Jason Baptiste


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How To Know Your Side Project Is Ready To Be A Startup

By Jason Baptiste on February 3, 2011

turn idea into startup resized 600The word startup seems to be used too loosely in this day and age. Some people think something built in a weekend or over the course of time on the side is a full fledged startup, when it is often just a side project. Building things is great, more people should do it and do it often. The problem is, most people either take the leap at the wrong time OR they don't take a leap at all, when the signs are there. I recently went through this process a few months ago myself on taking PadPressed, now Onswipe to a full time startup. Here are the 8 things that I realized, which are telltale signs that you might be ready to turn your project to a full time startup.

You’re Doing Something You Love

This is key not only early on, but for the long haul. I know it sounds cliche and you hear this from everyone, but it's one of the most true and consistent pieces of advice given out in the startup world. Startups are a marathon and even though you often hear about the good times, you will rarely hear about the difficult times. There are always more difficult times than good times. Any normal person would just give up, pack it up, and return to the real world. If you absolutely love what you do, then there is a higher motive there that will keep you going on. The work you do needs to transcend being "work" and become even more than that.

You’re Making Revenue

Getting somebody to give you their credit card and their hard earned cash is way harder than most think. For some companies it will happen easily, but for most, it just doesn't. If you start making revenue that can pay your most basic expenses, you're on the right path. The difference between zero dollars and one dollar is huge. If you have figured out how to bring your first dollar in, you might be ready to take things to the next level. If those dollars are rapidly growing, even more reason to continue onwards.

You Know The BIG Vision

This is key and often an awkward point for most aspiring entrepreneurs. It's a side project, two guys in an apartment, nights, weekends,etc., so how is it possible to imagine going from that to being a multi-billion dollar company? It just feels really weird thinking about that, right? DON'T LET IT. It's a point you can get to, but it will never happen if you don't start to formulate those thoughts. Zuck started FB at one college with one photo, but I bet you he knew exactly what it could become one day. Having a larger vision to aspire to will motivate you to accomplish something grand. It will make you feel as if you are taking on the world, which you often will be. Realize that it doesn't happen overnight, but it does happen to great companies. Here is the one question I ask all startups I meet that ask me for in-depth advice: "If you succeed to your fullest extent, how will the world be a different place in five years?"

Your Big Vision Does Not Have A Ceiling

The problem with big visions is that the excitement of this big vision can often cloud the ceiling that it may have. You have to be going after a vision in a large market that has a very high ceiling. You won't get 100% penetration or possibly anything near it, so the market has to be large enough that you can continue going forward. Niche businesses can be nice, but they often lead you down a path of boredom. You hit your peak, make your money, but soon realize there isn't much more left to be done. You do either of two things: get bored, quit, and give up OR you try a new riskier direction. The riskier direction option can work, but it means that your initial business wasn't large enough. Find the big vision within a large market that has a lot of untapped potential.

You Are Ready To Be Selfless

This is a lesson I've recently spent a lot of time thinking about. I think it's one that not enough people talk about and is the most important thing an entrepreneur can know before going full time on a startup. You have to be 100% selfless. It is no longer just about you. You are really last on the totem pole. You have responsibility to more than just yourself or another cofounder. It's such an important piece of the puzzle that it needs to be broken down into three further points below.

You Have A Responsibility To Employees

Everything you do has to have the well being and care for your employees in mind. Every decision you make will have a small impact on your life, but it will have a large impact across the lives of so many others. It might even be 5 people at first, but those 5 people have family members, kids, loved ones, and many more that depend upon them. If you make a selfish or poor decision, it will end up having an impact on a large chain of people. Expand from 5 to 50 then 500 and you are now responsible for the lives of many many people. One of the people working with us hard at Onswipe has a young kid. One night on Skype when we were announcing our plans to expand I saw their kid walk into the room. That moment forever changed my life. I realized I was now responsible for so many more people than myself. If I screw this up, it impacts so many other individuals.

You Have A Responsibility To Customers

Customers will depend on your service working in order to do business and some core functionality of what makes them tick. You need to realize that the decisions you make will have an impact on those customers and their customers. They have trusted a core piece of their business to you. The product decisions and pricing decisions often have an impact on companies. Your customers trust you to perform a function and you need to keep yourself healthy for the long haul.

You Have A Responsibility To Investors

Your investors have probably been pitched by hundreds of other entrepreneurs throughout the year. They chose you and maybe a select few others to go take on the world. You have a responsibility to do well by them. If they are angel investors, they have trusted you with the money they have earned through the same exact hard earned blood, sweat, and tears you are currently going through. If they are venture investors, their job is to pick the best of the best. They have to provide returns to their LPs and also risk their reputations on your company. Yes, many venture backed companies fail, but they will go in expecting the worst, but hope for the best.

Keep in mind, you don't need to hit all of these points. You may just be at the idea stage and be nowhere close to achieving anything listed above. That's okay as I wish I had these points when I started as an entrepreneur. The points in this essay were adapted from a talk I gave at Plusconf. I will be giving a more polished and refined version of this talk at Columbia University in New York City at 7 pm this Friday - Details: http://bit.ly/gLzVHK.

You Should Follow me on Twitter: http://www.twitter.com/jasonlbaptiste, Friend me on Facebook: http://www.facebook.com/jasonlbaptiste, Email Me: jbaptiste@onstartups.com, or even call: 201.305.0552

Slides From The Talk

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8 Reasons Why SV Angel/Yuri Milner Investing $150,000 In Every YCombinator Startup Is Brilliant

By Jason Baptiste on January 31, 2011

svangel yuri milner dst start fund ycombinator 150k resized 600

Disclosure: SVAngel is an investor in my startup, Onswipe, a platform for insanely easy tablet publishing.

There is a ton of fervor and talk over SV Angel/Yuri Milner investing 150k into every YCombinator startup going forward. The problem with all the fervor and talk, is the lack of analysis of why this does or doesn't make sense. The pundits tend to focus on the pageview factor of why this might be a bubble or something silly. Not only is this a brilliant move, but this is a great look into how one wins in angel+early stage investing. This article is purely looking at this move from an investment lens as I haven't fully had time to think about its impact on startups.

Very early stage investing is won on speed

The best investors move fast and get into the best deals by using their gut instinct. Due diligence is key, but as you will see below, social proof is often the way that an investment decision gets done. There's no logical way that you can fully de-risk a company at such an early stage. Instead, you need to go with your gut. That gut can usually judge people, the overall market trends, and the demo they've prepared well. SV Angel/Yuri Milner just got a first mover advantage on over 40 deals total, a good % of which will be hot deals in a couple of months.

Speed can happen with a simple test of social proof

Even though it is hard to fully de-risk an investment, there has to be some barrier to entry or criteria for making an investment at such a fast speed. Some factors include: a great product, a strong team, great traction, and a slew of others. The most important factor is one that YCombinator provided to SV Angel/Yuri Milner in this case: social proof. 1,000+ applicants applied to YCombinator and only a handful were accepted. Being accepted by YC is a good enough of a signaling point for SV Angel/Yuri Milner. The deal put forth by SV Angel/Yuri Milner is almost like a new type of loan in the form of convertible debt that converts to a more valuable currency of risk. With the SBA, other tests such as credit, revenue history, vendor history,etc. are used to give a business working capital. In the world of technology startups, those tests simply cannot be passed by the vast majority of good startups looking for early stage capital.

You invest in the smartest founders possible.

The angel investing game is all about investing in the smartest people possible. SVAngel/Yuri Milner did not even know the companies in this YC batch and their ideas. Many of those ideas will probably change, but the people won't. SVAngel/Yuri Milner did know that YC selects companies based upon people and can be certain that they are getting the top tier of founders.

They are letting the other investors do the heavy lifting on negotiating

Yuri Milner is renowned for investing large sums of money with very easy terms that do not even require taking a board seat. They do this not only to move at a faster pace to win deals, but also to let other investors do the heavy lifting. This strategy has now been adapted to the early stage investing game. Instead of taking the time to lead a round or set the terms for the round, they let the other parties at the table set the terms. At the time of this writing, 39 of the YC startups have already taken the deal from SV Angel/Yuri Milner. Many are also saying: "Other investors won't be able to match the terms of the deal since it is an uncapped note"... the thing is, they don't need to. The other investors can set whatever valuation they want and the 150k note will still convert. The clincher is, the economics will work themselves out. Odds are the range of valuations will be within reason that SV Angel/Yuri Milner would have invested anyway. The uncapped note just makes life a lot easier for them.

Angel investing requires a large portfolio to work well

Along with speed, angel investing requires a large number of investments in order to really work well. Ron knows this as he is one of the world's most prolific angel investor. The YC portfolio has done quite well from what we can see publicly according to pg. By making the blanket investment to YC, SV Angel/Yuri Milner has solved for the following problems will be using the fairly obvious success of YC as an almost guarantee that the investments will do well. Since they are investing at an early enough level, they are going to provide returns at a level nearly on par with YC, which has been a success.

At the impossible low end, this is just one huge finders fee to Yuri Milner

A YC company may eventually be a monster company on par with Groupon, Zynga, and Facebook, which Yuri Milner invests in. In the recent Groupon financing of $950 million there was a finders fee of $75 million. If Yuri Milner/SVAngel invests in 4 years of YC companies, that's 320 companies x 150k, for a total of: $48,000,000. Even if all of those investments failed (impossible), except for one that became a Groupon level Yuri Milner deal, that's still a smaller finders fee than the Groupon deal.

Most of these companies would have raised money anyway

In today's climate and the power behind programs like TechStars and YCombinator, most of these companies would have raised money anyway. It's just that now all of these companies are raising money from at least Yuri Milner/SVAngel and other funds that come in to lead the deal. This is almost the reverse of how investing is done. Normally entrepreneurs go out to seek the best investors possible, but in this case the investors have gone to seek out the best entrepreneurs possible.

The companies will do better as fundraising is now less of a time sink

Fundraising is a huge time sink, especially when you are only a team of 2 or 3. It slows down everything else and it's something you cannot avoid. Many companies will be able to make money, but to really conquer a high growth market, they will need a large amount of capital that they just could not make fast enough through revenue. It's either fundraise or die. With the 150k from SVAngel/Yuri Milner, the YC companies will now be able to concentrate more on the 3 month YC program and for at least another 3 months afterwards. That is a huge difference that has a big impact. The early stages of a startup are very important and being able to move faster and crank out a better product without the intense worry of immediately raising money has already increased the potential returns from the YC companies SVAngel/Yuri Milner just invested in.

I don't know what happens next from here. This is certainly a big move and has already had an impact on the startup landscape. Will others follow suit? I don't know.

You Should Follow me on Twitter:  http://www.twitter.com/jasonlbaptiste, Friend me on Facebook: http://www.facebook.com/jasonlbaptiste, Email Me: j@jasonlbaptiste.com, or even call: 201.305.0552

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