By now you have probably heard about bitcoin. The decentralized currency and payment network that advocates think will change the world. Now matter where you stand on bitcoin there is no question money is pouring into the space
As of April 2014, Bitcoin venture capitalist have invested more than $113,00,000 in the first 4 months of the year.
This is a 29% increase over the total amount for the whole of 2013, which stands at $88 million. And in 2012, bitcoin startups raised just $2 million.
Bitcoin startups are well on track to receive more than $250 million in venture capital by the end of 2014. That is not bad considering it’s just 5 years old and that is the exact same amount of VC money that poured into all internet startups in 1995.
There is no question the bitcoin eco-system is maturing very quickly… but what the hell is it?
At its core bitcoin is a payment network. Just like checks from banks, Visa, Paypal, and Western Union. It allows person A to send money to person B. And for the most part it has some incredible features that the legacy systems simply cannot compete with.
Bitcoin allows any body to send any amount of money instantly. For example. At near zero cost it is now possible to instantly send $1million from person A in Brazil to Person B in China. There are no minimums or maximums on the amount and the location and identity of the sender and the participant is irrelevant.
Sounds awesome. A disruptive technology to the world of payments that has the potential to create mind blowing efficiencies. So what is with all the controversy? Well here is where it gets tricky. The way in which bitcoin achieves this is unlike any other payment network the world has seen before. The ramifications touch the world of politics, liberty, privacy, economics and much more.
Bitcoin is built on a technological innovation called the blockchain. Whether you love bitcoin or hate it, I don’t think there is anybody that would argue that the invention of the blockchain is an incredibly positive invention that will dramatically change our lives in some way. Bitcoin is merely the first implementation of a blockchain technology.
We will most certainly see the blockchain disrupt many industries, not just currency and payment networks in the next 10 years. Perhaps I will cover that in a future article, but I mention it here because from an Angel’s perspective I think this reason above all others is the most important reason to pay attention to bitcoin. There will most certainly be tremendous profits to be made by Angels in the blockchain space over the next decade even if Bitcoin were to fail miserably. Understanding bitcoin fully is the first step to identifying opportunities in these future spaces.
But let us return to bitcoin. The blockchain is simply a way to manage a ledger in a trustless, decentralized way.
Think of your bank or Paypal account. When you send a check to someone who uses the same bank as you all that is really happening is that the bank deducts from your balance and adds it to the persons balance you are paying. It is just a ledger entry. We rely on banks as trusted middlemen to manage that ledger. As we have learned many times throughout history sometimes banks are not all that trustworthy and depositors can lose their money.
Bitcon solves this problem by making the ledger public. You can in fact download the entire bitcoin ledger and see exactly how much money is in every single account and you can watch the ledger being updated in real time as people pay each other.
To protect people’s privacy though no names are associated with peoples accounts. Think of it like watching withdrawals and deposits from numbered Swiss bank accounts. You can see the balances and transactions, but you do not know who owns what.
The integrity of the ledger is maintained because not just anyone can send money from a particular account. Through a branch of advanced mathematics called cryptography it is possible for the public to check and see if the sender does indeed have the secret password giving them permission to send the funds in that account, without actually knowing the password it self.
In bitcoin this secret password is called the private key and the accounts are called bitcoin wallets.
All of this is controlled by simple open source software that anyone can download for free. In this way bitcoin is truly a trustless environment. You can review the code and know that it does exactly what it claims to do.
This is where controversy number 1 comes in. Governments and courts are used to being able to confiscate peoples money by simply asking the bank to adjust the ledger. They argue that this helps them fight crime and reduce tax evasion. Because bitcon does not rely on any third parties there is no one for the government to call to take funds. Only the holder of the private key can move bitcoins. Bitcoin takes power away from governments and puts it back in the hands of the people.
Depending on your political tastes you may perceive that as a good or a bad thing.
But the controversy does not end there. Unlike Visa, Paypal and other payment systems, bitcoin does not use a government backed currency as the unit of account in its ledger. Instead Bitcoin created its own currency (and confusingly called it bitcoin as well– the same name as the payment network) to be the unit of account. The numbers of bitcoins available are preset and hardcoded in the bitcoin software. It can never change.
Enter controversy number 2. Governments and banks are used to being able to change the money supply. Through the central banks of each country governments can simply create or destroy money. They argue that this flexibility allows them to smooth out the economy and help facilitate economic growth. Others argue that this is false and government’ changing the money supply is extremely destructive to the economy and growth. Again your political beliefs will determine whether or not you think this is a good thing.
No matter what your beliefs, bitcoin is most certainly here to stay. The bitcoin software and blockchain are already on millions of computers all around the world. Stopping bitcoin would take a policemen in every house. Governments can make regulations that either slow or speed up bitcoins adoption, but in the end bitcoin is a new reality that the world will have to deal with.
I suspect it may end up looking like the gambling industry. Some governments will be friendly to it and some will not. The investment dollars and the jobs will go to the countries where it is friendly and consumers can participate from anywhere in the world in the privacy of their own home if they want.
Either way the Angel and VC profits in this space should be electric over the next few years. It will be an interesting ride.
“If you had to sell ice to Eskimos, how would you do it?” The idea being, of course, that if you can sell ice to Eskimos then you’ll be an effective salesperson.
I hate this question.
Why? Because it totally ignores one of the fundamental principles of effective sales: qualify your prospects. You want to direct your efforts at people who might reasonably want to buy your product, not people who don’t need it. That’s why one of the parts of an effective sales funnel is qualification.
I don’t want salespeople who make unlikely, difficult sales . . . I want salespeople who make lots of money! If I had a salesperson who was trying to sell ice to Eskimos, I’d fire them on the spot for wasting my time.
What does this have to do with investors? Don’t worry, we’re getting there.
Not Every Investor Is The Right Investor
Finding investors is essentially a sales process. You put together a pitch, and then you present it to people who might be interested in your idea. You’re not selling the product, exactly, but you are selling a financial interest in that product. Investors are your potential customers.
If you had infinite time and energy, you could pitch to every investor on the planet—but you don’t. You need to focus your efforts on the investors who might actually be interested in your business . . . in other words, you need to qualify your prospects just like you would with potential customers.
Too many people forget this step, and just throw themselves at any investor who crosses their path. This isn’t a smart use of time or energy, and will annoy a bunch of people.
One other point, and then we’re going to get to an example.
I get pitched to a lot. There’s no greater turn-off for me than being shown a product that I’m obviously not interested in, excited about, or qualified to understand. It’s pretty obvious what I’m in to—I’m a sucker for kitchenware and fitness products—and if you can’t even do the most basic research on what I like, then how can I trust you to understand your customers?
In short, if you’re not going to qualify me, how do I know you’re an effective salesperson?
Tim Linnet And RutaSleep
This week I want to take a look at Tim Linnet, founder of Linnett Corp, manufactuer of a sleep-aid product called RutaSleep. Tim and his father are both pharmacists, and for years they saw people come in asking for sleeping aids. “We’d recommend a product, but when we told them that it would be ineffective unless they stopped consuming caffeine they’d give us this blank stare. ‘I can’t do that,’ they’d say,” explains Tim.
Clearly there was a business opportunity here, if they could find the right product.
“After a bunch of research, trial and error, we found Rutaecarpine. It decreases caffeine levels and helps people sleep without giving up coffee, soda or tea. With that in hand, we started looking for investors.”
Before long, fund raising was taking up 80% of Tim’s time. They started with friends and family before moving up to some smaller angel investors. It took three years, but they eventually raised $750,000. It was enough to get the product out and selling in stores . . . and now that they have that social proof under their belts, they were just able to secure a $1.1 million financing deal with a private equity firm.
None of that would’ve been possible if they weren’t carefully qualifying their investors and targeting exactly the people who might be interested in their project.
“Weirdly enough, we found that it was much, much easier to land a big investment ($100k+) from someone who’s an expert in our field than it was to get a smaller investment from someone who didn’t understand what we were doing,” says Tim. “We’re both pharmacists, and there’s a fair amount of scientific know-how that you have to have if you want to understand our product. Fortunately that made qualifying investors easy—but we made a lot of mistakes and wasted a lot of time in the beginning.”
They did extensive research into the people who had already invested in similar products, finding investors who specialized in sleep aids and other over-the-counter medications. Then, instead of laying everything on them all at once, they’d present a short one-page pitch. The ones who were interested received more information, “dripped” bit-by-bit to hook them even further.
(That’s another pet peeve of mine—give me just enough info to make me interested, and then I’ll ask for more. Too much all at once? No thanks.)
Not only did that strategy keep investors from suffering from information overload, but it pulled them into the project emotionally and allowed Tim to reach a much larger number of potential investors in the same amount of time (smart!). You could do a lot worse then emulating his campaign.
So remember—keep qualifying your investors! And with a little luck, you’ll find exactly who you’re looking for.
In the end, success depends on one basic quality in yourself: Commitment. How committed are you to making this work, to doing the emailing campaign, taking pictures, making that video, organizing the web site and project? How much work are you willing to put into the project?
You need to get the word out and that means doing everything that you can. Email, tweet, Facebook, send out press releases, write articles, get other people to help out with some of the work, look for groups online to tell, and find like-minded people that will follow you along.
This is the question at the heart of being an investor . . . and it’s a question that’s burned countless people over the centuries. Good decisions can be lucrative, but bad decisions are expensive.
You’ve got to have some way to sort the viable business opportunities from the chaff, and the easiest way to do so is to have standardized criteria. Here are the five most important qualities to look for in an entrepreneur when vetting potential small business investments:
Green Light Number 1: Passion
First and foremost—are they passionate about their product?
This is the deal breaker, and you’ll probably know within seconds to minutes of meeting an entrepreneur whether or not they really care about their product. Entrepreneurs who are just in it for the money are easy to spot; they tire of selling their idea quickly, they aren’t as active in hunting for opportunities, and they quit when things get hard.
Passionate entrepreneurs don’t give up. That’s the sort of person you want to trust your money with.
Green Light Number 2: Business Experience
Funding an entrepreneur’s first project is a risky proposition. Experienced entrepreneurs have experienced dozens of failures for every single one of their successes—there are some lessons you just can’t learn without trying and failing first.
Has the business owner you’re thinking about investing in had a chance to experience failure? And how have they learned from it? You want to make sure that they have a good chance of making it before you put your money down.
Green Light Number 3: Board of Advisors
Behind every entrepreneur is a board of advisors, and smart entrepreneurs know that they never want to be the smartest person in the room. That’s especially true when they’re trying to get a new business off of the ground, and you can tell a lot about your potential prospect by who they’ve surrounded themselves with.
Are they working with proven experts in their product’s field? Have they partnered with people who have a proven track record of success? Are they deliberately looking for people who are more knowledgeable than they are?
Green Light Number 4: Financial Projections
It’s always amazing when an investor forgets to consider the financial aspect of their investment.
There are lots of small business owners out there who are passionate, trustworthy, and hardworking. However, that doesn’t mean that all of them have what it takes to turn their idea or product into something that will eventually turn a profit.
And in the end, you’re in this to make money, right?
A budding business may not be profitable yet, but you should always check to make sure that there is a clear path forward to profitability. Do the numbers make sense? If the business isn’t profitable now, is it headed in that direction?
Green Light Number 5: Marketing Genius
Some people just have it—and others have studied hard to learn it. The gift of selling is one of the most important things an entrepreneur can have.
Analyze their pitch carefully not just for the product that they’re pitching, but the skill with which they pitch you on their project. If they can’t sell it to you, they won’t be able to sell it to anyone else . . . but if they deliver a stellar presentation, you may have found a winner.
At CXO Collective, we like how business mogul and investor, Warren Buffet, put it, “Why not invest your assets in the companies you really like? Too much of a good thing can be wonderful. “. This collective was formed with great intention to bring together human and c\apital assets to buy, sell, and triple company profits in 18 months.
How can we do this and how does that differ from other investments you may be considering?
Most investment models are missing the business acumen needed to move a company and their profits to the next level through investing in human capital, the use of masterminding break through sessions, and actionable growth plans. The collective is comprised of the talent to unlock the potential within these early-stage and developed businesses.
What we’ve found is that prominent management consultant, Peter Drucker, was right when he said, “The entrepreneur always searches for change, responds to it, and exploits it as an opportunity”. Many of the entrepreneurs we’ve encountered have a desire to take their business to the next level or to even use their talents to move onto their next big idea, but they are seeking help, because they are lacking one of the following fundamentals to move them forward:
• Lack of Systems
• Lack of Talent
• Lack of Marketing
• Lack of Capital
Our collective participates actively in the relationship by leading and providing industry expertise & business acumen in the following ways:
• Conducting a profound due diligence process
• Leading Break Through Sessions (BTS) for actionable growth or exit
• Identifying necessary capital for unlocking the company potential
• Placing experienced leadership on the management team at the company
• Providing seasoned consultants for onsite or remote support
We believe that by making a commitment to these relationships, we invest our attention and energy in it more profoundly because we now experience ownership of that relationship. If you combine that level of intensity with the expertise and proven track records of our collective you unlock a powerful growth engine.
Our members & equity partners are all motivated by a desire to participate in one or all of the following ways:
• Deal Flow
• Capital Investing
• Industry Expertise
The CXO Collective model is set up to allow executives and entrepreneurs like you the flexibility to invest in a high growth environment by allowing for investments to be done with time (expertise), money, or both.
“Coming together is a beginning; keeping together is progress; working together is success” – Henry Ford
We have synthesized global talent capable of incredible growth in any organization we choose to affect. We will continue to choose wisely and we will make an impact.
If you would like to explore this further, we would welcome the conversation. Please contact us at http://www.cxocollective.com/