2017 was a good year at StartupYard. Not just financially , but also because we saw a number of our Alumni and recent graduates accomplish amazing things in the past year. Of course, 10 companies raising over €2 million total makes us very happy.
Still, the money is less important to us than what the money says, which is that these companies are doing good things that investors believe in, and that therefore we’ve done our job well.
10 Companies, €2.2 Million
More StartupYard alumni raised funding in 2017 than in any previous year. 10 Alumni and startups in the program raised funds in rounds worth between €35k and €750k. Many of these investments we’ve announced, but others have not been made public yet.
We’re also happy to report that there are additional deals in the pipeline, and we will hopefully be able to announce those very soon. We hope that 2018 will follow 2017 as another record year for fundraising.
How Does StartupYard Help Startups Fundraise?
The Network: Aside from the obvious, which is that we begin by investing in Startups that go through our program, every deal that one of our alumni have closed in the past year has been with the help of the StartupYard network.
Through mentoring, and especially Demo Day and the following Investor Week, our startups meet and get a chance to pitch a huge number of likely investors, including business angels, VCs, and even banks and large corporate investors. In every case in the past year, our startups have been able to raise money because of contacts made during the program. In most cases, the startups raised directly from StartupYard mentors or existing investors.
The Reputation: As with any long-running accelerator program with a decent track record, we have a smart group of investors who will pay close attention to any startup we work with. Being around for many years, and having made many right calls in the past, we are trusted by investors to offer clear, honest and helpful feedback about our alumni.
That doesn’t mean investors do whatever we say. But they do listen.
Our investor network know that we do not shop investments that we don’t believe in ourselves. Credibility in the investment community matters very much. You don’t always have to be right, but you have to be informed, open, and honest. I can safely say that every company I’ve worked with in the past 4 years at StartupYard that deserved an investment, got it. We find a way to make it happen.
The Program: Just as important as having the right network to do your initial fundraising, you have to be an investable company to begin with. One of the things we look for in startups we select is that they are usually almost investible, or we see that with some hard work, they will be investable sooner rather than later.
That naturally incurs a big risk for us, but it also helps define our mission- not to find “the best” most shiney startups out there, but to find the ones with the most real potential. One of the metrics we use to determine our success at picking “go over show,” is how well our startups do after our program at raising smart money (that is, from investors who know what they’re doing).
The Backup: Another quiet but important part of StartupYard’s role with alumni companies is to provide “backup” in negotiations with future investors.
Having an existing investor on your side of the table is an important practical and psychological advantage in investment negotiations. For one thing, an existing, experienced investor helps ensure that new investors behave themselves, and make fair offers on fair terms. Knowing an experienced partner is behind the startup encourages fair play and discourages game playing.
For another, StartupYard has the network and platform to expose bad actors, and to make sure our startups don’t deal with them in the first place. We have the power, in extreme circumstances, to block investments in our most recent alumni. This should be seen not as a blocker for investment, but as a negotiating advantage for startups, who can always fall back on us to block or negotiate terms that are unfavorable to the founder, on their behalf.
As we say, we can be “the bad guy,” with future investors when we are needed to be.
Listening to What an Investment Actually Says
Many founders who apply to StartupYard, and many who join us and go on to raise further investment, begin with some wrong conceptions of what raising investment is all about.
Of course, it’s the money they’re usually thinking about. But this is only part of the picture. If you need money, there are lots of places to look for it. Not all of those places are good, and not all of them are ultimately worth your effort or the risk you take in going there.
I used to joke with our founders that if you got into this business just to make money, you should just sell drugs instead. It’s almost true.
If there is good money and not so good money (clean or dirty, smart or dumb) how do you decide whom to take money from, or whom to ask for it?
Try approaching the question from the opposite tack: not “how do I get this money,” but instead: “what will it say if someone gives me this money?”
It should say that the investor believes in the upside potential of what you’re doing. Any investor in an early stage company should be nowhere near defining the real market value of the investment, because that value hasn’t been fully explored or proven yet.
The investment has to say what the investor can reasonably believe. Here are some things an early stage investment should say about what the investor believes:
- The company will be worth more in the future
- The founders are honorable and trustworthy
- The product is good and there is a market for it
- The founders will work hard, and pivot if necessary
- The founders will eventually sell or realize a profit
- Failure is possible, and ultimately acceptable
Maybe one or two of those points surprise you, but I hope not. We should not expect early investors to be total true-believers in what a startup is doing, but we should be able to answer all these questions before accepting an early investment from someone.
We should also not expect investors to be unemotional, or completely calculating in their early-stage investments. A true opportunist is a dangerous friend to have.
Picking the right investor is not just about sleeping well at night, though that’s part of it. It’s also about making sure that you actually have the clarity of vision and the confidence you will need to do what the investor believes you can do. Convincing someone of something is a lot harder than telling it to yourself.
One of the best ways to get someone to believe all the things I’ve mentioned is to really believe them yourself. The best way to believe those things is to make them true.
Make Yourself Investable
As we’ve seen, becoming an investable company is about more than having a great idea, or the energy and determination to make it happen. It’s also about the network you have, and the choices you make early on.
If you think you have a tech idea with great potential, consider working with an accelerator like StartupYard to grow your immediate network, and turn the idea into a business investors and customers can really trust.
Finding investors, just like finding any business partner, is about knowing what exactly you need, and what to reasonably expect. StartupYard helps you figure those things out.
StartupYard is currently accepting applications for Batch 9.
We’re looking for startup founders in Crypto, AI, IoT, and AR/VR!
Get started applying to StartupYard Batch 9. Applications close January 31st, 2018.
It seems like the tech investment market hasn’t been this excited about anything since 1999. The ICO, or “Initial Coin Offering,” is on the lips of every investor, and floats to the top of every startup discussion around fundraising and new business models.
Depending on who you ask, it’s a revolutionary shift in the investment paradigm that will help tech companies and investors alike become wildly rich, or it’s a scary bubble-creating, fraud enabling monster the likes of which hasn’t been seen since the dot-com bubble.
So what’s going on? What’s an ICO? What do you need to know about them? Why should I be wary or excited? This post will jump into the circumstances that created the phenomenon of ICOs, and try to dispel or confirm some of the most important common beliefs about them.
First, a bit of history:
First There Was Blockchain
In the distant technological past, around 2009, an idea emerged from a mysterious coder with the pseudonym of Satoshi Nakamoto. In a now-legendary whitepaper, he produced a theoretical model for a new kind of digital currency: what he called Bitcoin.
Without getting too deep into the technology, the key to Nakamoto’s innovation was the idea of a distributed digital currency that relied on a network of computers to process and authenticate transactions for its users. This network would create many copies of a “blockchain ledger,” and would copy transactions written to the ledger based on consensus with the network.
The ledger would contain many “coins,” or unique pieces of code that could be “traded” from one user to another only with the use of a private key. Over time, the system itself was designed to create more coins as a reward for those who processed transactions- a process called “mining.”
In this system, transactions would be theoretically tamper-proof. The system would keep what amounts to a never-ending record of everything it does, impossible for one person to alter alone.
Though Bitcoin’s exact origins and Nakamoto himself are mysterious, what is true today is that millions of people around the world have traded bitcoins, and used them for a variety of purposes, including making payments, transferring money abroad, and in some cases, illegal activities such as extortion, money laundering, and black market sales. There is such ongoing demand for bitcoins, that they have been valued by some exchanges at up to $5000 dollars recently.
The popularity of Bitcoin has spawned many follow-ups, including and especially Ethereum, which has presented a number of technical advancements to solve limitations in the original Bitcoin technology, particularly Bitcoin’s lack of speed and extensibility.
Today, the Ethereum blockchain functions as a platform upon which applications that need a distributed blockchain can be built. The Ethereum coin called “ether,” can be “spent” as a way of leveraging the network on which it runs to accomplish new tasks in a secure way.
Blockchain and ICOs
While Bitcoin popularized shared ledgers, new platforms like Ethereum promise to put that technology to much broader use, such as in authenticating contracts, securing communications, and enabling new forms of crowdfunding. Proponents see Ethereum and similar technologies as a way to decentralize many functions of the web, and eventually the whole economy.
TechCrunch has a good introductory article on some of those ideas. I suggest you read that as well.
An ICO is one of those new uses of a shared ledger. As simply as possible, it is the process of offering a new set of coins for purchase, either for cash, or more commonly, in exchange for cryptocurrencies that the seller of the coin can then exchange for cash, or something else. The coins being sold by the company raising the IO should be tied to some external financial instrument or physical asset, such as a loan, a share of common stock, a security, or in some cases, “credit” towards the use of the products a company offers.
You may recognize this kind of transaction as essentially similar to the sale of a security or a debt. The main difference is that the sale is accomplished using a blockchain ledger, and the “coin” sits in place of a typical security instrument, such as a bond, or a note.
Thus, an ICO could be used to facilitate many existing business activities. It could be used to enable a group of lenders to pool their money, or it could be used by a startup to sell equity in itself. An ICO can also be used by an existing company to offer a way of buying its services (the same way mobile gaming companies sell tokens, gems or other items to their players to make in-game purchases).
The advantages of employing blockchain technology in these circumstances are the same as ever: increased security, transparency, and auditability. In short, ICOs can potentially offer a better or fairer way of doing things people mostly already do.
So Why is this So Crazy Popular?
Because it’s so easy to setup, and easy to use. The wild popularity of ICOs in the past 6 months or so is largely driven by the general investor hype around cryptocurrencies. As the prevalence of shared ledgers grows, it becomes ever easier to leverage them for novel purposes like an ICO.
And that cutting-edgness can make the ICO market a bit frothy and potentially bubble prone. People who have invested in cryptocurrencies, and more importantly those who missed the huge easy gains that early Bitcoin and Ethereum investors made, now are seeking more opportunities to make returns of a similar scope. At least a part of this is mania and greed, as evidenced by the wacky valuations and amounts raised in some ICOs.
On the other hand, ICOs carry undeniably attractive advantages. They can be bought into from anywhere, by anyone, and are instantaneous- a powerful antidote to the slow and restricted nature of traditional investments and bank transactions for end-consumers. In a sense, an ICO lets individuals do what big investment banks have been able to do for decades: to be the first movers in new and exciting markets.
What an ICO is Not
Of course, that freedom and opportunity comes with its own cost.
Currently ICOs are mostly considered to be unregulated, and have thus been characterized as dangerous, risky for investors, and legally questionable by experts. Certainly those ICOs which mimic the characteristics of a classical IPO have been among the most concerning activity in the ICO market, and were the primary motivator for both the Chinese and US governments to intervene in the market recently.
An ICO can allow a company to bypass institutional investors who might normally help to diversify risk for consumers, or ensure that an investment is legally structured in a way that protects investors. In an ICO however, no central mediator such as a stock exchange or investment bank exists, and thus, in some cases, due diligence on behalf of investors is poor or non-existent.
Whatever the legal or ethical dangers, ICOs have quickly ballooned in value to what is estimated to be billions of U.S. dollars in the past year. Companies have used ICOs to raise eye-popping amounts of money, sometimes with little reliable information about where that money is going, and often with little legal protections in place for buyers.
ICOs have also been the tools of purely criminal enterprises, with a fraudster reportedly caught attempting to move $350 million of ICO investments offshore from India, after a fake ICO for a company calling itself OneCoin.
Massive speculation in cryptocurrencies has fueled plenty of fraud and abuse from bad actors looking to make easy money. And the distributed nature of a shared ledger makes it correspondingly difficult for investors to organize in response to problems. Collective shareholder action becomes difficult when many shareholders remain anonymous.
As to whether we are in a crypto bubble, as many commentators fear, it is inherently difficult to recognize a bubble when you are in it. But according to the economic historian Michael Lewis (author of The Big Short), a defining feature of the investor mania that leads to bubbles is “ an exponential increase in the volume and complexity of fraud.” And fraud today in crypto-currencies is both voluminous and increasingly complex.
Original Art by Mirek Sultz Copyright 2017, StartupYard
Are ICOs Legal?
At least right now, they’re not illegal in most places. But the question of their legality is part of an evolving situation. They have recently been banned in China, as the government grew concerned over the disruption they were causing in the country’s traditional financial markets. In addition, the SEC (Securities and Exchange Commission of the US), has also issued new guidance suggesting that ICOs that are similar to a classical IPO must register with the SEC, and adhere to existing regulations.
The ESMA (the European SEC), has yet to issue coherent regulatory guidance for European investors and companies. European regulators are typically slower to act than either the US or China.
In addition to this, while an ICO might not be illegal, it may in some cases be technically illegal to participate in it. For example, investors who are American citizens, and the companies they buy coins from, may be at risk of violating US laws including FATCA and FBAR – laws that require many financial transactions to be reported to the US Government when they involve American citizens.
In most countries, ignorance of such laws is not a defense for breaking them.
Are ICO’s Safe?
They can be. An ICO is not inherently safe as an investment. One unique risk in blockchain transactions, as opposed to traditional commerce, is that nothing is reversible. “No backsies,” meaning that you can’t appeal to anyone to recall a transaction once you make it.
And a coin alone does not guarantee shareholder rights or ownership of something. However, if the proper legal framework is used to tie coins to real assets or give their holders certain rights, then an ICO investment or a coin purchase is not fundamentally different from the purchase of any other type of security or medium of exchange.
So while an ICO is not by definition “safe,” it is not necessarily any more dangerous than any other type of transaction. And in some ways, it can be considered more secure against certain threats.
Ok, but Should I Buy Into an ICO?
According to our in-house blockchain expert, Decissio founder Dite Gashi, you should not consider investing in any debt or equity ICO unless it meets some essential criteria (many of it the same as for any traditional investment).
Here are the highlights of Decissio’s checklist:
- The ICO’s Focus – The focus should be on the business, and not on providing investor returns, particular fast investor returns. If it looks like a pyramid scheme, assume it is.
- Meeting Technical Due Diligence – either you or someone you trust has examined the technical specifications of the offering, and are satisfied that it is sound from a technical point of view.
- Complete Company Documentation – Just as with any investment, the company launching an ICO should be on a sound legal footing, and should be represented by qualified board-members, free of legal trouble, compliant with regulations, and have its finances in proper order. If documentation that establishes this is not provided, then the investment may not be as safe as you think.
- An Exit Plan – A company raising money through an equity or debt ICO should have a clear idea of how and when investors can be paid back, what triggers a liquidity event, what events or milestones call for a reorganization of the company, and so forth. This should all be provided in writing and vetted by your own legal counsel.
- Legal Framework – Purchase of a coin in a debt or equity swap absolutely must have legal documentation tying the coin to a real asset, or to the right to collect payment on a debt. Sufficient collateral for such a transaction should be in place, and all standard legal documentation must be provided. The blockchain technology does not replace any of this, or make any of it less necessary.
To be clear: we are not offering financial advice. But our opinion is that an investor should make a habit of looking for the same kinds of things in any investment they make. The way that an investment is offered doesn’t change the fundamentals of wise investing.
As the renowned VC Fred Wilson says: “Don’t be greedy.”
Should I Raise an ICO as a Startup?
In answer to this, we would pose a different question: what are the specific advantages of doing an ICO?
- It’s Faster: ICO might be easier to manage in the long term. Because it’s handled using a shared ledger, there’s no need to deal with many investors all trying to give you money at the same time- no problems with exchange rates, transfer fees, bank delays, and other annoyances.
- It’s more Scalable: Unlike a typical early-stage investment, an ICO can in theory be easily extended or replicated in the future without any changes to existing agreements. Traditional equity investing involves complex time-intensive processes to transfer shares, convert notes, gather signatures, and the rest.
- It’s Auditable: A nice thing about an ICO is that it can all be audited. Investors can feel more secure because a company cannot easily lie about how much money it has raised, or at what value. It’s all in the ledger.
- It’s Flexible: an ICO can be used by a small group of investors, just as it can a large one. This means that you can theoretically offer early investors the advantages of using a shared ledger, without sacrificing the personal touch that is so important with early stage investments. Startups rarely just need money: they usually need investors who can help them. It’s still possible to do that with an ICO.
ICOs are a Threat to Traditional Investors
It should be obvious by now that blockchain technology and ICOs are perceived as a threat by many traditional investors. And with good reason. Traditional startup investors may offer more than just money, but money is certainly a huge part of what they offer. ICOs can be a way to get around large institutional investors and deal with people on a peer-to-peer basis, meaning that traditional investors will have to compete harder for investments, and offer more to companies they invest in.
Early stage investors like StartupYard also face challenges from this technology. As it becomes easier to get capital from anywhere, startups are perhaps less likely to think of an accelerator as a starting point for their business. They may find that raising money in an ICO is easier – maybe even too easy.
Investors down the line may also find that investing through traditional institutions doesn’t give them the access to deal flow that they want, and they could be attracted to ICOs as a way of getting “closer to the action,” and giving money directly to exciting startups.
Tech Business Angels and VCs may also find that startups are not as keen to cooperate with them because of the alternatives available. That may be good for some startups, and very bad for others. Small companies that raise money too quickly often make big, costly mistakes, rather than little, cheap ones. Institutional investors don’t make you immune to that problem either, but they can enforce much needed discipline on founders who are playing with lots of funds for the first time.
What can we do about it?
As the famous line from newspaperman Horace Greeley says: “Go West, young man, go West.” In other words: we must adapt to our times. The reality is that this technology is gaining popularity because it promises something that people want: a new level of transparency and immediacy, for investors and for startups, that the old investment world can’t match.
While we have to continue to advocate for the processes that have made us successful at what we do (which have less to do with money) we also have to recognize that the modes of technology change whether we want them to or not. Our model must adapt, which is one of the reasons that StartupYard has made itself available to smaller investors through private equity placements over the past two years. We see that small investors want more access to early stage investments, so we must provide it in a way that makes sense for us, and for them.
Still, and it bears repeating: startups don’t really need money as much as they need help. Really effective startup investors provide enough money, in order to offer the level of help a startup really needs. A day may soon come when StartupYard will adopt blockchain technology in our own fundraising efforts. But when the winds of change blow, you shouldn’t be blown away by them. At the end of the day: the tech business has to be about more than money.
We are very pleased to announce that Neuron Soundware, or 2016 Alum, and winner of “Vodafone Idea of the Year 2016” has closed an investment from Prague-based J&T Ventures, of €600,000 to grow their team and expand their sales to capitalize on early traction with clients like Siemens.
The story broke first on Euro.cz this morning.Congratulations @startupyard alum @NeuronSW on exciting progress, and fundraising €600K to expand operations! Click To Tweet
Pavel Konecny, Co-founder and CEO of Neuron Soundware, made the announcement today in Mlada Fronta, together with Adam Kocik, Managing Director of J&T Ventures The investment will help Neuron Soundware to beef up its team, refine its technology, and expand its customer reach to include aerospace manufacturers, rail operators, and automotive companies.
Neuron Soundware, founded in 2016, joined StartupYard the same year. There the founding team, a group of AI experts led by Konecny, conceived of a device which can listen to heavy machinery, and over time, learn to recognize mechanical issues and predict when the machinery is likely to fail. Since attending StartupYard, they have developed a device employing high-end sensors used in aerospace, and audio processing software that can be plugged directly into heavy machinery and can warn of future mechanical problems. The company announced a cooperation with Siemens in 2016, and was invited to join the Airbus Innovation Lab the same year.
“We are continually impressed by the Neuron Soundware team’s technical prowess and ability to attack very complex problem sets with novel approaches and technology,” Kocik commented on the investment, “this technology is going to be even more essential as the IoT [Internet of Things] matures. Neuron Soundware will help to make machines safer, more efficient, and longer lasting.” The investment, a cooperation between J&T Ventures and a private investor, will be used to refine the engineering of Neuron Soundware’s physical devices and software, and to support its outreach to large industrial machinery firms, where demand for the technology is already growing.
According to Konecny, the technology, based on “deep neural networks,” learns from the sounds machinery produces, and can detect patterns too faint or complex for a human to hear, diagnosing issues with machinery well before they become catastrophic. Konecny says of the technology: “Sound is a rich source of data, and also quite universal, which is why mechanics and engineers rely on it so much. But a human cannot listen to 100 airplane or diesel engines for 1000 hours each, and make sense of it all. A machine can do this, and when one engine fails, it can apply that learning to all it has already heard, thus greatly enhancing our ability to detect and prevent future problems.”
“When Neuron Soundware joined us for our 6th program [out of 8], their approach to understanding sound had never really been tried before,” commented Cedric Maloux, our CEO, “leveraging StartupYard’s mentor network, locally and abroad, they were able to very quickly prove that there was a huge need for this kind of technology.” The company notes that future applications for machine learning and sound reach beyond machine maintenance, to product testing, autonomous navigation, green energy solutions, and even security. “Sound is everywhere,” remarks Konecny, “and we’ve just started to see how we can use it to understand more of how everything works.”
About Neuron Soundware:
Neuron Soundware is a deep tech startup, exploring the use of self-teaching, constantly learning neural networks in a wide range of audio analysis and audio manipulation applications. Since 2016, Neuron Soundware has focused on technology to monitor and diagnose industrial equipment to predict failures and increase efficiency. They include Siemens and a number of other leading industrial and transportation equipment manufacturers among their clients.
About J&T Ventures:
J&T Ventures is a Venture Capital fund based in Prague. The fund invests up to €500 000 in technology firms at the seed stage in CEE region. Since 2014, J&T Ventures has been invested in 11 growing and promising innovative startups with the goal to contribute to their dynamic growth and value creation. The fund focuses mainly on B2B sector with a particular interest in FinTech, IT (Big Data Analytics), IoT/IoE & Smart City IoT and Retail.
You can now apply for StartupYard Batch #8.
- Artificial Intelligence
You probably know that StartupYard is the oldest and leading Seed Accelerator for technology startups in Central Europe. What you might not know is that StartupYard is also a member of the exclusive GAN: The Global Accelerator Network.
GAN: The Global Accelerator Network
GAN is an invitation-only network of the leading technology accelerators in the world, including TechStars (all campuses), NUMA, StartupBootCamp, and MuckerLab.
GAN is more than just a network: it offers a package of perks and free services to member accelerators and their startups, that vastly reduce the early-stage costs of starting up. In the past, our startups have used GAN perks to do everything from cloud hosting, to email management, and much more. If you can think of it, there is probably a GAN perk that covers it. And all those services, our startups get for free.
What StartupYard Members Get from Gan
$34M in Perks – In the last year, GAN startups received $34M in free or reduced cost services they needed to get off the ground successfully. But more than just free credits, partners like Sendgrid offer credits as well as guidance for any GAN company in setting up and establishing an impact email strategy
$400K invested – GAN Ventures, the investment arm of GAN, provides seed stage funding and has made investments in four GAN alumni companies so far this year.
20+ Corporate Partners – GAN founders have exclusive opportunities to connect with large enterprises for business development opportunities.
Access to global locations – No matter where your startup is based, if you need a place to work or take meetings, the GAN Exchange gives you access to GAN program offices around the world.
Mentorship from the best minds in the industry – Mentors are a key part of a startup founder’s success. GAN startups benefit from more than 13,000 mentors throughout the GAN community.
A community of entrepreneurs – No matter where you or your company are based, you’re surrounded by a community of more than 5,000 startups who have launched their business in a GAN accelerator.
Last year, we gave qualified investors the opportunity to invest in StartupYard Batch 7, via the Czech investment crowdfunding platform Fundlift, backed by Roklen. As you may know, the campaign was more successful than even we had hoped, and the subscription limit was met in a matter of days.
Because our community has expressed such interest, we are very pleased to announce that StartupYard will again be doing a private placement via Fundlift to invest in StartupYard Batches 8 and 9 and potential follow-on funding for the best performing companies. This will be our first fund to cover more than one cohort of startups, and the focus of Batches 8 and 9 will be “Deep Tech.”
Here is the official announcement from Roklen
— Roklen24.cz (@roklen24) April 27, 2017
The New Fund and Focus
The fund will raise a minimum of 13m CZK, and will include investment capital for 14-20 startups, and a potential follow-on fund for both rounds, giving investors an opportunity to further leverage the first-mover advantage of investing in very early stage companies.
Deep Tech, in short, means technologies and products that are unique, difficult to replicate, or are exploring areas of innovation where the barrier to entry remains high, and the problems scientifically complex and difficult, such as Robots, AI, IoT, VR/AR, and Cryptography. StartupYard will seek to identify more early stage startups with a profile similar to such Deep Tech-focused alumni as Neuron Soundware, TeskaLabs, Cryptelo, or Rossum.
Up to 150 qualified investors will be able to take part in this non-public offer, and they will invest alongside a group of professional startup investors. The minimum ticket for this Fundlift campaign will be 25,000 CZK.
Where Does the Money Go?
Funds being raised will be invested directly in 14-20 startups, in two rounds of acceleration. Each team will receive a direct investment of 30,000 Euros (half at the midpoint of the program, and half at the end), and the best performers may be considered for follow-on financing, either in cooperation with outside investors, or in-house.
Investors will own a proportional stake in each of the startups selected and accelerated for this round. StartupYard’s total stake in individual startups ranges from 5-10%, or higher, in case of a follow-on investment.
Why Not Invest Directly In Startups?
Of course, we want those interested and able to invest in early-stage startups to consider investing in any of our portfolio companies (present and future) directly. That should go without saying. If you want to invest in individual startups, you should do so, and we are happy to help you in that process.
At the same time, there are barriers to entry in angel investing that many with an appetite for investment find too cumbersome. Legal knowledge of investment, assuring transparency, and vetting startups is a challenge for any small scale investor. What’s more, startups who are worthy of investment often are selective of early investors, looking only for those with experience and a track record in angel investing. We advise startups to protect themselves in this process, by working with investors who are proven and recommended by others.
More and more, accelerators like StartupYard bridge these gaps: connecting qualified and trusted investors with equally qualified and trustworthy startups. An accelerator also spreads an investor’s risk to a selection of startups in several verticals, keeping their investments diverse.
You can see this as an opportunity to build your brand among startups as a potential investor; someone who is willing to invest, and has shown their capacity to take appropriate risks in order to do so. Angel investing isn’t for everyone, but it can be for more people. This can be seen as a manageable first step.
This is a way of getting started. You shouldn’t expect to get rich quick as an angel investor, nor can you count on getting anything back, but investing through StartupYard can provide assurance that your investment is used appropriately, and that it has the best likelihood of success. We also ensure that startups follow industry best practices in legal and finance, and larger institutional investors, including VCs like Credo Ventures and Rockaway Capital, are also invested in the outcome of our decisions. In short, StartupYard can provide some protections against the pitfalls of angel investing that many are already familiar with.
There would be no StartupYard without investors willing to take risks. While we offer enormous value to angel investors who pick individual companies from our portfolio to invest in, that portfolio would not exist, if we did not have our own committed investors supplying initial funds. An accelerator needs funding- just as a fire needs oxygen. In order to accelerate, or to expand our services to startups, we have to have funding in place.
How to Invest?
Fundlift is not a donation platform like Kickstarter. It is an investment platform and you will be investing using Roklen as a licensed securities broker. In order to invest, a person must meet some legal requirements, including a full anti-money laundering process which is part of EU regulations.
Prospective investors should apply to open a brokerage account through Fundlift, and follow a verification process on the platform before being allowed to invest. It may sound daunting, but it is worthwhile. Once you become an investor, your investments will be duly recorded on your account and Roklen will administer all payments, change of ownership and key reporting until such time when we exit all investments and return money and profits to you, our investors.
If you are interested in the offering, please send an email to firstname.lastname@example.org . More info is available directly from Fundlift.
It didn’t take long. Yesterday afternoon, as the StartupYard teams were relaxing and quietly gearing up to pitch at the StartupYard Batch 7 DemoDay, the Rossum team Petr Baudis, Tomas Gogar, and Tomas Tunys were signing a seed funding round.
A few hours later, live on stage at the biggest demo day in the region’s history, (and with nearly 1,000 tuned in live on Facebook), Rossum announced that the respected Czech investment firm Miton, had contributed seed capital to help propel the team toward global ambitions. This morning, CzechCrunch ran with the story on its front page as well.
About the Deal
The investment solidifies an existing relationship between the Rossum team and Miton, that began with Rossum’s founders consulting with Miton’s portfolio companies on machine learning projects. Miton Co-Founder Ondrej Raska had, according to the Rossum team, been looking for a way to enter the machine learning and AI field, but had so far not come across a project that was clear enough to dive into.
That changed when Rossum approached Raska and Miton with the idea of automating invoice management, along with a host of other challenges, using a unique approach to machine learning. Discussion quickly shifted to a strategic partnership and investment, with Miton to become an active part of the Rossum project, and Raska to play a day-to-day role in the growth of the startup. Rossum has already produced a proof of concept that they say can beat OCR technology, and is approaching human level accuracy:
— StartupYard (@startupyard) February 22, 2017
Co-Founder Tomas Gogar said of the investment and cooperation: “We think that Miton is an ideal partner for us. They are very active in the companies they invest in, helping to shape their products. Their history shows that this approach has paid off, and we believe that it will be a big help to us as well. For us, as a very technically oriented team, this is a new experience. We feel that we can help Miton push forward into the Artificial Intelligence playing field.”
Raska spoke to a similar sentiment, saying: “Cooperating with Rossum is a unique opportunity. They’ve built a great team, with big potential. Moreover, the timing is right, with deep neural net technology becoming a game changer.”
When asked about the role StartupYard has played in getting them to this point, Co-Founder Petr Baudis said last week: “StartupYard finally gave us the impulse to really focus on one single thing – we were busy people before, but now we had the reason to finally drop all the side projects for good. We thought the first mentoring month would be the most intense phase, but the pace is only picking up since, and without the “little” pushing by the StartupYard team we would be much more comfortable, getting a good eight hours of sleep a night, but still at the beginning….it surprised us how eager the core StartupYard team was to help with their experience and feedback, these few people really became an important part of Rossum’s story.”
Miton, which has backed a string of successful startup projects including food delivery startups DameJidlo (another StartupYard alum from 2012) and Rohlik, e-commerce platform Heureka, the booking platform Hotel.cz, and the popular coupon platform Slevomat, runs a portfolio of investments worth upwards of 10 Billion Czech Crowns (370m Euros).
Many of Miton’s investments are in Czech-specific consumer facing service companies, but they have lately made investments in more globally oriented projects, like innovative payment provider Twisto, the lifestyle ecommerce platforms Bonami and Biano. Rossum represents for Miton a growing interest in deep technology projects, from an investor with valuable experience in brand-building and scaling successful startups.
The feature photo for this post appeared originally on CzechCrunch
[Updated August 2016] We talk to a lot of startups, and we’ve talked to a lot of investors too, particularly since we published this piece way back in 2014. In that time, our portfolio companies have raised upwards of 4 million Euros, and many of the tips we’ve given them have been refined through their experiences, and our own.
You can now apply for StartupYard Batch #9.
- Artificial Intelligence
We’ve seen people make every single one of these mistakes, and we’ve made some of them ourselves. Live and learn. So here, updated for 2016, are 9 things not to do when talking to investors.
9 Things not to Do When Talking to Investors
Talk About Exits
Perhaps your dream is to found a startup, get some investment capital, pump up the valuation for a nice fat IPO, and blow town with a suitcase full of €500 notes, headed for a major tax haven. A noble dream, to be sure, but not one that inspires a great deal of confidence.
No, investors like to see that the stake you keep in your newly minted company is going to keep you properly motivated. And motivation is more than dollar signs: it is derived from satisfaction with your position, passion for your product, camaraderie with your team, and, of course, also money. So focus on those intangibles that you have that will keep your business moving forward. Don’t count the profit that someone’s investment is going to bring you, when you leave them holding the bag in 2 years. That’s not nice. And as the old adage goes, no investor wants to give money to a company that needs the money. They want to give money to a company that can use the money well.
Be Oblivious and Don’t Listen
In StartupLandia, obliviousness can be a good thing. Who would start a company like yours without being at least somewhat unaware of the potential drawbacks, the sleepless nights, the stress, the headaches, and the thought of near certain failure? Obliviousness can preserve your sanity while you attempt to do something that most ordinary people consider to be basically insane.
The thing is, while that kind of youthful naiveté can even be attractive to investors, it so often comes with a far less attractive trait attached: you don’t listen. Investors at least like to think they have some advice and experience you can learn from. Certainly, they want to you to fully understand what taking their money entails, concerning your responsibility to them and to your company. So you need to listen carefully to what investors say.
You don’t have to follow their advice, and you don’t have to take their money, but you do have to listen- now, and into the foreseeable future, until such a time as your leadership and the product you make have proved themselves repeatedly.
Ask for an NDA
Don’t ask for an NDA. You’re probably not working on anything sensitive enough to warrant this annoyance to an investor. I’ve written a more extensive piece on this, and you can read more about it there. But really, unless you’re dealing with technology so sensitive and valuable that some level of paranoia is truly healthy (cure for cancer, for example), then an NDA is not going to do anything but waste time.Don't ask an interested investor to sign an NDA. It's pretty much never worth it. Click To Tweet
Say: “I have no competitors.”
We’ve all heard this: ‘if you have no competition, you have no market.” Besides, if your product asks for anything from a customer, be it money, time, or attention, you are by default in competition with all of the other things a customer could be doing with that money, time and attention. All businesses compete for customers. If they don’t, they aren’t businesses at all.
No, more often saying this is actually saying that you haven’t thought much about your market, your users, or your potential challenges. This past week, I ran a product positioning workshop with all of our startups. I asked them to position themselves against competitors based on relevant vertices for their market. The values on the X and Y axis are less important than the insight the teams can derive from comparing themselves to other businesses in the context of customer needs, wants, budget, or other factors. For example, a graph might look like this:
As I noted, the values on the vertices can change to fit your market situation: is it about price, or time investment, or is it about the annoyingness of ad-support, or about some other value on the Y axis?
The X axis is also dependent on the market needs. But a successful business needs to find a suitable position graph that places their product somewhere that the competition isn’t competing well. In the above graph, the competition can offer good quality, but at the price of convenience. So my product has to be convenient and high quality. That is my market opportunity.
This sort of position graph also helps illustrate your market strategy. You wouldn’t market yourself as top-shelf quality if a competitor already holds that reputation- your quality would be a help, but it would not be enough to justify your product. If you can’t find a graph that shows a worthwhile market opportunity in concrete terms -something nobody and nothing else yet does well- then you may not have a viable product idea at all.
Tl;dr: If you can’t be better, be cheaper. If you can’t be better or cheaper, then you’re going to need a very good market strategy.
Don’t Have a Plan to Use The Investment
One VC I spoke to recently put this problem in terms of ambition. Wanting investment doesn’t make an entrepreneur particularly ambitious, except in the sense of possibly being greedy. Instead, a poorly laid or incompletely laid plan for go-to-market based on a number of possible investment outcomes is a sign that you don’t really care enough about your product and its future. If you did, you would have plans for any contingency, including a way to bootstrap your product.
Approaching investment this way, with an eye towards showing investors exactly what their money is going to do, also gives a founder much more leverage. It is a much more attractive argument to an investor that a founder *could* launch without his or her support, but that this support would only stoke the fire of success further. Being dependent on investment means being dependent on investors, and few investors want a founder who can’t stand on their own. This means being responsible, and having a solid, and detailed plan for how you would use money invested in your company.
In “A Unified Theory of VC Suckage,” which I recommend as good reading, Paul Graham theorizes that VCs suffer from perverse incentives to invest too much money into startups that don’t need it, and can’t properly use the investment. What can make such a situation doubly more dangerous (and frequently did in the late 90s and in the 2000s), is that founders also believed that a bigger valuation was actually going to make them rich. Which it did, at least on paper. This has caused more than a few companies to IPO when they shouldn’t have, and to crash spectacularly. It has also caused many worthwhile projects that needed much smaller seed-funding to struggle to get it. But having a plan for what to do with the money you take in will show an investor that you’re ready for a big investment, or for a smaller one.A high valuation does not make you rich. It makes you accountable. Click To Tweet
Project Your Growth Based on a Similar Product’s Success
Everyone knows a “me too” product when they see one. A “me too” market strategy may be no better than that. The old saying: “if it was easy, everyone would do it,” finds a perfect fit here. The success of another product, and that product’s similarities to yours, doesn’t mean much to the success of your product. Investors invest in people, just as much as in products, and execution, despite what we hear in the news, is 10 times as valuable as innovation for any company in the long term.
We often hear about innovation in the media, as if it were the sole distinction of success in technology. In fact, that isn’t remotely the case. While big companies that innovate create magnificent splashes and sell lots of their products, it takes just a bit of scratching at the surface to discover that the majority of that success is ensured by a strong execution of whatever plan the company has. That was as true a century ago for the Ford Model T as it was 10 years ago for the iPod. As true for Microsoft as for Facebook. These companies were not creating products that hadn’t been thought of before. But the background processes that they put in place to execute, reliably and efficiently, won them their market positions over time.
Think the Investors Must Be Smarter Than You
Our director Cedric Maloux told me a great story about an idea he had way back in 2008. He wanted to form a company to develop and market casual games for the newly launched iPhone. This was a market at that time, was worth much less than just a few years later. He discussed his idea with a VC he knew and respected, and the VC advised. “Video games need to be immersive and mobile phones don’t give this experience. Nobody wants to play games the way they used to [with the GameBoy],” the investor argued.
Cedric believed him and gave up on the idea. And today, the mobile games sector is worth 28% of the games market, according to ISSU. The market is worth some $13 Billion, which makes it bigger than the entire music industry. Growth in this sector has yet to slow since the release of the original iPhone. Investors are not necessarily visionaries.Don't confuse smart money investors with visionaries. Click To Tweet
Last month, Techsquare hosted a meeting with StartupYard and another local accelerator. Its director and host listened to pitches from their startups, and from ours, and nearly without fail, addressed every single team with the same feedback, in sum: “I knew some people who tried what you’re doing. It didn’t work.” Experience is doubtless valuable. But failure in the past is in no wise a predictor of failure in the future. If that were true, the world would not know of most of the revolutionary products it has encountered in the past 30 years. Virtually every single one of them was tried without success, usually long before they were tried and succeeded. Listening to negative feedback like this is good. Letting it stop you is a shame.
Don’t Be Ready
Be Prepared. Always. Having and being prepared to share your financials, your projections, info about your team and your market is essential.
You can’t just chat up investors as a means of figuring out what they want to hear- that’s not the way the dance works. Your vision, your plan, and your goals are what the investors are buying into, so if you try to sell them their own ideas, they’ll know you don’t have a plan you really believe in. Having that plan, and sticking to it, only changing it for strong and valid reasons, is key to getting the right investors involved. So you need to be ready for what the investors might ask of you.
Luckily, there are plenty of investors who will tell you exactly what they would want to see from a potential investment. A great example is our own investment partner, Credo Ventures, and their own Andrej Kiska, who shares excellent tips on exactly that topic. He lists the number one failure point for startups as not building business forecasts ahead of a funding round.in Kiska’s words:
“The most frequent reason I hear for not building a model is that it is either too difficult or it just doesn’t make sense. But that makes me wonder what would happen if your startup will run into challenges that you consider too difficult or your market will desire a product you don’t believe makes sense and don’t bother to test it.”
There’s another pretty full-proof way of finding out what investors want to know before the meeting starts. Ask them. If the investor is a serious person you might actually want to cooperate with in the future, then they should be invested in you doing a good job, and making the best possible impression. The investor has a boss as well, in many cases, and needs to find justification in talking with you, just as you need to find justification in talking with them. So ask what they expect to find out from you, and plan accordingly. There’s no secret handshake. No checklist- every investor is different, and it’s ok to seek guidance.
Talk to the Wrong Investors
This seems basic, but it’s a mistake a lot of people make. You should know which kinds of investors you want to talk to. Don’t talk to a growth fund if what you need is seed money. Don’t talk to a VC firm unless you’re ready to do due diligence. Don’t talk to an Angel unless you’re looking for an Angel style investment. Each type of deal has its place, but not all money in investment is created equal. Each type of investment carries its own advantages and drawbacks, and you shouldn’t waste your time talking to investors who don’t have experience with companies in a similar situation. Andrej Kiska also has a lot to say on picking the right type of investor.
Campaign Met its Goal in Just 2.5 Weeks
Today we are pleased to announce that our recent private fundraising campaign, undertaken in partnership with FundLift.cz, has met its fundraising goal of 6 million CZK. The goal was met in less than 2.5 weeks and subscription closed on August 12th, with the participation of 40 selected private investors.
Feedback from our community and mentors generally was overwhelmingly positive. Well over 200 investors expressed interest, and community members and mentors were given priority. Still, many investors did not get the chance to participate this time. The funds committed by selected investors, StartupYard mentors, and friends of the accelerator will go towards accelerating up to 10 Startups in our upcoming round- StartupYard 2016/2, with applications closing September 30th.
This experience has shown us that the appetite for, and interest in, data focused startups in the CEE region is stronger now than ever. That’s good news for startups, and it’s good news for StartupYard. We would also like to take this opportunity to praise the team at FundLift for their professionalism, and their help in allowing our mentors and community members to participate as investors. This effort would not have been successful without FundLift.
StartupYard CEO and Managing Director Cedric Maloux had this to say:
“I am struck once again by the enthusiasm of our community for the work we do, and for helping startups in the region to gain the experience and investment they need to grow on the global market. Our mentors once again have shown they are committed and invested in the success of startups in the region, and that they are willing to step up when it counts the most. These funds are not only a big boost to the startups in our program, but a sign that Central Europe has a bright future as a center of innovation and smart risk-taking.”
What Happens Next
Now we will need the help of our dedicated community and investors to put these funds to their best use. If you know a startup or a team of entrepreneurs who are ready to accelerate their data-focused startup, and launch on the global market, please let them know that StartupYard is looking for them to apply.StartupYard is looking for #dataeconomy #startups to invest in. Application deadline Sep 30th! http://startupyard.com/apply Click To Tweet
Once again, we thank our community and investors for showing their faith in StartupYard, and we look forward to working with some of the most interesting startups in Central Europe this winter.