Launch413 Completes Seed Round

My thanks to the many people who put their faith in Rick Plaut and my new venture, Launch413. A special thanks to the many members of River Valley Investors who provided the pre-seed funding to get us started and then played a big part in finishing our seed round.

For those that don’t know Launch413, we are an alternative venture fund that takes startups from Launch to their first $10 million in revenue. We are serial entrepreneurs and veteran executives dedicated to helping startups become engines of prosperity in our region. We accelerate our entrepreneur’s progress by investing our expertise & networks to provide strategies and introductions that would have taken years to acquire on their own.

Launch413 uses a royalty-based model instead of equity, allowing our entrepreneurs to keep 100% ownership of their venture.

We are now actively seeking companies to invest in. If you know any great startups with a connection to Western Massachusetts and who want to scale to at least $10 million in revenue, let me know :).

Advertisements

KISS Canvas 9. Cost Structure

[This is a part of a series on the KISS Canvas]

What are the major cost centers of your business? When do you have to pay? Do you have any options to pay differently? What costs can kill you? All of this is covered in the Cost Structure section of the KISS Canvas.

Here is each sub-lesson:

  1. Intro
  2. Capital costs
  3. Fixed  & Variable costs
  4. Example: a family
  5. Summary

Check out more KISS Canvas Content.

Entrepreneurs give me hope when I need it most

When I talk about politics I am filled with sadness and a sense of near powerlessness to make the world a better place.

But when I talk to entrepreneurs, I am filled with hope. Where most of us see problems, they imagine solutions… and solutions that scale.

Here are just some of the companies blowing me away, all local/VVM companies making the world a better place!

  • Immigration
    • www.prosperitycandle.com – Providing fulfilling careers and a first rung on the economic ladder for refugees here and in war torn nations.
  • Health
    • www.newenglandbreath.com – Helping diabetics understand and adapt to their condition through superior, painless blood-glucose testing.
    • ernestpharma.com – Freaking (my words, not theirs) killing tumors with genetically engineered bacteria. No it isn’t science fiction!
    • footcarebynurses.net – These traveling nurses make help the elderly stay on their feet and independent.
    • lumme-labs.com/ – Smoking cessation
  • Education
  • Inclusion
  • Environment
    • genoverde.com – Trees that grow much faster. Good for tree farmers. Great for the environment because trees are really good at sucking carbon dioxide out of the air!

I could go on for hours.

These people give me hope. That’s why I love helping them. They are creating a brighter future.

Sermon over. 🙂

How Much Due Diligence Does An Angel Really Need To Do?

Due diligence (AKA “doing your homework” on a startup to see if investing is the right call) should clearly take time… but how much? Marianne Hudson, executive director of the Angel Capital Association (the trade association for angel investors in the US) wrote an article on this topic. Her full article (with her permission) appears further below.

One of the biggest debates in the angel industry is how much due diligence investors should do before they invest. From “rank and file” angels to rock star investors like Ron Conway or Mark Cuban, opinions differ vastly from literally doing none to conducting formal processes that take months.  So how do you decide what the right amount is for you?  And what are the factors you really need to check out?

Count me in the camp that believes that doing due diligence is a very important.  For me, it is about being comfortable as an investor that the team, market and product have a chance for success, that there are no red flags pointing toward failure, and better understanding the company’s capital needs over time.

As I’ve posted before, angel investing is risky.  Due diligence doesn’t completely “de-risk” a deal, but it helps eliminate deals in which there are clear problems that lead to failure – things like products with no real customers, CEOs with integrity issues, and no true right to sell the innovation.

2007 study found that angel investments in which at least 20 hours of due diligence was done were five times more likely to have a positive return than investments made with less due diligence time.  Put another way, while 45 percent of investments in deals with 20 hours of diligence resulted in a loss, 65 percent of the investments with less diligence took a loss. That is pretty compelling.

The point here isn’t that an individual must do at least 20 hours of due diligence for every opportunity you seriously consider.  Instead it is to understand that due diligence can help you make better decisions and increase chances for a good return. And you don’t have to do all of the work yourself – many times you can access diligence information conducted by other investors you trust.

Getting Started – Key Factors

There are some very good practice resources for angels to learn about comprehensive due diligence, including questions to askchecklists that angel groups use, best practice papers summarizing recommendations from top angel investors, and courses on investment best practices.

Although I always recommend using background resources like these, if you lean toward a faster approach, here are my top three due diligence questions to address:

Is the entrepreneur and team up to the task – and do they have the integrity you need?

A starting point is to ask the entrepreneur a lot of questions and of course check their references.  As you talk with those references, get them to suggest additional people for you to talk with.  Sometimes these are the most important interviews you will do.  In these discussions, Internet research and possibly a background check, you can also find out if the person has had issues in managing money or has been arrested – the kind of red flags that make investors walk away.

Rick Vaughn, leader of the Mid-America Angels in Kansas City, provides some good color about what you’re looking for in assessing the entrepreneur.  “It goes back to that old saying that people get funded, not business plans.  To some degree we are looking at the entrepreneur and thinking, does this person have the vision, patience, courage, creativity and integrity necessary to lead a successful venture?

“Investors are going to be thinking about how they will feel about working with the entrepreneur and the rest of the management team.  Do they feel good about forming a relationship? Investors want our level of trust to increase with each interaction we have with the CEO and the team.  If it doesn’t, that can be a deal-breaker.”

Are there customers or strong potential customers for the product or service?

A company can only grow and make money if they have customers who will pay them money.  If you prefer an early-stage company that has a product ready for sale, then it is important to ensure the company has established customer relationships.  If you like startups that are still developing their innovation, then you need strong evidence that potential customers really see that the startup can solve a pain point that they will pay for.  Generally having two established customers who will confirm that they are buying or will buy the product is a decent hurdle.   Understanding the customer situation also helps confirm or reveal important things about the market for the product and length of the sales cycle by interviewing customers.

Also, as the due diligence best practice paper notes, “Customers need not just the will but also the ability to pay (for these products).  If the venture targets customers without sufficient budget for the product, it won’t matter how badly they want it.”

How much capital does the company really need to get to an exit?

While it is important to dig into the potential exits for a company, it is also critical to get a beat on how much capital the company needs now and in future rounds of growth.  This provides a sense of the hurdles the company will face and how much your ownership stake may be diluted over time.  Many companies tend to underestimate how much money they will really need.  Ask lots of questions of the entrepreneur and financial team to get an idea of how realistic their financial plans are and mine data on companies in similar industries to see their financing and exit trajectories.

So what is the right amount of due diligence for you? Every angel will personalize the process for their own needs.  However, if you are new to angel investing, you can gain a lot by reviewing the wealth of resources available and talking with experienced angels about what is important to them and the processes they use.  Although you’re likely to adjust your approach as you make more investments, you will definitely increase your odds by incorporating due diligence into your investment decision making.

Launch413 Begins Phase 2, Investing in More Companies!

Launch413 Logo 2018

Launch413 is itself a startup, and like all startups has lots of hypothesis to test. I’m proud to share that we just completed Phase 1 and validated all of our core hypothesis:

  • With our help startups accomplish in months what would have taken them years to do on their own
  • Our Venture Advisors can provide that help in a scalable-way
  • There are enough startups connected to our region that want our kind of investment

Time for Phase 2: take on twice as many startups to make sure our systems scale. If everything works as we expect (within the bounds of startup land :)), then in a few short years we will, every year thereafter, help 4-8 local companies reach at least $3 million in revenue. Do that for a few years and the jobs, wealth, and prosperity created starts to get really exciting!

So we’re looking to add 3 more companies to our portfolio. If you know a great startup past the I-have-an-idea / VVM stage and raring to reach their first $10 million in revenue, please send them to our spiffy new website: www.launch413.com.

Calling Bold Nonprofit Leaders

If you…

  • Lead a nonprofit and…
  • See the funding landscape shifting under you and…
  • Know that insanity is defined as doing the same things over and over again but expecting different results…

Then I’d like to invite you to participate in the next Innovation Accelerator. In partnership with local foundations and donors dedicated to increasing nonprofit sustainability, we train nonprofit leaders to develop sources of unrestricted, recurring, and sustainable revenue. Leaders develop new revenue-generating ideas, build business models, gather evidence proving their assumptions, are guided by funders along the way, and at graduation pitch to a panel of funders who want to fund pilot initiatives.

Join us for part 1 of the Accelerator, the IdeaJam. In just a half-day you develop a catalog of your organization’s super powers (AKA assets, skills, and connections) and their potential for unrestricted revenue. Sign up soon with the discount code “early77” and save 20%.

You can learn more about the Innovation Accelerator here.

What if you don’t have an idea?

All innovation starts with The Idea. But what if you don’t have an idea to start with? Or what if you have only an idea or two and are unsure if you have the right idea?

Let’s help you generate some of the right ideas :).

Step 1: Set the stage

  1. Put your mission on top of a whiteboard or spreadsheet. Please do the one-sentence version :).
  2. List out your assets. Some examples:
    1. Any spaces (classrooms, laboratories, dormitories, etc) that lie unused some of the time.
    2. The time that key employees have on their hands (due to working part-time, summers off, etc).
    3. Know-how your team has developed (excellent systems, processes, curriculum, etc.) to solve your own problems.
    4. Relationships with other people, organizations, government agencies, etc.
  3. List out any loud signals the market has given you lately, for instance:
    1. Long lines of people waiting to purchase/use something you, or someone similar, are currently offering.
    2. People signing up (or asking) for an offering that you haven’t even marketed yet!

It should look something like this…

IdeaJam-Part 1-Set the stage-mission assets market

Step 2: Set the criteria

Identify the top five-ish criteria you want to score your ideas on. Jump to a new whiteboard and make some columns. Column 1 is “the idea”. The other columns are the criteria. The first few criteria should be the three items we’ve already discussed: mission alignment, have-the-assets (AKA assets are ready-to-go), and evidence of market demand. Next, you’ll need a few additional criteria relevant to your specific needs. Some examples being: easy-to-do, short-term-revenue, long-term-revenue, profitability, meets-strategic-priority-X, etc. Last, add a TOTAL column to the right.

Next, decide if any (1-3) of the criteria should be weighted more heavily. Mark them with a star.

It should look something like this…

IdeaJam-Part 2-Criteria

Step 3: Ideate

Gather some smart mentors with a diverse range of experience, both inside and outside your organization. Walk them through your notes on your mission, assets, proof of market demand, and then your criteria.

Next, have a free-ranging discussion walking through your various assets & market demand evidence to come up with new business ideas. Give each idea its own row.

IdeaJam-Part 3-Ideate

Part 4: Score

Give each person 10 sticky dots (votes) and instruct them to distribute the dots along column 2 (Mission Alignment). You’ll notice some ideas score much higher than others.

3.1

Repeat for each of the remaining columns.

When you get to the TOTAL column, add up all the dots for an idea. If a column has a star, count those dots double.

3.3

Step 5:  Review

Look at the scores. If you have it in a spreadsheet, sort it. You’ll most likely find a clear rank-ordering and one or two winners.

And now you have a long list of ideas, a rough sorting, and a clear methodology as to WHY :).

 

If you would like to go through a process like this with fantastic mentors, an experienced facilitator, and have a blast doing it, sign up for one of the Lean Innovation Institute’s upcoming IdeaJams.

Hat tip to the great Stephen Brand, who taught me how to do this much better!