Collision at New Orleans: Investment Do’s and Don’ts

on May14

13 May 2017 | 11:58 pm

Last week New Orleans gathered investors, start-ups, reporters and entrepreneurs from across the world for one of the fastest-growing tech conferences, Collision. Chicago News also had a chance to hit the streets of New Orleans and talk about trends, achievements and challenges businesses face nowadays. 

What’s going to be the next big product that would change the world? What industry is going to strive, and what is unlikely to survive? Where the venture capital is going? How to grow a start-up into a successful full-scale business and what are the challenges the businesses are facing? 

“First of all, all start-ups have to ask themselves if there’s a real need for their idea in the marketplace,” says Bradley Tusk, founder and CEO of Tusk Ventures. “Plus, they have to make sure if there’s a market for this idea. For example, we wouldn’t invest in anything where there isn’t at least a multi-billion dollar opportunity for the start. So first of all, you need to address the market, a really great idea, really secure technology, a great team with great engineers, and some sort of record to show why you specifically are the best person to lead that start-up.”

Hundreds of start-ups presented at the conference, from apps and tech companies to healthcare and recycling.

There are start-ups that change how people live and work, and there are start-ups that are ahead of their time.

“The great example is the cannabis industry,” Tusk said. “Will it be fully legal in every state? Yes. Is it a 100 billion dollar a year marketplace? Absolutely. Is there a possibility that the regulatory uncertainty and lack of funding wouldn’t allow it to survive? Yes.”

According to Tusk, eSports is among the hottest industries to invest.

“Healthcare and insurance tech is also interesting,” he said. “We do not invest in education tech simply because someone who’s creating software for 15,000 school districts is unlikely to succeed.”

Among common start-up issues Tusk names the lack of uniqueness in ideas that start-ups present to the market.

“People can be great in every way, but it doesn’t mean the idea is going to win. Sometimes, the tech is just not there. Sometimes, there are also regulatory issues, which might not be solved at this time.”

“We made this mistake before,” he said. “For example, we’ve invested in a company called MyTable, which is basically a ‘kitchen-sharing.’ Every single state had its own health-inspection regulations. We put on the paper what we thought was going to work, but it didn’t. All the companies in this industry were too young, unable to hire lobbyists that could push these ideas through. Shame on me in a way for taking on something that we thought was going to win, because we’re so good at what we do that we think we can make anything happen.”

However, Tusk points out, the ultimate goal of all venture capitalists is not only to make money, but also to make the world a better place.

“Even aside from all the issues Uber faced during recent few months, this is the company that changed the world dramatically.”

Tusk recommends doing some research and finding out which venture capital funds invest in your sector in order to get financing. Depending on your sector, you can even look them up on websites, like Crunchbase, then send an investor deck and ask for a meeting.

According to Tusk, the main definition of business success is the revenue, even though losing money is not that uncommon for businesses at any stage.

“Take Amazon or Uber,” he said. “Amazon forever lost money, but they’re one of the most important companies in the world right now. Uber is the same thing – they lost a lot of money, but ultimately became the biggest company in their industry that changed the world.”

Tusk also reminds business owners that they shouldn’t forget about governmental regulations.

“The majority of companies are regulated by government, so if you’re creating a company you can’t ignore it just because you simply don’t like politics,” Tusk said. “Government does have the ability to put you out of business very fast. Take Airbnb – they screwed up with the politicians in New York and right now they’re effectively illegal in every major market.”

Among the main factors investors see in defining whether or not a start-up is worth investing in, Nicole Quinn of Lightspeed Venture Partners sees potential, stickiness, and making sure the customers love the product.

“When we invested in Snapchat in the early days, people were using it daily – they were coming back every single day,” Nicole said. “The retention figures are the main thing we’re looking for.”

There have been a lot of discussions on what venture firms are investing in – people or ideas, and which one of the two become the defying factor. According to Quinn, at pre-seed or seed stages, a startup leadership team is the most important defying factor whether to invest or not.

“To know that a leader is someone who’s willing to go the entire way is very important.

As you go to a later stage, the idea and structure is more important because this is how the product is going to be resonated.”

In order for any business to succeed, Quinn recommends listening to the customers, as they’re the ultimate voice of a product’s success.

“If your product does resonate the interest, run through the walls to get it done,” she said.

We also spoke to Scott Belsky of Benchmark Capital for what has to be done in order to build the product that lasts.

“You should target the product for a specific group of users who can age with this product, and you should instantly change the product, making sure it’s up-to-date, convenient and fun to use,” he said.

Belsky names customers, leadership team, and organization of the company as the main factors defining success of a business.

When it comes to investing, conventional wisdom can be often wrong, Belsky says.

“In other words, the easier the industry seems to invest in, the less likely you should invest in it, and vice versa,” he said. “I personally invest in a team and in something that would solve the problem, which is also the ultimate goal of every product.

Chicago News also had a chance to speak to a few of the hundreds of start-ups present at the event.

Kush Patel told us about The Cut, a mobile platform that connects barbers and clients, which was launched last year and hit 10,000 users last week.

We also had a chance to speak to Natalie Noel with The Healing Sole – the company that produced the first flip flop that treats plantar fasciitis and can help to avoid visits to the doctor and physiotherapist.

Workmates presented an alternative work messenger for a more effective team collaboration.

Tamara Lim of Asta Works told us about a new way to recycle, with an out-of-the-box slogan, “Cash for your trash!” According to the company’s concept, they pay customers who recycle with them, instead of a conventional way when a customer has to pay the company to get rid of unwanted items.

To see more talks with investors, start-ups and entrepreneurs, watch the video on our website.

By Vera Sauchanka


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