Peter Ocasek is Co-founder of Prague based incubator Node5, accelerator StartupYard and is now working on AngelCam, a cloud based app store for security cameras. He spoke about the state of crowd and angel funding from the perspective of a EU entrepreneur who sits on both sides of the aisle
I sat with Peter Ocasek, (co)founder of a few tech companies including probably the best Prague based startup incubator Node5 and accelerator StartupYard. Now he’s working on AngelCam.
This interview will be a part of my book on equity crowdfunding & angel syndicates in Europe. Equity crowdfunding & business angels are interesting ways to raise initial funding for startups and more and more young companies go this way.
Currently I’m focused to building my next big thing — AngelCam. We brings video from security cameras to the cloud, allow developers to create video applications and sell them to camera owners. So basically we’re a kind of app-store, but 100% cloud-based and camera brand agnostic. Now it’s much easier for camera owners to use their existing device for much more than surveillance, e.g. broadcasting live video publicly, creating a time-lapse video, recording footage to the cloud or using one of the advanced computer vision based apps for understanding what’s happening in the video right now. We help retailers understand their visitors or we could even save lives, stopping the train when somebody falls onto the tracks in the subway or tube.
But what’s most exciting for me in this business is the near future. Today’s technologies can “translate” video data, that’s usually only understood by humans, to the structured data accessible via API — and all of that in real-time. So video data could be easily integrated to the world of Internet of Things — from smart cities to your business.
This is not my first company in the field of e-commerce, video & data, so we had an unfair advantage — we used experience, contacts and resources of our previous companies. That made our start much easier. That’s all in a addition to the $30K we invested out of our own pocket, working with zero payout for the first two years.
We were focused on a high level of business automation and to have revenues from day one, so our average monthly burn-rate in 2013 was only $6K, with total yearly expenses of $150K including trips to the Bay Area, e.g. a yCombinator interview.
When we gained confidence that there could be real business in this sector, we started to spend more on hiring, customer research and product development. Eventually we sought our first external investment round. In the end we raised about $500K from a couple of angels, 500 Startups and Plug’n’Play.
The plan for 2015 is finish the validation of our new broader vision (we’ve started just as a live streaming service, not an app-store) and then scale the business with the help of hundreds of distribution and integration partners worldwide. We expect that we’ll become cashflow positive again with our current expenses (nearly 20 people). We’re in talks with a few VC’s to become familiar with them and to have everything prepared for a quick closing of a bigger investment round when needed.
For raising on AngelList you need to spend a lot of resources on a marketing campaign of your own. It’s similar to raising money on Kickstarter. It’s basically a selling process and it’s better to have a few investors committed before the public campaign launch. The more famous the better. Otherwise you won’t get any attraction.
Microventures will do the basic marketing for you. They met us personally, asked a lot of questions, did their own market research, conducted due diligence, prepared investment papers, made their own recommendation as to why to invest and sent it to thousands of investors. We spent only a couple of hours on this process and were able to remain focused on what’s more important for our business.
In most cases time is the most expensive resource you have. Deciding to do product validation or fund-raising for 12 months instead of 3 months could be the fatal difference. Who will you hire, what customers you’ll you attract, what company will be acquired?
But what’s more important is to understand: accelerators have value for your company and another kind of value for you as a founder. Your company will “pay” with 6% of shares, for example, so from a mathematics point of view, if the accelerator provides additional value. say 6.4%, your remaining 96% should be worth it -and that’s very likely. But even if your company fails just a few days after demo-day, you and the other founders will still have a “life-time” value of the experience of being accelerator alumni and all the advantages of being a member of alumni network. In the end, business is about people and so having connections with the right people in the right places and at the right time is crucial. When you’ll start your next business, you’ll still use the value of being an accelerator alumni.
For sending out applications — any accelerator around the world. You will learn a lot during the application process and the interviews. You will meet smart people and you will learn how to quickly answer the important questions about your business. That’s very important for hiring a co-founder or employee, presenting to customers and attracting the investors.
From EU accelerators that I’m familiar I can recommend StartupBootcamp NL, TechStars UK and Startupyard CZ. From US it’s yCombinator, 500 Startups and Plug’n’Play — focused for Retail, IoT, FinTech etc. But as I said, try to apply to 5 or more accelerators and decide later.
If they are chosen wisely, they can help. When you’re starting with fundraising (you need to start on this a min of 3 months before you run out of cash), start with an “advisory round”. Choose a few angels that could help you a lot (with their experience or contacts) and offer them to participate in your round, let’s say with 30 or 50% less valuation than other investors.
I know few of them. But it’s hard and success is rare. There are more than 20.000 startups just in the Valley alone. Investors have bunch of opportunities to lose their money in local startups easily, they have almost no reason to invest overseas. You need to be more of a US company than a European company to be able to raise money there; incorporated in Delaware, 40% customers from US, traveling to US minimum quarterly. My advice is not to start to seek US investors, but start to seek US customers. Investors will follow. Or apply to a US accelerator.
Learn. Learn about investors you want to have on board. When you’re confident, continue to raise small amounts from unknown, but valuable investors. Next step is to raise more money from the same group of investors, followed with small amounts from notable investors. And the last step is obvious — to raise more money from notable investors. So raising is a process with 5 stages.
Start early. You need to talk with investors before you need the money, let’s say 3 months before. See the “Invests in lines, not dots” article.
Talk with many investors. Create a list of 100–200 investors you want to invite to participate to your round. Spend significant time with the most important investors, send an e-mail offer to the rest. Ask them to decide in about 4 weeks time. Don’t spend much time with investors that “need more time”, more meetings and tend to inundate you with never-ending questions. Just close the deal with a few of them that are already willing to invest. Send all other investors that ask, an investor update e-mail each quarter about your traction — you will try to convert them later. If you’re not able to close at least 1–2 investors, don’t spend more time with raising and switch your focus back to customer research, product & market fit, traction etc. Then repeat the process again about 3 months later. Remember, you should be able to build a MVP and small business without investors, just from your money alone and from FFF.
What would you recommend to young companies? Many good projects die due to lack of capital? How to get funded right?
If you are a 1st time entrepreneur, you need to build a company around an existing problem that affects a large group of potential customers. Ask your target audience, “what’s your 10 biggest pain points”. If they name the problem you’re trying to solve, you are on the right track. If you need to explain to your future customer’s that they have a problem but they don’t realize it, if you need to educate them, you probably don’t have enough experience and resources to build that type of business. So let’s start with something easier and let your “next big thing” wait for a while.
This post was originally published on the Medium
Photo Credit: Shutterstock/ Business angel or funds gaining concept. Word cloud illustration