When starting a games company or a new app business, chasing investor capital can be life threatening for your startup.
Delusions of business grandeur can include signing up to incubators, looking for Angel investment and spending months (incorrectly) chasing venture capital. At a minimum will waste your time and potential VC companies time, and miss out on opportunities to grow your games business. At worst this strategy is likely to kill your app business – dead.
“Lets build a cool random social app, raise millions of dollars, get tons of users, and sell within 3 years for a bunch of money!!!”
Does this sound familiar? For every Facebook, Instagram & Pinterest they are millions of dead zombie startups, dying and dead, strewn by a roadside littered with corpses of failed hopes and dreams.
And despite the hype in startup circles and the press – Venture Capital is the exception not the norm for companies looking to raise funds. And there are good reasons why this is.
Here are what VCs are looking for in high potential companies:
– Great street cred – are you from Harvard, MIT or have you worked at Google or Facebook? Do you look great on paper?
– Co-founders with incredible backgrounds, skills and insights to make this commpany happen yesterday.
– Have you put together a killer team including developers so good at least 10 companies in the Valley want to hire them right now?
– Do you inspire, and blow people’s minds when you talk to them about your product?
– Have you got potential 1 billion dollar international market you want to slay, in a hot & growing niche? VCs are NOT interested in a $10 million dollar exit.
– VCs want to invest in businesses that have some unique advantage, whether it’s patented IP, trade secrets or team members with unique abilities and knowledge that no one else can easily replicate. They always ask what are the barriers to entry.
– Have you got experienced mobile focused team members with successful exits and companies under their belt already?
– Are you hungry and ambitious enough to slave away for a few years, with no sleep and no family time, and sell your soul to create the next killer company and world level IPO?
– Has your business got traction? Has it started to take off already?
– Have you already got great connections with Angel investors and VCs in the major tech hubs, including San Francisco & London?
– Do you plan to hire top AAA players and scale aggressively, working as much as possible with your goal for the next few year firmly on this company?
– Are you the ultimate co-founder – a die hard, never give up, ‘I’ll do it if it kills me’ passionate gutsy entreprenuer with grit who entertains no option but to make things happen, and who can handle a lot of stress? Investors believe in betting on the horse, and not always on the race.
Incubators usually take a % of your games company and will also focus your attention towards the VC route. But less than 1 percent of U.S. companies have raised capital from VCs, and the VC industry is contracting. Here are 65 questions VCs might ask you.
Have you got a sore head yet?
There are app business and there are app businesses with SERIOUS BILLION DOLLAR POTENTIAL.
Right from the beginning one of the most important things you need to do for your games startup is to figure out what category you fall into.
One of the worst mistakes you can make – for your time, your business, your money and your health, is to chase the VA dream or incubator lifestyle with a startup that has no chance of success.
LIFESTYLE BUSINESS Vs HIGH POTENTIAL STARTUP
A lifestyle business is generally a business with a turnover of approx. $100,000 to $500,000 per annum. Depending on your costs, your take home pay can be far higher that the average salary in most countries.
A lifestyle business is the startup equivalent of the instant gratification.
You sell something people want (apps or games in this case), profitably (with mobile ads or IAPs) and you try to start earn money as soon as you can. It’s lean startup 101. Get the first few paying customers on the app store, learn what they want and make your product better. Hustle, and focus on satisfying the people who are going to make your company profitable – your customers. You’re the boss. You have complete freedom to do as you wish – sink or swim.
Many of my friends are lifestyle app business owners, growing six figure businesses, and are on track or have already hit seven figure turnovers.
All are bootstrapped, and all worked really hard to understand their customers and the market demand, without a term sheet in sight.
You can bootstrap your games business and grow organically – slowly or quite quickly, that’s up to you. But self funded businesses don’t have to stay small…
Laura Roeder’s Social Media Marketing business turns over millions each year teaching people how to use facebook and twitter.
Github is used by nearly a million people to store over two million code repositories. Founded in 2008, Chris Wanstrath, PJ Hyett, and Tom Preston-Werner started Github as a bootstrapped weekend project. Instead of
WooThemes sells premium wordpress themes. In 2008 Adii Pienaar, Mark Forrester, and Magnus Jepson founded WooThemes. With sales starting nearly immediately, money from their customers meant they could leave their jobs and focus on WooThemes fulltime. “We’ve been making money from the very first minute we released our first themes, which means that we didn’t need to pay back loans or really invest in any infrastructure when we started out,” said Pienaar. WooThemes has over 40,000 users and more than 1.8 million downloads, generating over $2 million in revenue. Co-founder Pienaar gives this advice for hopeful startups; stick it out and bootstrap for as long as you can, seeking outside funding should be kept as a last resort.
Sara Blakely, inventor of Spanx, invested her life-savings of $5,000 to create “body shaping” undergarments and bodysuit shapewear – intended to give the wearer a slim and shapely appearance. She came up with the name, designed the logo on a friends computer and taught herself how to file a trademark to save on lawyers fees. The Spanx company and brand are now valued at more than $1 billion and Sarah owns 100%.
Not chasing VC money and not taking part in incubators, can be the best thing you can do if your business is not one of these rare hyper-potential startups.
1. Having no money is a bonus. It means you have less money to lose. It also will force you to innovate, keep your costs really low, hustle, and get your hands dirty and educate yourself on how to do some of the tasks required in your business.
2. You have 4.5* times more time. You can spend 18 hours every day – if you want – working on figuring out how your startup can earn more money. If you are chasing VC money, you’ll probably be spending 18 hours trying to put together pitches, proposals, networking, doing business plans, etc. None of these things will earn you a penny from your potential customers. Time is money.
3. You will have a profitable business much sooner. Having money in the bank and knowing your bills will be pay on time gives you peace of mind that nothing can buy. VC backed startups are different – and are usually focused on one large payout at the end when the business is sold, which may be years later. VCs want you to grow your company aggressively, and then exit for big bucks when the time is right. Monitisting what customers you have today is not the top priority.
4. You do stuff instead of talking about stuff. Business plans are mostly bullsh*t. Last time I checked no one could predict the future.
5. Don’t give away your equity. 100% of a lifestyle business is much better than 20% of a soon to be doomed, VC backed, team mutunity, co-founder battling, sleep deprived, sold my soul company you hate and can’t escape from due to the amount of debt you owe.
6. The VC industry is also under going huge change at this time. With the advent of public fundraising the whole industry is going to get a lot of favorable for the startups in the next few months. Think what happened when amazon launched the Kindle and book authors were able to publish ebooks without having a literary agent.
How can you grow your app business to lifestyle business level and beyond WITHOUT incubators, Angels & VCs?
1. Learn from people who are already successful. This is the fastest way to get a truly valuable education.
2. Make use of the existing free tools and app related companies who exist to support your business.
3. Start small and release a handful of small reskins to start to learn the whole process.
4. Work on putting together a great team. Hire slowly with the Haystack Method. if they don’t perform well, fire them so fast it makes you dizzy.
5. Study your market. Live and breath the app store, find patterns in popular apps and figure out why certain apps are successful.
6. Realise whats really important in the app business – cashflow, app theme choice, ASO, a killer team, often outsourced, market research, monitization methods, killer icons and screenshots and app store keyword research.
7. Make money from your customers as soon as possible. Aim to ship your first app in a week (like I did) and to start earning money in 2 weeks, (allowing for the app review cycle).
8. Never give up.