Just like in college, graduates of incubators are sent off to go conquer the world… with the dream of a multi-million dollar exit and dollar signs in their eyes. We often hear of the successful entrepreneurs and start-ups, such as Mark Zuckerberg and Instagram, the lucky (and deserving) 1%. But what about the remaining 99%? In life out of the incubator or accelerator bubble, why do most of these bright start-ups fail? What is the missing ingredient?
There is a reason why Y Combinator, TechStars, SeedCamp, Start-up Lab and others have gained traction for the pre-seed round. Incubators and accelerators have provided a tremendous boost to the start-up ecosystem, but the arena also requires another medium to step in for those accelerator graduates – one that helps them scale, go global, and gain critical traction to attract market interest and investment. They require help to clarify their business proposition, evaluate their value, and identify key partners. It’s a critical juncture in the United States, but perhaps even more so where the investment and market ecosystems require an understanding of the language of investors from multiple geographies worldwide.
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Often we forget that some of the greatest innovations began outside the United States. As Ben Rooney of the Wall Street Journal reminded us in a recent article, Skype originated with some engineers in Estonia. But not all are destined to be acquired for billions by eBay, Facebook, Amazon or Microsoft. There are innovations waiting to be discovered and financed with the promise of improving lives and generating profits. The missing link is finding the right channel and investment partner.
For the entrepreneurs who are in Israel, Turkey, Europe (CEE or Western), New Zealand, Singapore, and other markets: understand your limitations. Whether you’re a serial entrepreneur or corporate executive turned entrepreneur for the first time, your primary focus should be to build your business, recruit talent, and be the visionary and head executioner. Recruit advisors to help you on the other issues – from helping to identify target investors, strategic partners or matchmakers with the right kind of rolodex.
The following are some tips based on common misperceptions or mistakes start-ups make post incubator stage.
1. Beyond Silicon Valley investors
While the Sand Hill Road’s ‘usual suspects’ in Palo Alto and New York City are top notch, so are many in London, Berlin, and Moscow. Branch out to other regions of the world. Many fail because they only try going in the front door, so try the back door.
2. The copycat trap
In Turkey alone there are 200+ Groupon-like companies. Only one or two, if that, will succeed. While imitation may be the sincerest form of flattery, in the start-up ecosystem, it’s not enough. There’s room for many similar types of products but the key between the successful and the forgotten is differentiation, their team and their business model.
3. Crowdfunding (trend or hype)?
Yes, there is definite appeal in going far and wide and increasing accessibility to secure investment from hundreds of individuals. Do so carefully and cautiously. Crowdfunding shows great promise yet has been untested as companies grow and seek new rounds of capital or exits. Targeting sites which claim thousands of investors may not offer the custom fit required to take your company to the next level.
4. Break even or accelerate growth?
Think big. If you believe in your business, deliver value via accelerating growth and a sound business model – not break even. Too often we see companies in Israel, Turkey, and Romania focused on a small investment round to ‘get over the hump’ or as a ‘bridge’ loan before the ‘real A round’. This is where foreign start-ups can take a page from their American peers.
5. Keep your feet on the ground
While considering point #4, don’t price yourself out of the ballpark. Valuations that are unreasonable with no room to maneuver are a dead end and lead nowhere due to the entrepreneurs’ belief they’re the next Instagram. The reality is that most start-ups will not be which does not mean that success should only be measured at $1 billion. As Alan Patricof has often said, most companies will exit at sub-$100 million so adjust your expectations accordingly. Just like in life, investment is not black or white.
6. Make your mark in new markets
Speaking as a born and bred American, the US is not the only market to initially conquer. Many start-ups would do better to first concentrate on European or Asian consumers. Lenovo for instance is urging many start-ups to focus ‘East, and with good reason.
Image Credit: Dave Clark