I’ve spent the past week at two conferences: Slush in Helsinki (aka: the geekiest rock festival in northern Europe), and HowtoWeb, Bucharest’s more demure, but also far more grounded take on a startup conference. Both events were enlightening to me for entirely different reasons. Here are a few observations on what I learned at the two conferences:
Everyone has Suddenly Discovered Community Management
Slush and HowtoWeb both had significant gaming communities in attendance, and it seemed that when companies like Dots weren’t talking about monetization strategies, they were talking about community management. Game design studio Seriously revealed a new approach to mobile gaming content, where the company will rely on its user community to help shape the experience of its game, iterating not just the software, but also the content, based on how users engage with it.
— Paul Papadimitriou (@papadimitriou) November 20, 2014
At HowtoWeb, the picture was much the same. I fell into conversation with Dan Olthen at HowtoWeb, about this change in the gaming community. In fact, his talk on producing a new Game of Thrones game for Bigpoint included his interest in community management as an integral part of pre and post-release QA for a game. He advocated for community managers to be involved with product design, particularly with UI, and to be part of every decision involving QA and product design. Feedback from communities, and the post-release lifecycle of a game are now much more important than they were 10 years ago, when a game might be released once, and never updated again. This reasoning applies to a most mobile products, Dan told me, but many companies seriously lack an understanding of how to integrate community managers into a product release lifecycle, meaning that when new mobile products *are* released, the people dealing with those communities often don’t have their fingerprints on them, making them poor advocates for something they don’t have any personal stake in.
— StartupYard (@startupyard) November 21, 2014
Startups Still Don’t Know Why They Need an Accelerator
We’re going to get into this more deeply in a blog post this week, but I’ll mention it right here: Startups don’t know why they need an Accelerator- and the ones that do seem to be aware of what an accelerator can offer, often need us the least.
I spent quite a bit of time, particularly at HowtoWeb, talking to my opposite numbers from other accelerators like Techstars, and from VC firms in London, Berlin and elsewhere. The consensus was clear: too many startups with too many good ideas go too far into developing their products and seeking investments, when an accelerator would help them to narrow their focus, find out what kind of investments they really need, and prepare them to ask for it. Many seem to have become fixated on a particular investor who mentioned the possibility of money, but hasn’t invested yet. As one VC from London told me: “we talk to them and tell them, ‘this is what we did with a *similar* investment, but that doesn’t mean you’ll get the same valuation, if we invested,’ and anyway the startups walk away thinking that they have this valuation we mentioned even when we haven’t even agreed to invest.” Of course, by the time that founder talks to an accelerator, 30,000 Euros for 10% equity seems insulting compared to a theoretical post-money valuation they haven’t earned.
From Finland to Romania: The Picture Stays the Same
HowtoWeb, a tech conference for mostly Romanian startups in Bucharest, had mentoring sessions across two days, so I talked to about 15 startups at the conference, and about half had unrealistic ideas of what a VC firm could do for them. None had even applied to an accelerator. A few expressed that they didn’t want to give up equity (despite having no investors, and thus no valuation), and others were simply unclear as to what we could provide them that they couldn’t get directly from a VC.
While many more companies in Helsinki had secured seed investments or even A-rounds, there were still loads of them who hadn’t, and they weren’t looking to join an accelerator.
I think this is quite a shame. The VC mentors in attendance seemed far more likely to tell startups to simply quit- that their ideas are not good enough, and that they would never invest in them. The Startups I saw in Romania may have had fewer conversations with VCs, and they might have had smaller pocket money, but they had essentially the same illusions about VC investments versus accelerators. They still didn’t see the value in an accelerator.
VCs and Accelerators all ultimately invest in human potential- in people. But we go about it in very different ways. Accelerators help founders shape a business and prepare it to be investable- we validate the basic questions of viability: is this even a good idea? What is the competition? How much money is needed?. But a VC is not as interested in that process- they are interested in companies that already have those questions solved. They have to be moving from point B to point C, have a direction, know it, and be able to show that it has promise. So talking to them before you know what they want from you, before you know what step A is, much less step C, is only going to doom you into being either led on by their vague promises, or disappointed and disillusioned at their firm reply of “no way.”
An accelerator invests in you up-front, and then our work starts. WIth a VC, the decision process is much longer, and it constitutes most of their work deciding whether to invest. Once they’ve invested, they want that investment ideally to work without depending on them for anything else. But in order to do that, they have to be very sure about it. We take bigger risks, but we work harder to make sure that you deliver on your potential.
A lot of Founders Think They’re Still in School
This is something else we’ll talk about in a future blog post, but it bears mentioning here, because we saw it a lot last week on the road.
— Siim Lepisk (@SiimLepisk) November 18, 2014
Founding a company is not like being in school. But a lot of people who found companies we’re interested in accelerating are still in school. And this can show in a few ways. A very young founder I met in Bucharest, with a very interesting business idea and a great deal of technical knowledge, responded very oddly to a comment I made about his approach to the business. He wanted to start a kickstarter campaign, and start selling a very complicated physical product that he had not figured out how to mass produce, market, guarantee and insure, service, and price appropriately.
In short, he didn’t know what he had from a business perspective. I told him not to start the kickstarter campaign, but to slow down, look for a business partner, seek some investment, and figure out how to market and sell his machine as part of a profitable business. He kept returning to a monologue about how he was going to start this kickstarter campaign and get the investment that way. I told him it would work (getting the investment), but that he would be defeated by the details of producing, selling, and supporting this product if he went it alone. He said to me: “but, I’m only 20 and I think I have a lot of experience and am doing pretty well for my age.”
He was treating the whole thing like a school assignment. He was probably used to being told he could do anything, because he was ambitious, smart, and exceeded the expectations that schools and universities had placed on him. But business has no such expectations. Businesses either turn a profit or they lose money. They don’t succeed because you’re precocious, and they don’t forgive you for mistakes you made at the beginning- they punish you for them. Youth convinces us that we know everything, but the more we learn, the more we understand how little our knowledge amounts to.
Startups with No Money Are Usually the Wallflowers
At Slush, the orgiastic celebration of all things technology that has put Helsinki on the startup and gaming map in the past few years, as I strolled past hundreds of booths and stands occupied by alternately hopeful, overwhelmed, meek, and overconfident startup founders talking up their products and their prospects, I found a sort of rhythm. While the technologies they were all working on were as various as the people themselves, they all seemed to more or less fit a few different “types.” Not as people, or even as businesses, but as founders. The selection was diverse: language acquisition apps, big-data and internet-of-things health and wellness companies, social media me-toos (though there surprisingly few), game designers and media companies were all represented. But the type of company they were didn’t seem to affect the way they behaved.
It seemed to me after a few hours that I could tell what stage a company was in, just by the way they treated the people walking by. Few of the startups had no money to work with, or else they wouldn’t have been able to buy tickets for their booths, but it became clear after a number of conversations, that more than a few companies were operating on a shoestring budget. What surprised me about many of these companies was that their founders were standoffish. They neither engaged with passersby, nor roped them into their booths to display their wares. They just waited, responding only to direct questions.
I expected, when I talked to people who didn’t seem interested in hearing about StartupYard, and asked no questions about the accelerator, that they must already have funding, and were looking for other types of contacts, or bigger investors. But most of the ones who didn’t ask questions didn’t have any major investors. That seemed incredibly odd to me. I represent investors, and make this clear, and that they probably desperately need investment to move forward, but more than a few seemed glassy-eyed at the prospect- as if they were sure it wouldn’t work out.
I mentioned this to another rep from an accelerator in Germany. “I know!” he said, wonderingly “It’s like we’re chasing them around trying to give them money, and they think we’re going to steal their lunch.”
Well, we won’t steal your lunch. Unless it’s pepperoni pizza, and in that case, watch out.
Companies with Angel Investors are the Most Friendly
— Siim Lepisk (@SiimLepisk) November 18, 2014
I noticed too that companies that did have significant angel money were interested in talking to me, even though they had little reason to do so. I got 10 minutes into a conversation with a delightful co-founder of Lingvist (a language web app that is getting a free plug from me because they were so damn nice), before I realized that the company was way beyond the financial and organizational stage where StartupYard would be a major help. In fact, they had already been with an accelerator, and had a very good idea of how to move forward.
So why had he been so cordial with me? Because he understands something that startups without funding haven’t learned yet: you have no idea where your breaks are going to come from. I’m now a free evangelist for Lingvist, and it cost a co-founder 10 minutes of his time. If I had a check-book that was significantly fatter than my current one, he’d also have a potential investor.