Bleeding Edge

To seek enlightenment, intellectual or spiritual; to do good; to love and be loved; to create and to teach; to serve and to earn;

…

These are the highest purposes of humankind.

And…

If there is meaning in life, it lies here.

Right up there alongside these is to StartUp a Company.

StartUp a Company that offers great products and services that help people live a Good Life in Health, is the number One purpose of this new Green Capital Life Fund that was launched with the aim to offer smart pre-seed or early stage financing for the Life Sciences Discovery part for the StartUp Businesses of BioTech, BioMed, and Pharma discovery.

We are looking only at the earliest phase of young entrepreneurial StartUps steeped in Life Sciences and solving real problems and addressing serious issues in unique ways.

Early stage StartUp investments mean a lot of things to different people, and carry various names, such as the “nest egg” capital, first draft, founder’s fund, bootstrap cap, friends and family cap, pre-seed capital, genesis cap, human cap, and many other atypical names…

Yet no matter what the name — to me, it typically means relatively small amounts of initial funding, usually rounds of $50 to $500k or less, that are devoted to the discovery phase of the early life of the startup in the difficult trajectory through the Life Sciences arena.

Recently, the prevailing sentiment within the early-stage General startup ecosystem has been that founders should raise as much capital as they can if and when they have the opportunity. Many Sponsors, Incubators, accelerator, and the likes of Y-Combinato, F-50, and plenty of others have done a great deal to further this opinion.

Yet in my humble opinion, they are all wrong, because only in some rather extreme & rare cases, this might be the right strategy. And am saying this because after more than a couple of decades in the startup ecosystem, as serial entrepreneur and founder, and upon success, as serial Super Angel, and Venturer, as VC, and Private Equity Investor — I come to know that it’s not the correct approach to building a long-term sustainable business.

As for those incubators and accelerator out there who espouse this view — we now have clear evidence that they don’t contribute anything to the Life of the StartUps that waste their time inside them, as if they are babies in their Mama’s holding pen watching TV. ;–)

You Get The Idea…

And am standing tall, while going out on a limb, and ticking my neck out for your education here. Yet am not alone saying this, because as  you will see — the biggest funder of StartUp Entrepreneurship in America and around the World is the Kaufman Foundation. And the Kaufman Foundation, just came out with a ten year study report after examining all relevant studies — that simply states: “After examining hundreds of studies, that cover hundreds and thousand of StartUp trajectories — we come to recognize that there is no discernible benefit to the StartUps from having gone through any Accelerator or Incubator mechanism as they compare with all other startups successful or otherwise.”

Here is one of the Kaufman reports that puts the thesis forth: http://www.kauffman.org/blogs/growthology/2015/03/are-incubators-beneficial-to-emerging-businesses

And here is the relevant Forbes article: http://www.forbes.com/sites/kauffman/2012/08/08/evaluating-the-effects-of-accelerators-not-so-fast/

So the various Incubators, Accelerators, and even the vaunted Y-combinator and their brethren, are not so shiny anymore, and their advise may not be so golden after all. So please stop taking it for the Holy Gospel.

And that goes for my words too…

I say this with both the super power of hindsight and the magic power of humble pie. Both great powers, that allowed me to raise extreme amounts of money, to create extreme wealth, and to also lose extreme amounts of money.

Money Evaporates…

Bet You didn’t know that.

So making Money, Losing Money — it all averages out.

Balance ensues, as it all kinda evens out.

But I will always remember the last time that I had to repatriate the Venture Capital back to the investors as the low point of my day in that particular Science and Biotech company. And I did this because the long trajectory of the FDA process for drug approval, wouldn’t support our great but still meagre resources, for the task at hand. And instead of going out to raise another hundred million and wait to burn it all up — I did the honourable thing and took the chill pill and faced the grim reaper and turned the Cash back to it’s Investors.

So I still I believe that the point of initially raising capital for a startup is to give the early founders and their supporting crew, enough time and burn rate — in order to prove a hypothesis they have about a particular solution to a specific problem, and to figure out how to get to the markets with it. And if the Markets or the hypothesis appear unwieldy — then best abandon the project rather than kill time and burn those Ten Thousand Dollar bills trying to get Salmon Chase to smile momentarily.

Because of that elusive “Mona Lisa” smile — we need to be aware of our temerity and avoid being loaded down with unnecessary bags of gold because the sheer weight of it, hinders our forward journey, and robs us of our focus.

The veracity of this is best validated by comparing companies ladden with enormous bags of cash — and those crappy one that really make it to the finish line of a great IPO and market place dominance.

Ultimately it is only the market’s reaction to the company’s product and services, and the open public capital markets’ reaction to your equity shares as they appear as stock in the Exchanges — that make or break the company. Nothing else matters as much.

And of course you have to strive your mightiest, for the customer approval, in order to increase the demand for the product or service You are building, and offering to the world — in exchange for folding money, glass beads, or seashells.

Of course all the relevant early signs of monetization that help us prosper in the marketplace, and allow us to prospect for further market share — are always welcome.

And for many founders starting out, it’s difficult to do this without at least some external capital, in addition to their own in-house capital, coming from personal savings, pension plans, life insurance, and/or credit cards. That in-house capital actually serve double duty, besides buying the coffee maker for the garage, and paying for office supplies, and early lab time — it validates the Commitment necessary that the Founders must exhibit when they go all out to create a Great Business.

Am just saying this because there are real hardships, opportunity costs, pain, and anguish; along with major thunder & lighting storms coming from spouses and WAGs — that the founders must consider when they set out to build a new company. And they must persevere and soldier on. And even the signs of going though the spousal storms, the scratch marks, the bloodshot eyes, and the tire tread marks from when you get run-over “accidentally” by your WAG’s automobile — they must all be visible as badges of honour to the outside Capital folks. These badges are serious Bling, like the Congressional Medal of Honour, and in some cases they may include: giving up school, giving up the day job, giving up the WAGs, accepting zero salary, walking away from the StartUp, working for sweat Equity, living in the StartUp Garage, obeying an extremely rigorous work schedule, having little family time and thus being forcibly removed into the doghouse, going AWOL from all and sundry, never calling your mother, suffer severe stress and anxiety, lose your hair and develop severe acne, and yet surprisingly still stand up and soldier on.

And all that for What?

A chance to bring something to the world.

The birth of a new useful product that might save some live in the bargain.

All of this for the chance to contribute to the Emergence of a new company where You might find Purpose, might gain some Meaning from Life, and have an impact on this World.

No Bad…

Not a Bad bargain come to think of it.

So ideally this initial phase of the experiment is done as quickly as possible, otherwise founders are wasting their most precious asset, which is their Lifetime, along with all of their relationships, and hair…

Even the dog leave at some point.

Naturally … because it was left unfed for a week or so…

Three weeks in a row.

Sadness & Frustration becomes your companion.

Still the StartUp Founder survives, and in a world of imperfect information, this poor founder should raise exactly the amount of capital that it takes to prove or disprove his initial hypothesis. Maybe a little more in case it takes longer than expected, but not much more. Any additional capital raised at this point of the experiment is either capital raised at a valuation that should be higher and less dilutive to the founders, after the hypothesis is validated, or capital raised that will waste more of the founder’s precious lifetime and relationships along with his last remaining threads of hair, after the hypothesis has been proven incorrect.

Frustration Ensues.

This is not to say that a founder should give up entirely on the problem if the original solution or the hypothesis is incorrect, but what often happens is that the founder takes whatever capital is left which sometimes amounts to many millions, and goes in search of an entirely different problem. Rarely if ever is the remaining capital actually returned to investors, because founders are unwilling, and because investors allow for this racket, because they often prefer a founder to keep spinning his wheels, running in circles, and doing wheelies with “square wheels” on his bicycle while trying to make something work, whatever it may be, rather than write the investment off or deal with winding down the company.

Much Frustration Ensues.

The SV press and the startup mythologists of course always love writing about the improbable “pivot” and the turn around, or the new direction, because it makes a great story, but the restart really never works because it often leads to a founder working on a problem he doesn’t care about, doesn’t have unique insight into, and has zero domain expertise on. Still more often than not, a restart simply leads to founders wasting more of their lifetime, WAGs, and hair, along with oodles of investors capital, as they set out to move from pivot to pivot, from idea to idea, from lily-pad to lily-pad — all because they raised too much money to start with, and are now held captive by it. Or they are feeling sprightly all of a sudden, jumping around like frogs — which is an entirely different problem requiring the service of a strictly disciplinarian Freudian couch observer.

Much More Frustration Ensues.

So all in all — Angel capital is not a good source of capital for founders in search of a pivot, in search of a problem, or in search of a burn-rate. We all know how to light Cuban Cigars with the proverbial Ten Thousand dollar bill… watching the green face of Salmon Chase burn up and turn to ashes. We don’t need young startuppers to do this for us.

Another reason to raise less money when starting out rather than whatever the cat brings in — is because the lack of wasteful habits, leads to more focus and disciplined decision making. Constraint is an important forcing and focusing function for companies, whether it’s product, process, or other organizational decisions, and it’s a really good practice to have discipline ingrained into a company’s DNA from the beginning.

Necessity is the Mother of Innovation and Focus. And she does double duty as the Mother of Invention too.

By the way — I’ve noticed that most founders have an uncanny ability to spend the capital they raise, however much, according to the milestones they’ve set. They just make shit up… and spend the money on trinkets, company logo swag, or on various jewellery bling for the aforementioned WAGs.

It’s counter-intuitive, but almost always true, that two similar companies building similar products, one with $10M to start and another with $400k to start — that they will end up shipping similar products at the same time, but the first StartUp will have spent far more money doing it. In all they will both be flat out by the time the market returns their product review, and they will both seek fresh support.

Which one do you think will win?

In my humble experience, the amount of money a company raises in its pre-seed or seed round almost never determines its ultimate success … but founder focus, discipline, creativity, and hard work really do. Along with copious amounts of anti-depressants, pornography, and hair-loss remedies.

But when we are speaking of meagre seed rounds, it’s also helpful to remember that huge companies like Facebook, Airbnb, Pinterest, Google, Amazon, among countless others — all had raised initial funding rounds of $500k or less.

That is why its called SEED round. Because you put it in the ground and wait for it to germinate into something green and beautiful. Of course you have to make sure the seed is proper for the type of ground that it will happily receive it. And watering it is necessary to do so frequently at the early stages. So what I do is arrange for the bank to release each month a portion of the capital that corresponds with the burn rate the Founder needs to help him run the company for a year or so, and thus He is not tempted to go buy an expensive diamond bubble at Tiffany’s to put on the finger of the WAG in order to fill the void and combat his loneliness.

Saving the Founders from matrimonial bliss, and helping them eat Top-Ramen for a year, is really God’s work. Therefore in many cases, raising small amounts of Angel capital early on, and allocating to receive that in monthly tranches in order to validate a hypothesis implies less stress – ergo more hair, less dilution for the founders – ergo more stock, and less WAG distraction – ergo more porn.

It is also great to do this as an exercise in futility — especially if You are a serial entrepreneur that You can quickly build the product, gather positive data, and receive marketplace approval for your business.

And it’s also rather helpful because with smaller burn rates, and the market at the moment being so milky-frothy [nothing to do with your Pornhub consumption], particularly at the early-stages — it’s rare for your company to fail because you can’t raise additional capital at the seed stage.

Further by being disciplined in the early days, raising small amounts of capital, and not overly optimizing for valuation, founders will have a number of opportunities to raise meaningful capital if you’re making real product progress that’s resonating with users, consumers, and customers.

Still I’ve never seen an early-stage company fail because they raised little money at a low valuation — but we have all seen lots of young companies crash and burn because they raised far too much money at high valuations, and didn’t make enough progress in the first year to warrant more capital. Down rounds are both hard to get done and take a huge psychological toll on a company, when everyone’s options are underwater, the Founder’s equity gets washed up, and the valued early investors are fully erased, as if they never existed.

 And because we’re living through a period in which founders can build companies with incredible capital efficiency — we don’t need the Tourists to tell us how to built expensive Prada, Hermes. & Louboutin, wearing StartUps. And its the Tourists that spoil this game, because serious Founders with small teams can build companies on the Internet with eye-popping growth potential and scale — but the weather vane tourists can’t.

So, there is massive interest from investors to put capital to work in early-stage private companies that can deliver miracles.

still all that Tourist Capital can be quite seductive for entrepreneurs, especially when it comes cheap, so you have to avoid it like the STDs you ocassionally might get from the escort service. We understand — even a StartUpper can’t live with pornhub alone after the WAG run off with the dog.

Levity aside — I still believe that founders are better served by being focused, thoughtful, and disciplined, about how much money they raise, at each stage of the Startup company’s lifecycle.

StartUps like Comedy make it or break it on Time. If their timing sucks – they suck. If their timing is perfect — they are perfect.

Simple eh?

And if you can’t figure it out — just remember that there are Angels all along the way to help you stop from … sucking.

Yours,

Dr Kroko

Historically, raising early stage seed capital when starting out — has meant bootstrapping, angel, or friends and family money. We started Green Capital Life, to add one more option for founders at the early stages of an experiment — we call this the Life Seed Capital, and know that our great founders already Love it.

As for our competitors and the scantily dressed fake founders, or the pseudo-entrepreneurs, and the respectable Venture Capitalists out there — they all call me VC and mean Viet-Cong, because that’s how unorthodox this Guerilla Angel guy’s approach to early stage capital is.

And am OK with that. Because only the wildly unorthodox, acting outside of the prevailing Dogma in both thinking and acting, and being a staunch contrarian always walking away from the herd, as far as company creation is concerned — is what is required to win this Game of StartUp Life.

But be that as it may — we also happen to know some History, and the Record informs us, that those lowly VCs, the “Charlies” managed to carry the day, and eventually win the war.

So who can blame me then, that I happen to not bristle with furry, nor object with venom, never feign umbrage — and instead infrequently and always on some really cloudy days wasting life in meetings — I come to smile because I don’t mind the name that much…

Because the message is clear.

The lowly guerillas quite often win. And they always capture the hearts and minds of the people for reasons only the underdogs understand. And they are always scrappy like the best StartUppers ought to be. So it’s kind of a badge to be a scrappy, bootstrapping, and hungry CEO, amongst the masses of the great unwashed, because You can win the war against the Big and mighty organizations that you choose to compete in the industries you aim to disrupt.

So … stay humble My Friends.

Keep close to the grassroots and the masses and You’ll get all that you need. You’ll also by the way, find that this is all you need to do.

That’s all You need to do, to live another day, to thrive in the midst of chaos, and to preserve yourself until the very end.

And once you get to win — well then you have to climb another top.

That is a particularly nasty, yet pleasant rockpile called an exit. An IPO…

And then — only then you get to sit down, take in the view, and smile, that long sly quiet knowing smile…

The Quiet Smile of Victory.