobby or investing into ideals.

I don't have a Business Model

When people ask what do I do? I told them I am a programmer who build website, and they probably think I am a freelancer who build websites for business. I don't consider myself a true entreprenuer, as I care more about product and users than how to make money. I just want to build a great product and have plenty of happy user who find my product useful and use it frequently. I like how Google, Twitter and Facebook got started: build something useful.

During my pitch, I did come up with some ways to monetize my products and projects profit from few hundred thousands to a few million per year. I probably did it to satisfied the pitching requirement, where the monetization methods are reasonable, but I was never truly interested in them. Most of the time I failed miserably at this part. Most investors probably would not invest in Google or Facebook, so it doesn't helps if I try to act like them. Anything with a few million ringgits of profit per year might be good for a lifestyle business, but it's not a business worth investing in for most investors. I was just being too naive.

Nothing to Show

I guessed there are certain things investors are looking for, either they are conventional wisdom or what the startup world is preaching nowdays:
  • Idea: Restaurant review like Yelp? Never heard of it. Travel Review like TripAdvisor? They are some damn good and there is nothing you can do to beat them. What makes you think they won't do the features you are proposing?
  • Profit: Since I don't have a real business model, and pathetic income from Google Adsense probably made them despised my capability to make money.
  • Team: I'm a solo founder, nothing more to say.
  • Traction: I have nothing more than an idea at my first few attempts at the Government Grant, but my last attempt does have 300K monthly visitors with 50% yearly growth (not spectacular, but something to show). Sadly investors from this part of the world probably like paying users better.
  • Market: Malaysia? Too small. Restaurant Review? Nobody makes big money in it. Why don't you do food delivery like foodpanda, or e-Commerce?
  • Passion: Passion is not something we can put in a slide deck and talk it out; and personally, nobody care about your passion besides yourself.
  • Connection: I am a coder who doesn't have any influential friends.
  • Social: I don't know you, never heard of you, and you will end up as the 101th small potato I rejected this year, muahahaha.

Poor evaluation based on Profit

Most investors in this part of the world would evaluate a startup based on current profit fast forwarded 5 years in to future with a certain growth rate. Let say my startup makes RM 50K per year with 30% growth annually for the next 5 years (50 + 65 + 85 + 110 + 143 = RM 453), my startup's evaluation would be around half a million ringgit. Is there evaluation tempting? RM 500K is nothing much nowadays (can't buy a decent house), and I probably spent almost equivalent of time worth in it, and the same amount of money couldn't not build another equivalent startup. Since I suck at squeezing profit out of the business, the evaluation seems unfair to me.

Anyway, how does Instagram reach $1B evaluaton without making a dime?

Loss of Autonomy

Once I taken in partners or money, the entity is not fully mine anymore. I can't do as I wish, where I have take into account the opinions of others and probably focus on profitable activities. I can't work on an idea just because it would be fun or cool or "because it feels right" anymore; I probably need to spend a lot of time convincing others that these ideas are worth pursuing, and they would probably ask me to create a project plan, market survery, feasibility study, etc.

I never really like the Business Modal Canvas, and Steve Blank would probably roll his eyes with the way I work. I don't really care about market size (at long as I'm not the only intended user), I naively believe I am the model user of the product and it should be fun to develop to keep me going. It shouldn't take too long to launch the first version (less than 3 months, 1 month would be better), and it shouldn't require skill I don't have or money I'm not willing to spend. I must be confident of making moderate success through SEO or some other common Growth Hacking technique and doesn't require to spend a fortune on marketing.

I'm pretty sure many people aren't comfortable with the way I work, thus I require absolute autonomy. I hate the feeling of not able to work on something I truly believe in, unless you could dissuade me.

I might be happy running a lifestyle business

I thought I am a Startup Guy (I like Google), but I am probably running a lifestyle business. My website doesn't have high growth with no massive users or big fat cheque after running for 7 years. When you take money from investors their business model becomes yours.

I might have a very peculiar attitudes towards running my business which might make most VCs roll their eye or vomit blood. I am mostly driven by passion and didn't take making huge profit seriously, but survivability and sustainability is important. I like to work on idea where I am the intended users, so I don't have to go around asking people what they want. My only measurement of success is traction, the number of happy users using my product to solve their problem. I don't like weekly meeting to talk about numbers, but how to make the product and user experience better. I believe in growth hacking, and it's about the only non-coding thing I like in running a business. I try to avoid direct sales and in person marketing. I will end up procrastinating too much if I work on things which I dislike. I don't buy the idea that there is a need to work more than 8 hours per day, 7 days a week (I will burn out within days).

Perhaps I had become too rigid, and probably a bad team player, but I believe I am in my "optimized" form for productivity, probably suits me in the current state and stage. I realize I might have problem growing a team as I am too used to being a lone ranger. Basically, I want people to leave me alone and let me do what I like, and I am too lazy to convince others.

I thought that I need to secure funding from VC to be successful (reading too much TechCrunch). I also understand an invested business with VC support does have higher chances of million dollar exit, as proven by a friend's business lately. Somehow I am not ready to play the VC game, and I probably sucked at it. One day an angel investor offered me a small investment, then I realized something: I don't know how to use the money, and I always believe my business is undervalued.

Do I really need VC money? There is no growth to fuel yet, and I yet to have the confident to repay.


Review: PG's How to Convince Investors

  • Investors are interested in you if you seem like you have a chance, however small, of being one of the big successes (the conventional wisdom is 15) each year.
  • How do you seem like you'll be one of the big successes? You need three things: formidable founders, a promising market, and (usually) some evidence of success so far.
  • Most investors decide in the first few minutes whether you seem like a winner or a loser, and once their opinion is set it's hard to change.
  • Truly evaluate whether your startup is worth investing in. If it isn't, don't try to raise money.
  • Founders think of startups as ideas, but investors think of them as markets.
  • A lot of VCs would have rejected Microsoft and Google.
  • The people who are really good at acting formidable often solve "who else is investing?" problem by giving investors the impression that while no investors have committed yet, several are about to.
  • The best solution is to tackle the problem head-on, and to explain why investors have turned you down and why they're mistaken. Experienced investors are well aware that the best ideas are also the scariest. They all know about the VCs who rejected Google.
  • i) Make something worth investing in. ii) Understand why it's worth investing in. iii) Explain that clearly to investors.