by: Valto Loikkanen
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The first risk to avoid is to be too dependent on one entrepreneur

Building a successful startup from an idea to successful launch and beyond is a mysterious process for many. There is so much information out there and it can be very difficult to obtain what is the right information for you.

First, it’s important to understand that depending on what type of company/business you are starting or launching, the process can be very different. Also we have intentionally left products, customers and other business related parts out of this process outline, to be able to focus on the other aspects of startup development.

In our Grow VC service, we are focusing on the type of ideas and companies that cannot normally use traditional funding solutions like business loans. The reason why these ideas don’t fit that type of funding is that the idea is so risky that there is no other reasonable option than to try it on the real market, and typically this kind of companies have no material assets to be a collateral. So, some sort of risk funding is needed.

When it’s risky to see if the idea will gain traction and momentum, the only logical thing to do from a risk funder’s point of view is to minimize all the other related risks involved, making sure that the idea will have the best possible chance of success.

This usually requires ensuring the team behind it is great, the timing for the idea is right, competition is manageable, and the most important item, “protecting the idea,” would be possible. However, the last one is becoming very difficult in today’s fast changing world and also less meaningful if the business can quickly gain critical mass (like a user base). It is also more and more difficult to patent and protect ideas and components in our “open source world.”

So based on these assumptions, we have outlined the process of building a startup that would have an optimum chance of success from the funding and growth point of view. And we are building our service by focusing on making this process as effective as possible, with the best outcome, when looking at the long term goal of international success.

Building the successful start-up

This process is the core of our Grow VC service development. This can be over simplified and there are many other factors as well. But I think it’s important for us to explain the main process that we at Grow VC focus on.

Many times the roles between your contacts, experts and funders are not that clear

  1. The first risk to avoid is to be too dependent on one entrepreneur where one would have such ownership that he or she alone could make all decisions. So the core structure / ownership will need to be built, so that also looking from a funders point of view, there is more than one committed entrepreneur. So at least a core team of two or three is advised (since a 50/50 split can be problematic as well). More than three depends on the business model, roles, ownership %, etc.
  2. Other team members. The next step is getting various other contacts committed to support and offer expertise and funding when needed, without too much effort. These people can typically be friends, ex-colleagues, business contacts, family and other close contacts that you have built. They are the type of contacts that you know and they know you. So real trust is based on those relationships.
  3. Next you will need other outside experts that are not in your personal, inner circle. They are the ones bringing in the “outsiders viewpoint” and the contacts that would normally be out of your reach without a bigger effort. You must be able to convince enough of these types of people and get them involved with your start-up as well.
  4. When you have shown traction with external experts , and they are committed to help you by sharing their contacts and expertise and recommending you to others, your startup has reached a level where you are starting to look more appealing to funders. Of course, this is only looking at your startup structure and people involved with it. The value of the idea and the quality of your product must be competitive as well.

Many times the roles between your contacts, experts and funders are not that clear, i.e. in many cases your original founders may also be funders, experts can be funders, etc. But overall the type of structure you will have at the end should look something like the above.

In Grow VC we will have components that are linked to different kinds of funding models in this process, e.g. the different roles for founders, funders, and experts, and tools to manage the process in different stages. For all the other elements in this process that are important but not core for us, we are looking for partners to join us to provide various solutions, services and expertise.

Some of the roles for our partners are already well defined and some of them are more open or not yet defined. If you are interested in partnering with us, please contact us and let’s see how we can cooperate in order to make the experience even better for everyone.

What do you think? Let me know in the comments below, if you feel I have left out some crucial elements that should be added to this.

In future posts, I will go focus to each stage of this process in more detail.

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About the author

Valto Loikkanen Valto is a co-founder of Grow VC, an entrepreneur who has started several companies across Europe and the US in the web and mobile fields. Forward thinking and always seeking the next big web and mobile success, as an entrepreneur, investor and advisor. Follow Valto on Grow VC, Twitter, LinkedIn, Google+

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This entry was posted on Tuesday, July 21st, 2009 at 4:20 pm and is filed under Private investors, VC Capital. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.