Incubator Secrets: If Walls Could Talk at TechStars
Ever wish you could listen in on the advice top startup mentors give to company founders?
We did. So we visited the Demo Day presentations for the fall graduating class of startups in business accelerator TechStars’s Seattle program and asked the successful entrepreneurs who serve as TechStars mentors for their insights on how to build a startup that attracts investor funding.
Here is advice from four TechStars mentors, in their own words.
1. Think through how you'll find customers -- Rand Fishkin, co-founder of search-engine optimization software company SEOmoz.
I give a lot of advice around building scalable customer acquisition channels. A lot of startups have a great vision, an exciting idea around a product, and a good team, but there’s a mentality of: "As soon as people see this, and TechCrunch writes about it, it’ll go viral and be disseminated automatically, like Google and Facebook. Because this product is so good, how could consumers say 'no' to it?" But Google is a weird outlier, and that’s not how Facebook grew. They had a very smart, savvy marketing team.
So, be focused on SEO. If you’re in a business-to-business [niche], have at least some recognition that you need to do a job of selling -- and that it’s hard to build up sales-and-marketing capacity.
2. Tell your customers' story -- Brad Bouse, former user-experience director at genealogy website Geni (parent company Yammer sold for $1.2 billion to Microsoft in June).
It’s about finding product-market fit, and then figuring out how to talk about it. We’re devotees of the Lean Canvas [one-page business plan] that gets founders going out and talking to customers.
All the TechStars companies served customers that are [different from] the investors they’re pitching. If that’s you, then you need to find a way to connect those customers to your investor audience. Explain why users need [your product or service], and then investors can extrapolate why customers would pay for it. Every TechStars team was finding a customer and telling a story through that customer’s eyes.
3. Update mentors regularly on your progress and how they can help -- T.A. McCann, founder of social-media service Gist, which sold to Research In Motion in 2011 for an undisclosed sum, and now RIM's vice president of product strategy.
Mentors want to be managed. The best mentors out there are very busy. We’re well connected, have full-time jobs, we’re practicing being an entrepreneur. . . and you need to send us updates. Monthly at worst, biweekly is my suggested timeframe.
You need to provide regular updates that provide me with some level of context on what you did and what you’re trying to do. And be specific on where you need help.
Then I can quickly see if I can do that. "I need an introduction to Paul Allen," for example. I can do that, especially if you’ve provided me with a context on why.
Also, good mentors are connected. Find and follow them and the people they follow, and connect with them on Twitter.
4. Avoid a 50-50 equity split -- Dan Shapiro, angel investor and mentor who sold electronics-ecommerce site Sparkbuy to Google, and now chief executive of Google subsidiary Google Comparison.
Have the hard discussions and see if you can solve them, especially around equity stakes [for the founders]. The only wrong answer: There is a 50-50 split. I just heard from yet another company that’s on the brink of destruction because they divided 50-50, and now the founders can’t get along.
That 50-50 split is a way to avoid a really painful and difficult discussion, but [later] you get that "Oh no, mom and dad are fighting" culture, and the team is going "What are we here for?"
Then, handle vesting of equity. It should be proportional to the time the founders spend. That protects you from a founder walking off with half the pie. Then a big chunk of value has already left, new partners are demotivated, and investors don’t want to touch it.