What is a startup? Esther Gons from the Dutch Startup Studio NEXT.Amsterdam wondered how easily Austrians use the term “startup” for every kind of new business. In this guest article, she explains how NEXT.amsterdam defines a startup and why it is important to use this term precisely.

Startups are everywhere, they are disrupting, new, fast and moving quickly. Rapid technological development and digitalisation have changed the world we operate in. ‘The global reset’ I often call it. Tech startups have seized the opportunity due to lower barriers to entry and started to look for ways to help people in this new world. Changing the business models of long existing companies along with it. Both corporates and investors have taken an interest in this development and are looking for ways to profit from it.

What is a Startup?

As a seasoned startup mentor and investor, who is also helping corporates with innovation within their company, I have seen all sides of the coin. With the sudden interest in startups and innovation, the core importance of why the term startup is there in the first place is often overlooked. When I ask people: “Do you know what a startup is?” – the answers vary from ‘a young business’, ‘a business under 5 years old’ to ‘a business that does tech’ or is ‘doing something new’. Now, when Steve Blank first wrote about startups he described it as follows:

A startup is a temporary organisation designed to search for a repeatable and scalable business model.

Although both repeatable and scalable are important elements of this definition, the most important part here is the word search.

Business Model

Startups are actively searching for a business model that works. Everything they do is focused on that specific goal. This precisely is why they are different from a starting business, even if that business includes software. A starting business, say a new hair salon, has a proven business model. This means that you have to invest in execution on that proven model in order to grow profits. In the lean startup methodology, there is a clear distinction between the search phase and the scale phase. Only when a startup has found a business model that it has proven to work, the startup is ready to scale. The uncertainty in the searching phase is also the reason why the lean startup methodology came into being in the first place.

The first step

While startups are searching, and starting businesses are getting ready to execute on scaling, corporates are very effectively executing on their core business. They have taken scaling and optimized on this. All of their core mechanics and processes are optimized on executing towards growth. So much so that it is not always obvious anymore. For such a company it is much harder to do innovation from within. What do you do with a new product that has been invented outside if all you have to judge is success by its ROI? How do you keep track of a new innovation if you ask them to predict the next 5 years in a business plan? A startup cannot come up with these predictions since it doesn’t really know yet. How to accommodate searching with all of the existing execute governance? The first step towards being able to innovate is to understand this difference between searching and executing. Because the biggest risk of failure for startups in a corporate environment is premature scaling.

Difference

As an investor or a corporate innovator investing in new projects, it is important to realize that this difference in mechanics will also need a different approach and a different process of reviewing progress. Understanding the difference between a startup and a starting business is an important one. It will help both the portfolio and the way you can add value to a startup. Searching requires a rhythm of creating, testing and learning. It needs to invest in proving their value to their customers. Before the startup has proven that it is ready to scale, there is no point in investing in marketing and sales or push for ROI. Investing in a startup before the scale phase needs a different approach and involves a much higher risk than investing when a startup has moved from the search to the scale phase and is thus ready to execute on growth.

Esther Gons is the co-author of the book The Corporate Startup; how established companies can build successful innovation ecosystems and founder of the startup studio NEXT.amsterdam. NEXT.Amsterdam invests in and supports startups by providing dedicated mentor teams and a structured framework in their search for a working business model. Additionally, she is an innovation strategist, visual changemaker, international speaker, and has 20 years of experience as an entrepreneur and helped over 100 startups so far.

How to make it on the Road to Dakar? Winning the race with a strong investors’ brand. In this blog series, we explore what it takes to get your investment tools in order by looking at the following four major areas: research, deal flow, portfolio management and network management.

There is some truth to the saying that “investing in early-stage tech is more of an art, than science”. However, just as the Paris-Dakar rally is not won purely based on enthusiasm and gut feeling, but rather the adequate handling of the right machine and equipment, early stage investors also need to be adequately equipped to perform. Funnily enough, we found out that although a majority of investors deal with innovation and technologies every day, they stick to excel spreadsheets, word documents, as well as paper and pencil for their own work. “The blacksmith’s horse has no horseshoes” is resounding in our day and age as well. To be fair, technology for this industry has only evolved a couple years ago and the adoption rate is rising. The need for a technology stack is not only directly correlated to the rising complexity of the business, it is particularly necessary to track one’s investments effectively as well as providing resource efficiency. Investors have to balance their fix costs as they have a direct negative impact on the IRR. Whether you are mostly looking for a deal flow at the very beginning, or just started to improve your inner processes, or find yourself in the need of a better way to track a large number of investments: you will have to choose if you stick to the old way or implement a digital technology stack for your early stage investment business. Ultimately, you want to choose the best machine if you want to get to Dakar.

First quest: what does my machine need to be able to do

To guide you through the windy and sandy maze on your route to Dakar, we have divided the technology stack into four major areas:

1. research,
2. deal flow,
3. portfolio management,
4. and network management (including business intelligence, monitoring and internal communication).

 Technology stack for Research

VCs provide research: a) to gather the important expertise b) to be known as an expert in the field and c) gathering inbound deal flow. Thus to make it onto the race track, the rally driver needs to prove his skill and practice.

Gathering Expertise

Just as the race driver needs to first train to become one, investors need to do their homework – this is a time investment which needs to be made. There are many useful tools providing valuable data and information to facilitate your research such as

• Product Hunt,
• AngelList,
• Crunchbase,
• EVCA

or paid services such as

• Pitchbook,
• CB Insights,
• Bureau van Dijk

which should be systemically followed in order to understand market dynamics, technology trends and current developments of valuations – as prices (multiples) will change in hype-cycles just like publicly traded companies. Apart from increasing the likelihood of successful investment strategy, venture investors need a deep understanding of markets, investor landscapes in a certain field and eventually deciding upon certain investment niches over others. The distribution of supply and demand of innovation across industries is critical to analyze in advance of a deal (as far as possible), as you will need to exit an investment down the road.

The pricing usually varies, depending on the functionalities and features a user prefers. Below is the table showing the comparison of free and pay services for some of the useful research platforms. See our table of software features.

Free databases like Crunchbase (in its basic version at least) and Product Hunt represent useful tools for general information, data mining and getting a quick overview of markets and competition. However, if your ambition is to dig deeper and generate high-quality information and real insights – including news and analysis, we recommend CB Insights, BvD and Pitchbook (make sure to verify if company data is 100% correct through a commercial registry, though). For the access to structured, official commercial register data on the global level we recommend Kompany.com.

As a company with a focal point oriented more towards European markets, our machine of choice is Pitchbook. The platform contains a better database of funding histories, valuation, series terms, information about the investors and startups and much, much more. The integration is well executed, as it enables exporting possibilities and integrates directly with other platforms, such as Salesforce and Microsoft Office Suite.

Be known as expert and gather inbound deal flow

A simple but effective way to strengthen your presence in the ecosystem is simply by publishing valuable insights through platforms like Medium for blogging, Quora for Q&A interaction and Slideshare for presentations. Your public presence will not only boost your reputation as a market professional, it will also help to gather inbound deal flow. The better your market reputation, the stronger you are as an investor, the higher the quality of deal flow and eventually your negotiation position will be when it comes to terms and valuation. If a large number of startups are addressing you as an investor, you will statistically have a better chance to select superior deals, but you need to know what you are looking for.

The platforms used for presentation of content (Medium and Slideshare) come in very practical packages, as the free versions offer a broad range of possibilities for raising awareness of your brand. For the purpose of sharing content, we consider Slideshares basic service more than enough. Depending on the preferences and subjective orientation, its Silver, Gold and Platinum subscription models offer upload benefits, monthly tracking of leads and geo-targeting, depending on the chosen model.

Conclusion

Research comes as a starting point, the first lap of your long and intensive race. It is also the point where you start assembling your powerful motorbike that should get you to the finish line before the other contestants. Be careful, power is not everything. The machine has to be balanced out according to your needs and adjusted to the conditions of the race. In the next lap, we will pay attention to the deal flow, the next critical piece of assembly you will need for your powerful drivetrain.

Some of the best practices from investors like Andreessen Horowitz or Sequoia that are using various platforms for their public presence could also be of use to you:

Blogs:

• The Internet Is Your Movement by Andreessen Horowitz
• Four Numbers That Explain Why Facebook Acquired WhatsApp by Sequoia on Tumblr)
• David Teten Blog

YouTube:

• Sequoia Capital’s Doug Leone on Luck & Taking Risks by Sequoia

The new book “Handbuch Crowdfunding und AltFG” (language: German) provides a comprehensive overview of the various systems of crowdfunding, the legal framework in Austria, especially taking into account the new act on alternative financing (Alternativfinanzierungsgesetz – AltFG).

The book is an ideal guide for entrepreneurs and legal advisors, as it explains when and what type of crowdfunding is promising and what minimum standards must be adhered to for the protection of investors. Furthermore the book provides information about the legal aspects of licensing, the operation of Internet platforms and mandatory contents of prospectuses. The authors: Bibiane Kaufmann works for the Austrian Financial Market Authority (Finanzmarktaufsicht – FMA), while Georg Seper and Christian Zenz are both deputy head of department in the Austrian Federal Ministry of Science, Research and Economy (BMWFW) and were instrumental in creation and elaboration of the AltFG.

Venionaire Managing Partner Berthold Baurek-Karlic contributed a chapter with practical examples of crowdfunding and investing. Combining alternative types of financing from equity to debt or equity mezzanine (venture debt) is an fairly underestimated art – structuring a deal right, may reduce funding costs and improve available capital for growth. If you want to learn more about this topic, please contact our experts.

Order your copy of the book now!