We all know good-paying jobs are important to our economy, both locally and nationally.
Our legislative and congressional policymakers spend a good deal of time debating job creation policy. Each city in the Treasure Valley has an individual assigned to economic development. Our chambers of commerce work to improve the economy for our local companies.
But sometimes I fear all this effort, while well-intentioned, is under-informed on how jobs actually get created.
About 30 years ago, Professor David Birch of the Massachusetts Institute of Technology published groundbreaking research showing that about two-thirds of all net new jobs (jobs created minus jobs lost) between 1969 and 1976 were created by firms with 20 or fewer employees (David Birch, “Who Creates Jobs,” Public Interest, Fall 1981, pp. 3-14). This research led us to understand better the extremely important role of small business in the U.S. economy.
Now the Kauffman Foundation has published a surprising new study of job creation in the economy (Tim Kane, “The Importance of Startups in Job Creation and Job Destruction,” The Ewing Marion Kauffman Foundation, July 2010). Their research mined a new U.S. government dataset called the Business Dynamics Statistics, which includes age of company as well as employment data. Here’s what they found: “Startups aren’t everything when it comes to job growth. They’re the only thing.”
The data show that in all but seven years in the period from 1977 through 2005, existing firms on balance lost more jobs than they created.
Clearly employment didn’t drop in the other 22 years. So where did the job growth come from? It came from new companies.
How can this be? If you think about it, a startup by its very nature starts with zero jobs and with its first hire creates a job.
Over this 28-year period, startups created an average of 3 million jobs each year. But once started, some firms add jobs, others lose them. On balance, after the first year existing companies lose more jobs than they create. Of course, not all companies destroy more jobs than they create, but when summed together, existing firms stop growing, may lay off workers or even go out of business.
This has several public policy implications. Of course we should not ignore our existing businesses. Helping them grow is important. But I am intrigued about what we can do to encourage entrepreneurs to start businesses in our Valley. Here are several thoughts.
INVEST FINANCIAL RESOURCES
We should consider investing some of our economic development resources into support for entrepreneurs. Recruiting a company to come to the Valley may lead to good headlines, but may not lead over the long run to job growth. Some states have used tax policy, such as tax credits, for investing in new businesses to encourage capital.
FOSTER RESEARCH AND SUPPORT
Incubators, when combined with support such as that provided by the Boise State University TECenter in Nampa, can provide nurturing support for entrepreneurs.
Funding research programs in our universities produces new knowledge that can become the basis for a new business.
And joint public/private partnerships such as The Core in Meridian may provide a seed bed that will attract entrepreneurs and capital.
Kevin Learned is a counselor at the Idaho Small Business Development Committee, a member of the Boise Angel Fund and the finance committee of the Idaho Technology Council. Contact him at kevinlearned@boisestate.edu.
Monday, June 20, 2011
Wednesday, June 1, 2011
How To Make an Effective Investment Presentation
Special to the Idaho Statesman
Published: 05/04/11
In my last article I wrote about getting the interest of investors by clearly stating the problem your product or service addresses. So if investors say they are interested in learning more, then what?
Typically the next step is an investment presentation, or pitch.
Your pitch is a sales presentation. You are selling your belief that you can execute a business plan that will make the investors money. Of the 60 entrepreneurs who made pitches to the Boise Angel Fund over the past four years, only 25 moved to the next step. More than half didn’t inspire the confidence of investors. Here’s some of what I’ve learned from listening to all 60 pitches:
BE PREPARED
I have been surprised how many entrepreneurs treat this step casually and come underprepared. They stumble through their pitches, they read their PowerPoint slides and they make a disjointed presentation.
BE SUCCINCT
Typically the time allocated to the pitch is short, perhaps 15 minutes or less. Funding Universe of Salt Lake (in which local VC Highway 12 Ventures invested) gives entrepreneurs only four minutes.
You’ve got to get directly to the point of the business proposition quickly. Guy Kawasaki, in his excellent book “The Art of the Start,” says, “I’ve never heard a pitch that was too short … a good one will motivate listeners to ask questions that extend it.”
AVOID THE LIFE STORY
One angel said, “Never have I sat in a pitch wishing the entrepreneur had told me more about his life.” Yes, of course you should be passionate about your business. But get to the point. The investors don’t need to know much about how you came up with your idea, just what it is and what problem it solves.
LESS POWERPOINT
The point of your presentation is not to demonstrate your prowess with PowerPoint. While slides may be helpful in reinforcing your points, the investors are primarily interested in your ability to explain your proposition. If you are going to use slides, avoid distracting dissolving and flying transitions. Put a maximum of three points on a slide. Remember that slides are best used to present bullets, not long dissertations.
DEVOTE ONE SLIDE TO YOUR PRODUCT
Investors want to know first about the problem you are solving — what it is and how big it is.
After you have convinced them that such a problem exists, you can tell them briefly how or why your product or service addresses this problem.
HOW WILL YOU REACH THE MARKET?
Once you have addressed the problem and your product, the next question will be, “How will you get a customer?” Entrepreneurs frequently believe that if they make the product, the market will somehow miraculously come.
The investors know better. You must convince the investors that you have a reasonable plan to distribute your product or service and the cost of going to the market (advertising, sales personnel, distributors, etc.) will be low enough that the business will be profitable.
The entrepreneur who makes a concise and thoughtful pitch that addresses the magnitude of the problem being solved, how his or her product solves the problem and how the product will be taken to the market, will have potential investors saying, “That’s interesting. Tell me more.”
Kevin Learned is a counselor at the Idaho Small Business Development Center, a member of the Boise Angel Fund and the finance committee of the Idaho Technology Council. You can reach him by email to kevinlearned@boisestate.edu.
Published: 05/04/11
In my last article I wrote about getting the interest of investors by clearly stating the problem your product or service addresses. So if investors say they are interested in learning more, then what?
Typically the next step is an investment presentation, or pitch.
Your pitch is a sales presentation. You are selling your belief that you can execute a business plan that will make the investors money. Of the 60 entrepreneurs who made pitches to the Boise Angel Fund over the past four years, only 25 moved to the next step. More than half didn’t inspire the confidence of investors. Here’s some of what I’ve learned from listening to all 60 pitches:
BE PREPARED
I have been surprised how many entrepreneurs treat this step casually and come underprepared. They stumble through their pitches, they read their PowerPoint slides and they make a disjointed presentation.
BE SUCCINCT
Typically the time allocated to the pitch is short, perhaps 15 minutes or less. Funding Universe of Salt Lake (in which local VC Highway 12 Ventures invested) gives entrepreneurs only four minutes.
You’ve got to get directly to the point of the business proposition quickly. Guy Kawasaki, in his excellent book “The Art of the Start,” says, “I’ve never heard a pitch that was too short … a good one will motivate listeners to ask questions that extend it.”
AVOID THE LIFE STORY
One angel said, “Never have I sat in a pitch wishing the entrepreneur had told me more about his life.” Yes, of course you should be passionate about your business. But get to the point. The investors don’t need to know much about how you came up with your idea, just what it is and what problem it solves.
LESS POWERPOINT
The point of your presentation is not to demonstrate your prowess with PowerPoint. While slides may be helpful in reinforcing your points, the investors are primarily interested in your ability to explain your proposition. If you are going to use slides, avoid distracting dissolving and flying transitions. Put a maximum of three points on a slide. Remember that slides are best used to present bullets, not long dissertations.
DEVOTE ONE SLIDE TO YOUR PRODUCT
Investors want to know first about the problem you are solving — what it is and how big it is.
After you have convinced them that such a problem exists, you can tell them briefly how or why your product or service addresses this problem.
HOW WILL YOU REACH THE MARKET?
Once you have addressed the problem and your product, the next question will be, “How will you get a customer?” Entrepreneurs frequently believe that if they make the product, the market will somehow miraculously come.
The investors know better. You must convince the investors that you have a reasonable plan to distribute your product or service and the cost of going to the market (advertising, sales personnel, distributors, etc.) will be low enough that the business will be profitable.
The entrepreneur who makes a concise and thoughtful pitch that addresses the magnitude of the problem being solved, how his or her product solves the problem and how the product will be taken to the market, will have potential investors saying, “That’s interesting. Tell me more.”
Kevin Learned is a counselor at the Idaho Small Business Development Center, a member of the Boise Angel Fund and the finance committee of the Idaho Technology Council. You can reach him by email to kevinlearned@boisestate.edu.
Thursday, May 26, 2011
Investors want to hear about problem first, product later
Investors want to hear about problem first, product later
By Kevin Learned - Special to the Idaho Statesman
Published: 04/20/11
The Boise Angel Fund was formed four years ago. It makes equity investments in early stage Idaho companies. Since formation, the fund has considered applications from 199 companies; it has made 10 investments. Why so few? Clearly, most entrepreneurs don’t understand what the angels are seeking.
Entrepreneurs are always proud of their product or service. They frequently begin with how terrific it is. But angels and other sophisticated investors aren’t very interested in the product or service, at least not at the beginning of the conversation. Rather they want to know what problem or opportunity exists in the marketplace.
In its section on pitching an investment idea, the website for the Boise Angel Fund (www.boiseangelfund.com) says: “Our experience is that most entrepreneurs devote too much time describing the product or service and not enough time describing the opportunity. By ‘opportunity’ we mean we are more interested in the problem the customer has and how important it is for the customer to solve this problem.”
First you have to convince investors that you have identified a problem of significant financial magnitude. After you have established this with the potential investors, then they will be interested in how your product or service speaks to that problem.
Here are two examples of Idaho companies that have raised capital from sophisticated angel investors in the past several years and the problems their products attack.
Inovus Solar (http://www.inovussolar.com/) recognized that there are millions of streetlights in the United States drawing energy from the electrical grid. Energy is costly and in short supply. Each streetlight stands in sunlight during daylight hours. Inovus recognized that a streetlight could generate its own power by converting the solar energy hitting it during the day into electricity that the pole can use at night. The company now produces and markets a line of solar light poles.
Prosperity Organic Foods: Hailey entrepreneur and scientist Cygnia Rapp suffered from digestive health problems. Her problems caused her to study the spread (e.g., butter and margarine) category.
She learned the U.S. market for butter and substitutes is $3 billion a year and that most butter substitutes are either unhealthy or targeted to address cholesterol concerns. She formed Prosperity Organic Foods Inc. (http://www.meltbutteryspread.com/) to develop and market healthy spreads, primarily to younger women. Prosperity’s Melt buttery spread is now sold in more than 600 supermarkets in the West.
What is common about these companies is that they each began with a problem — streetlights consume electricity, many spreads are formulated from unhealthy fats. They each assessed the magnitude of the problem and concluded that they could develop and market a product that would profitably solve it.
Both companies raised local capital to fund their journey through the Valley of Death, that period of time in every new company’s life when cash goes out the door faster than it comes in.
A successful request for investment capital begins with the question: What is the problem in the marketplace, and how big a problem is it? Answer this question and you are well down the road to developing a business plan investors will find compelling.
Kevin Learned is a counselor at the Idaho Small Business Development Center, and a member of the Boise Angel Fund and the finance committee of the Idaho Technology Council. He is a shareholder in both Inovus Solar and Prosperity Organic Foods. Contact him at kevinlearned@boisestate.edu.
Read more: http://www.idahostatesman.com/2011/04/20/1616119/investors-want-to-hear-about-problem.html#ixzz1MXI42nTp
By Kevin Learned - Special to the Idaho Statesman
Published: 04/20/11
The Boise Angel Fund was formed four years ago. It makes equity investments in early stage Idaho companies. Since formation, the fund has considered applications from 199 companies; it has made 10 investments. Why so few? Clearly, most entrepreneurs don’t understand what the angels are seeking.
Entrepreneurs are always proud of their product or service. They frequently begin with how terrific it is. But angels and other sophisticated investors aren’t very interested in the product or service, at least not at the beginning of the conversation. Rather they want to know what problem or opportunity exists in the marketplace.
In its section on pitching an investment idea, the website for the Boise Angel Fund (www.boiseangelfund.com) says: “Our experience is that most entrepreneurs devote too much time describing the product or service and not enough time describing the opportunity. By ‘opportunity’ we mean we are more interested in the problem the customer has and how important it is for the customer to solve this problem.”
First you have to convince investors that you have identified a problem of significant financial magnitude. After you have established this with the potential investors, then they will be interested in how your product or service speaks to that problem.
Here are two examples of Idaho companies that have raised capital from sophisticated angel investors in the past several years and the problems their products attack.
Inovus Solar (http://www.inovussolar.com/) recognized that there are millions of streetlights in the United States drawing energy from the electrical grid. Energy is costly and in short supply. Each streetlight stands in sunlight during daylight hours. Inovus recognized that a streetlight could generate its own power by converting the solar energy hitting it during the day into electricity that the pole can use at night. The company now produces and markets a line of solar light poles.
Prosperity Organic Foods: Hailey entrepreneur and scientist Cygnia Rapp suffered from digestive health problems. Her problems caused her to study the spread (e.g., butter and margarine) category.
She learned the U.S. market for butter and substitutes is $3 billion a year and that most butter substitutes are either unhealthy or targeted to address cholesterol concerns. She formed Prosperity Organic Foods Inc. (http://www.meltbutteryspread.com/) to develop and market healthy spreads, primarily to younger women. Prosperity’s Melt buttery spread is now sold in more than 600 supermarkets in the West.
What is common about these companies is that they each began with a problem — streetlights consume electricity, many spreads are formulated from unhealthy fats. They each assessed the magnitude of the problem and concluded that they could develop and market a product that would profitably solve it.
Both companies raised local capital to fund their journey through the Valley of Death, that period of time in every new company’s life when cash goes out the door faster than it comes in.
A successful request for investment capital begins with the question: What is the problem in the marketplace, and how big a problem is it? Answer this question and you are well down the road to developing a business plan investors will find compelling.
Kevin Learned is a counselor at the Idaho Small Business Development Center, and a member of the Boise Angel Fund and the finance committee of the Idaho Technology Council. He is a shareholder in both Inovus Solar and Prosperity Organic Foods. Contact him at kevinlearned@boisestate.edu.
Read more: http://www.idahostatesman.com/2011/04/20/1616119/investors-want-to-hear-about-problem.html#ixzz1MXI42nTp
Monday, May 16, 2011
Four sources of investment capital for early-stage businesses
By Kevin Learned - Special to the Idaho Statesman
Published: 04/06/11
All businesses pass through a period when the business is spending more cash than is coming in. We call this time the Valley of Death, because if the business doesn’t reach a point where more cash is coming in than is being spent, it will die.
A common misconception is that banks will lend money to cover the shortfall. This is not the role of banks. They finance only businesses with a history of profitable operations. Early-stage businesses must look to other sources, typically equity capital.
Equity capital is risk capital. If the business does not succeed, the capital will likely be lost. If the business succeeds, the capital will earn a share of the profits.
Generally, there are four sources of equity capital, listed here by ease of access:
1. FOUNDER’S SAVINGS. This is the cheapest capital a business can have. It comes without having to share interest in the business. Frequently, no one else will accept the risk, so it may be the only capital available. And any other investor will reasonably expect that the founder has invested his or her savings. If the founder doesn’t have the confidence to commit savings, then why should a nonfounder accept this risk?
2. FAMILY AND FRIENDS. Family and friends invest because they have confidence in the founder. Often they are not experienced business people, and typically they will not do hard economic analyses. Family-and-friends capital is a mixed blessing. It may be relatively easy to raise, but in my experience, there is no pressure like that of knowing your family or friends will lose their money if you don’t succeed.
3. ANGELS. Angels are high-net-worth individuals who invest a portion of their own capital into businesses. They typically invest not just to make money, but because they like to help entrepreneurs. They will do economic analyses and will negotiate terms of their investments. They will invest only in opportunities they believe have an excellent chance of success. The Keiretsu Forum and the Boise Angel Fund are angel groups that accept applications from Idaho companies.
4. PROFESSIONAL CAPITAL. Often referred to as “venture capital,” this money is invested by professionals who make their living by investing in early-stage businesses. Typically, but not always, venture capitalists invest later in the business cycle than the above three types do. Highway 12 Ventures is a Boise venture-capital firm that accepts applications from Idaho businesses.
Raising equity capital is tough for a new business. Successful fundraising requires planning and perseverance. The entrepreneur must have identified a business problem for which there is no optimal solution, must have a product or service that can profitably solve the problem, must have a viable plan to get the product to the market, must persuade investors that he or she can execute the plan, and must present a deal to the potential investors that will allow them to make a profit in line with the risk they assume.
Kevin Learned is a counselor at the Idaho Small Business Development Center, a member of the Boise Angel Fund and a member of the Finance Committee of the Idaho Technology Council.
kevinlearned@boisestate.edu
Read more: http://www.idahostatesman.com/2011/04/06/1594008/4-sources-of-investment-capital.html#ixzz1MXIyvHX1
Published: 04/06/11
All businesses pass through a period when the business is spending more cash than is coming in. We call this time the Valley of Death, because if the business doesn’t reach a point where more cash is coming in than is being spent, it will die.
A common misconception is that banks will lend money to cover the shortfall. This is not the role of banks. They finance only businesses with a history of profitable operations. Early-stage businesses must look to other sources, typically equity capital.
Equity capital is risk capital. If the business does not succeed, the capital will likely be lost. If the business succeeds, the capital will earn a share of the profits.
Generally, there are four sources of equity capital, listed here by ease of access:
1. FOUNDER’S SAVINGS. This is the cheapest capital a business can have. It comes without having to share interest in the business. Frequently, no one else will accept the risk, so it may be the only capital available. And any other investor will reasonably expect that the founder has invested his or her savings. If the founder doesn’t have the confidence to commit savings, then why should a nonfounder accept this risk?
2. FAMILY AND FRIENDS. Family and friends invest because they have confidence in the founder. Often they are not experienced business people, and typically they will not do hard economic analyses. Family-and-friends capital is a mixed blessing. It may be relatively easy to raise, but in my experience, there is no pressure like that of knowing your family or friends will lose their money if you don’t succeed.
3. ANGELS. Angels are high-net-worth individuals who invest a portion of their own capital into businesses. They typically invest not just to make money, but because they like to help entrepreneurs. They will do economic analyses and will negotiate terms of their investments. They will invest only in opportunities they believe have an excellent chance of success. The Keiretsu Forum and the Boise Angel Fund are angel groups that accept applications from Idaho companies.
4. PROFESSIONAL CAPITAL. Often referred to as “venture capital,” this money is invested by professionals who make their living by investing in early-stage businesses. Typically, but not always, venture capitalists invest later in the business cycle than the above three types do. Highway 12 Ventures is a Boise venture-capital firm that accepts applications from Idaho businesses.
Raising equity capital is tough for a new business. Successful fundraising requires planning and perseverance. The entrepreneur must have identified a business problem for which there is no optimal solution, must have a product or service that can profitably solve the problem, must have a viable plan to get the product to the market, must persuade investors that he or she can execute the plan, and must present a deal to the potential investors that will allow them to make a profit in line with the risk they assume.
Kevin Learned is a counselor at the Idaho Small Business Development Center, a member of the Boise Angel Fund and a member of the Finance Committee of the Idaho Technology Council.
kevinlearned@boisestate.edu
Read more: http://www.idahostatesman.com/2011/04/06/1594008/4-sources-of-investment-capital.html#ixzz1MXIyvHX1
Information for Entrepreneurs Seeking Angel Capital and for Angels Wanting to Invest in Entrepreneurs
I am a counselor at the Idaho Small Business Development Center and the Administrator of the Boise Angel Fund. In these two capacities I often am asked questions by both entrepreneurs seeking angel capital and by potential angels thinking of investing in an early stage business.
To address both of these, I write a column every other week in the Idaho Statesman's Business Insider magazine. Because you must have a paid subscription to the magazine to read the articles, I am going to reproduce them here after they are published in the hope that they might be helpful to both entrepreneurs and angels.
I hope you find them helpful and informative.
To address both of these, I write a column every other week in the Idaho Statesman's Business Insider magazine. Because you must have a paid subscription to the magazine to read the articles, I am going to reproduce them here after they are published in the hope that they might be helpful to both entrepreneurs and angels.
I hope you find them helpful and informative.
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