Lessons From Silicon Valley Entrepreneurs
Silicon Valley has become the pole of attraction for every young entrepreneur who dreams of turning his or her business idea into a successful company. It is seen as a paradise for startups. But why does it have this image? What’s different about being an entrepreneur there compared to anywhere else in the world?
Two entrepreneurs who decided to try their luck in Silicon Valley joined IESE professor and Director of Finaves, Albert Fernandez Terricabras, at a recent Continuous Education session to share their experiences and insights.
Securing the Funding
Luca Carlucci (MBA ‘12), CEO of BidAway, founded his company along with two other IESE entrepreneurs in 2012. An auction platform in which users can bid for luxury travel and leisure activities and package holidays, BidAway soon found Spanish investors willing to back the project.
A year ago, when Carlucci traveled to Silicon Valley in search of more finance, BidAway was selected by 500 Startups, the U.S. accelerator for early-stage companies. Just as important as the $150,000 he received was the consequent boost to the company’s profile and visibility.
Since then, BidAway has managed to raise $1.2 million from new international investors (among them, the top Uber investor) even though its present turnover is less than $240,000.
An Ideal Ecosystem
“What happens in Silicon Valley doesn’t happen anywhere else,” says Carlucci. So what makes it different? First of all, he says, there is a willingness to take big risks. Of course there has to be an acceptable degree of risk, but it’s higher than elsewhere. On the other hand, he says, this is where the investments that create trends are made. Silicon Valley investors are prepared to try anything and they give constant and total support to entrepreneurs. “There’s more of everything there,” says Carlucci. “Greater portfolio diversification, more capital and people who have a different attitude towards investing, which is why it’s no surprise that all the big successes come from there.”
He’s quick to stress Silicone Valley’s uniqueness. “It’s simply not representative of the rest of the world; there are things that work there that wouldn’t elsewhere. It’s a one-off sort of a place.”
Tim Kunihiro agrees. Kunihiro is an entrepreneur and consultant and has worked in Silicon Valley for several years with companies such as Comcast, eBay and TaskRabbit. He says the three key elements that make Silicon Valley a different environment for start-ups are:
Access to finance, with a group of business angels and capital investors who are very active in seed capital investment and a high level of risk capital investment;
Access to talent, thanks to links to nearby universities such as Stanford and California and the talent available in local companies;
The investors’ attitude, which basically comes down to a greater acceptance of failure and a mentality that could be summed up as “think big, move fast and take risks.”
Fierce Competition for Financing
Silicon Valley’s reputation – a sort of Shangri La for startups – seems to be at least partially justified. But precisely because of this, competition is fierce. The reality is that there are many entrepreneurs in Silicon Valley who devote long hours of work and networking to their project, and who earn next to nothing.
Prof. Fernandez Terricabras reminded delegates that only five of every hundred companies manage to get finance. In this context, it is paramount to have a good project and to know how to sell it.
Fernandez says that the pitch to investors must focus on what the investor is most concerned about during the initial stages:
Market opportunity (beware of excessive metrics. Investors aren’t interested in all those Excel pages);
Market size (and not those forecasts that never come true);
The team (fundamental);
And resources (knowing what’s needed and avoiding losing too much time on valuations).
Unlocking Opportunity in Silicon Valley
Your first objective should be to know who your ideal investors are, and how to find them, says Fernandez. Looking for seed capital to get a project off the ground is not the same as finding a risk capital operator to consolidate and grow a business.
Once they have been identified, there are three steps to approaching these key players: first via the Internet, secondly through participating in forums, and finally by travelling to Silicone Valley to establish personal contact. Fernandez estimates this will cost an average of $8,000 a month.
Other helpful factors include: having an American on the team, having someone with previous experience (talent accelerates growth, reduces risk and improves reputation) and, if you are a foreigner, having first obtained the backing of local investors.