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Presentations

Question Everything; My Remarks At FOCUS100 2014

October 4, 2014 by Brian Laung Aoaeh

Startup Stock PhotosBackground: I gave these remarks at Digital Undivided’s FOCUS100 2014 Conference which was held between October 3rd and October 4th in New York City. A number of investors were invited to explain to the audience how they ought to pitch venture capitalists in order to win funding. Digital Undivided is a social enterprise that develops programs that increase the active participation of urban communities in technology. It has a particular focus on women. ((I have edited it by adding comments based on questions people at the conference asked me after I had spoken, mainly adding a little more context.))

I am not very good at listening to what other people tell me to do, so rather than outline what I think you should do in order to get funded by a venture capitalist, I thought I should instead share with you some of my beliefs about founders, and startups, and how I think about my responsibilities as an early stage investor. I hope in doing so you will question some of the assumptions you hold about how you should go about raising capital.

  1. The kind of founder that really excites me does not need a venture capitalist. She simply needs some capital to enable her build her vision and transform the world. My job is to give that founder sufficient reason to decide that she wants to undertake that journey with KEC Ventures as a companion.
  2. To get past the first meeting, a founder has to inspire confidence. She has to make me want to follow her over the edge of a cliff, or into a burning building. She has to make me feel I could trust her with my life because come hell or high water, she’s going to figure things out. She’s smart, hard working, can process an enormous amount of unfamiliar information and take action based on what she’s learned, she knows or can learn how to build and lead a team that’s going to do something ambitious. She might be an introvert, or an extrovert. She gets me to buy into her vision of how things should be, and how she will use technology to accomplish that. She wants to win, and she knows how to win. I do not believe in “pattern matching” in the way some well known investors have described it. I don’t pattern match people. That’s an intellectually lazy approach to picking investments. Instead I pay attention to ideas, problems, and the characteristics of successful businesses. Meeting and investing in startups led by founders with a vision to make the world a better place is what makes me eager to wake up each morning and endure the cognitive dissonance that is a daily and ever present aspect of my job as an early stage investor.
  3. I do not believe in founders who lack the intellectual and emotional fortitude to debate and argue honestly about what is best for the startup with their investors and with others who might have opinions about what they should do. I believe that the best decisions are made when one can debate issues with one’s self, and when founders and investors can engage in healthy, critical and honest debates with one another and subsequently reflect and contemplate on everything they have learned through that process. I get frightened by founders who cheerily agree with everything investors say. If the founder is indeed creating something new, or solving a widely-overlooked problem, there’s no way the average investor has considerable experience and expertise in that area – by definition the founder is “the expert”. I expect the entrepreneur to know far more than the average investor about what will work, what will not work, and why. Cheery agreement with everything an “ignorant” investor suggests acts as a red flag to me that perhaps this founder does not understand the problem she is solving, or her market, as well as is required to do what she says she wants to accomplish.
  4. My primary responsibility to investors in KEC Ventures is to be skeptical; Skeptical about myself, and what I think I know, and skeptical about the founders I meet and the claims they make. This is the only way I can minimize the chance that I pass on an idea that seems inconsequential at the outset, but goes on to form the basis for a transformative business. I hope another consequence of my skepticism is that I also minimize the probability that I am too eager to invest in startups that fail because they are built on ideas that are obvious. (Note: I also need to be optimistic.)
  5. Most startups fail. Let me rephrase that, the overwhelming majority of startups fail. My only task is to find those that will succeed before they become well known by other people. Further, we should not invest in a startup unless we believe that our investment in that startup can return our entire fund. One founder at the conference suggested he could “guarantee” a 10x return if KEC Ventures would invest $250,000 in his seed round. That would be great, if we were investing from a $2,500,000 fund.
  6. The type of startup I want to invest in is a very specific thing; it is a temporary organization that has been created to search for a profitable, repeatable, and scalable business model while it solves a problem that has been overlooked in a certain market. It is designed for fast growth once that solution is developed and the business model has been found, and if it succeeds it completely transforms and overwhelmingly dominates the market in which it operates before it moves into adjacent markets. ((This definition is a composite that combines elements from definitions other investors have used. It is primarily derived from a definition that Steve Blank and Bob Dorf use in The Startup Owner’s Manual.))
  7. Accepting the definition of a startup that I use as my guide, there are certain things that I listen for when I am speaking with a founder. Collectively, they are described as “Economic Moats” . . . Intellectual Property, Network Effects, Efficient Scale, Switching Costs and Branding. Even if these do not exist at the very outset, it has to be clear that they can be designed into the startup’s business model as it matures and that the founder has already been thinking about them. Also, I am not interested in situations where only 1 of those sources of an economic moat is present. I prefer 3 at a minimum, all 5 ideally. The durability of a moat is a something I worry about. Also, how wide or narrow that moat can be made is something I think about constantly. Essentially, I want to avoid the detrimental effects of competition.
  8. A venture capitalist does not provide capital to people who need it. A venture capitalist has a fiduciary responsibility to make the best effort possible to generate a positive return for investors in the fund.

Filed Under: Behavioral Finance, Entrepreneurship, Funding, How and Why, Investing, Pitching, Technology, Venture Capital Tagged With: Behavioral Finance, Conferences, Early Stage Startups, Economic Moat, Innovation, Investor meeting, Persuasion, Pitching, Presentations, Venture Capital

Flatiron School – Brooklyn, NY – February 18th, 2014

February 19, 2014 by Brian Laung Aoaeh

This is an outline of a presentation I gave to students at the Flatiron School in Brooklyn on Tuesday, February 18th 2014.

I talked a bit about my background, and about KEC Ventures. I will not outline that in this post. I discussed: How Software is Changing The World, or more generally How Technology is Changing The World. I decided to focus on Africa as a means of broadening our discussion.

  1. Marc Andreessen’s August 2011 article in the WSJ: Why Software is Eating The World
    • There are many more people online
    • Technology is getting really good
      • Hardware costs are declining
      • Hardware is getting really good
      • Software tools are improving
    • Examples of the dramatic impact that software has had on various industries
      • Retail: Borders, Bestbuy – Amazon
      • Movie Rentals: Blockbuster – Netflix
      • Games: EA, Nintendo – Rovio, Supercell, King
      • Transportation: Taxis, Car Rentals – Uber, Relayrides, ZipCar
  2. It is important to remember that technology is more than just software
    • Technology: The combination of tools, skills, methods, and knowledge to solve problems or accomplish an objective. Examples: fire, the wheel, domestication of animals, cultivation of food crops.
    • Software: The stuff that makes a computer work; operating systems, utilities, applications.
    • Think of: Opportunities to marry software engineering and hardware design. Examples: Canary.
  3. How is Technology Changing Life in Africa?
    • Africa is enormous – more than  50 countries, nearly 1 billion people, hundreds of different languages. However, the basic problems are the same across the continent. This map will give you an idea just how big Africa is.
    • I like to tie almost every startup I study back to Maslow’s Hierarchy of Needs. Basically, I want to understand why people will buy a product or use a service. What will be the motivation? In the developing world there is an opportunity to solve problems across the entire height of the pyramid.
    • One more important framework worth keeping in mind is Clayton Christensen’s Job To Be Done framework. I think it is worth studying. You’ll reach great insights about the products and services you develop if you can connect the dots between the Job To Be Done framework and Maslow’s Hierarchy of Needs.
  4. African Startups
    • Discussed
      • Brck – a back up generator for the internet.
      • mPawa – a job portal for blue collar labor.
      • 22Seven – a personal money management tool.
      • Dropifi – a lightweight CRM system for SMBs.
      • Karibu – a modular solar lamp.
      • iCow – a data service for small scale dairy farmers.
      • mFarm – a portal for farmers and produce buyers.
    • Other examples:
      • 7 Innovative Products From Africa You Should Know About
      • 15 African Startups To Watch in 2014
      • There are many more working under the radar.
  5. Building An Innovation Ecosystem
    • It takes a lot of work to build the systems that support innovation, entrepreneurship, startups and venture capital. Some examples of organizations doing interesting work:
      • AfriLabs
      • MEST
      • VC4Africa
  6. Q&A – what I can remember
    • Are there examples of technology from the developing world coming across to the US or other developed markets?
      • Yes – people are testing tablets at $29.99 for possible use in the North American market. Dropifi has customers all over the world. There are other examples.
    • How do we learn about opportunities in other parts of the world?
      • Connect with people online, through social networks – I co-authored a blog post for Tekedia  with Chao Charity Mbogho. She’s a Ph.D candidate in computer science at the University of Cape Town. Our collaboration started with a retweet from someone I follow. I reached out to Chao with a question, and a short while later we had co-authored a blog post. Lots of tools exist to make collaboration with people in other parts of the world easy.
      • Partnering with people on the ground is important – they understand the local problems more completely than you will.
    • What do you look for in the startups in which you invest?
      • I answered that question in this blog post: The Most Important Thing A VC Needs To Know About Your Startup
    • What are some of the challenges African entrepreneurs face? Things can’t be easy for them.
      • Not at all. I hope I did not make it sound as if things are easy. Somehow they find ways around the obstacles they face. Here’s one story about a 17 year old girl from Kenya who taught herself to code and has now started a dev school in Nairobi. Here’s another about how an entrepreneur in Nigeria is solving the problem of not having enough people with coding skills.
    • How easy is it for African women to get involved in the technology startup community? Is there a difference from the state of affairs in the US?
      • I’d be lying if I told you I can answer that question definitively. I know that in general, across the continent there are cultural barriers that still exist related to the education of girls. However I also know of several African women who are prominently leading the charge in the effort to build startups, and create an environment for startups to flourish in different parts of the continent. Some of the startups we discussed are founded by women.

Filed Under: Africa, Development, Diaspora, Entrepreneurship, Innovation Tagged With: Innovation, Presentations, Software, Technology

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