Startups #nofilter had the pleasure of sitting down with Herzliya-based Investable Solutions, for a great interview with Aaron Rothenberg and Yossi Konijn, both of whom are Partners of the company.
Investable Solutions helps new and early stage startups become attractive to potential investors in order to gain funding, and has an incredible track record of success, as well as unparalleled knowledge in this booming industry. Rothenberg and Konijn gave some incredibly detailed answers for this interview, displaying a true expertise on the subject. Check out the Investable Solutions website here.
1. Investable Solutions helps new startups become more attractive to potential investors. Can you elaborate more on this process?
Yes, with pleasure.
There are many smart people out there with great ideas. In order for these ideas to connect with investors in a meaningful way, they must be developed in an interesting, deep, responsive and direct way. We call this Investable Solutions IDRD© Methodology which I will explain now.
Interesting means that you have to tell a story. It needs to flow from start to finish and leave the investor only wanting to hear more, read more, and get you to be part of his portfolio. Let me give an example:
Andy and Ashton were complete opposites. Andy had been developing the idea in his head for three years while Ashton was the technology guy that could talk seemly for a very long time in wide circles on any topic. They had raised a seed round of $150K and now needed us to create a story that would interest investors. The problem was that within the first 30 seconds of their pitch, investors had already discounted their market as being crowded and of no interest whatsoever. With two brainstorming meetings and a few weeks of market research, we came up with a few options to reposition their solution, rename their market, and use the right flow and words to captivate investors. I love talking to Andy on the phone because he keeps thanking me for how we helped them. The key to being interesting is to bring passion, excitement, and flow to create a riveting story.
Deep means that you must analyze every assumption you make. Connecting-the-dots. Untested assumptions are poisonous for entrepreneurs. Our job is to deeply validate each assumption so that our client’s startups don’t end up dead. Let me give an example:
Rachel (Alias for a real customer) came to us with her mobile application for crowd sourcing dating suggestions. “If enough of your friends think it’s a match”, she said, “then it’s worth meeting, since who knows you better than your friends?” It makes sense, so we asked Rachel if she had tested the concept and what were the results. She complained to us that in order to test it, she needs to build the application, and for that she needs an investment to hire a team. She was convinced that investors would accept the logic of her story without needing any proof of concept. We explained to her that investors learn quickly to trust one thing, and one thing only: what the user does / is willing to pay for. We know this because Aaron, one of Investable Solutions’ founding partners was an investor at a venture capital company for over a decade. We explained to Rachel, that especially in her case where the validation would be so easy to come by, for example via a Facebook page, or offline meetups, or in any number of other quick and dirty methods, she will come across to investors as lazy and not serious. Not an ideal impression. Rachel understood and agreed with us. Deep development means validation.
Responsive means that you take the feedback, digest it, and make decisions in a timely fashion. Sometimes that means rejecting what people advise, and sometimes it means accepting it. Either way, don’t rush or be impulsive, but do keep momentum in making decisions. Let me give an example:
Nati was a sports fanatic and betting enthusiast. His love for the game lead him to develop an app so that anyone can bet on any game. Underneath the app was a core data processing algorithm that he was developing and that was consuming all his time. This technology had applications in areas other than sports betting, areas like enterprise SW and IOT, that were both trendy and more investable than gaming, an area that many investors shy away from. Dror took this input and sat on it for a month before coming back and saying that he still had not made up his mind. He understood the logic in an early pivot, but his heart was passionate about the sports. He was stuck.
Direct means that you have must address the elephants in the room. Human nature leads us to avoid problems that we don’t know how to solve. Avoiding problems is a very bad idea because it leads us to pretend that they don’t exist. Sooner or later, you will have to deal with them. Why wait until an investor rejects you? With our direct development approach, we face them head-on. A simple example will make this clear:
One of our clients, Danny, is the founder of a Virtually Reality (VR) tech company. He is an extremely talented cyber security professional with 20 years’ experience in the industry. However, he has no experience in VR. He does not understand his customers’ needs. He lacks domain expertise. He doesn’t speak the language. By choosing to go alone into uncharted territory, he has handicapped himself from the get-go. This is a common mistake made by people who really should know better. Domain expertise is not transferable between industries. There is a huge learning curve. So here we have an expert in one industry who is effectively a novice in the relevant industry. This is a red flag as it will be a deal breaker for investors. Our solution was to either build out the team with co-founders that come from the industry or go home. This was hard for Danny to hear from us. Good. That’s our job. We give the bad news to you when it’s early enough to do something about it. How else will you become investable?
2. Your consulting will help a startup become more interesting and more likely to gain funding. Do you offer any guarantees? What’s the track record for success?
Being an advisor is very similar to being a therapist. The process is a team effort, and so the outcome, for good or bad, is shared as well. Ultimately, the decision making is done by the entrepreneur. We offer options, make recommendations, and can be very opinionated, but the final call is always made by our clients.
If both we and they put in the effort and time then we can make a good idea into a great business plan, and ultimately a great business. Our guarantee is that we have the capability to facilitate business development at the highest quality, quickly, and at very reasonable prices.
Successful exits take on average seven years. We help our clients get funding which is only one step along the way, albeit a crucial step. We have had many clients reach their capital raising goals of raising both small amounts of $500K to larger amounts of $10M. We are constantly surprised by how successful our clients are and how much of an impact we have had on their success.
Our track record for clients who have amazing products, huge markets, and amazing teams that are willing to work with us seriously is 50% success in getting funding.
3. Is there a particular startup niche that you prefer to work with, or a niche that you think is more likely for startups to succeed in?
These are actually two different questions. I will start with the second: is there a niche where startups are more likely to succeed. To succeed, an entrepreneur needs to check three checkboxes:
- Passion. The person needs to be deeply passionately connected to the customer, solution, need, market, business model, marketing plan, and every little detail. This is internal DNA success. You could call it founder/usage case fit.
- Trendy. Investors need to believe that this direction is hot, big, attractive, the time is right, the investment committee can be convinced. It’s got to be an easy sell. This is financing success. You could call it capital/concept fit.
- Growth. It has to be something that users and customer will on-board fast, use it, like it, share it, love it, and pay for it. This is market success aka product/market fit.
If you are an entrepreneur with all these boxes checked, you are much more likely to succeed. That will of course also make our job much easier.
The answer to the first part of the question: “who do we prefer to work with?” is not related to a specific niche. It relates to the stage of the company and the team.
The stage that we like to work with is companies that are raising their Round A of funding following a seed round. These companies usually have a solid grasp of their technology and initial feedback from the market on their product. During this stage, we can bring the most value, and evaluate all the parameters to see what works and what doesn’t.
The teams that we like to work with are dynamic and flexible. They listen to our advice. They make changes if needed. They can let go of unnecessary parts of their business and product. If we have all that, we have our dream team and we can help them succeed big time, which is the goal of this whole process.
4. What has been your most successful startup company that you assisted thus far?
How do you measure success? For us success is when our clients have achieved the exact goal they came to us for, e.g. to raise the next round of capital, perform a deep dive research into their market, or get their first paying customers.
As a consultant we do not take any credit for our client’s success. We are discrete and this is expected by our clients. For that reason, we’ll just say that we have many happy and successful clients.
5. What are the rules you have for a startup to approach you for assistance: is there any minimum requirement that a startup must possess in order for you to represent them? Proof of concept? Ready-made product/service? Patent? Or can it be as little as just an idea.
We tailor our services to our clients, which allows us to work with anybody at any stage.
We work with many people at the idea stage. Here the focus is on perfecting the usage case. The usage case defines who is the user, what is their need, what is the solution, and how will they use it.
We work with seed-stage companies where we help define the most important and difficult strategy: the go-to-market strategy. That understands how to effectively reach ones long-tail users, that group of users that deeply connect to the solutions, give extensive feedback, and become proof of concept that a real need is being solved. We build out a different plan for each of our clients of how to do this in a structured and cost-effective manner.
We also work with many clients who have raised seed capital and are going for round A. Here many times the focus is more on the business case. The business case defines who is the customer, what are they paying for, what is the payment structure, what is the pricing, and how to market their solution.
We also work with large and established companies. Here we are dealing with business plans for project financing, strategic consulting, and go-to-market strategies. Many times the question is either one of finding new markets for existing technologies, or introducing new solutions to existing markets.
6. Under what circumstances would you consider recommending a crowd funding route, such as Kickstarter or IndieGogo, instead of the traditional VC route?
If you tick off the following boxes consider crowdfunding:
- Consumer appeal – something mass market can relate to
- Touching story – so you get picked up by PR
- Social giving back aspect – Ditto
- Tangible product – that can be held, touched, and easily understood what it does
- Expertise in marketing – you need to bring traffic
- Marketing budget of $80K – you need paid traffic
- Proprietary edge – something that is not easily copied by anyone seeing the campaign
7. Some people say that the hi-tech and startup industry is forming a bubble, similar to before the dot come crash in 2000. Do you think we are there yet?
In 2000 there was a financial bubble. VC’s and capital markets were taking long positions in garbage startups due to the hype. Today, in 2017, there are the “unicorns” – i.e. the promising well-funded company’s, that have outrageously inflated valuations. The difference is that they are owned by relatively few lucky investors. Most valuations are not that high in seed, round A, round B. Its only in the few hyped up companies that there are mini bubbles. The market itself is not a bubble.
In addition, if you look at the market in the past couple of years, you can see that it is correcting itself. Once you take the Unicorns out of the equation, for example $1 billion rounds for companies like Uber and Airbnb, you see that it is actually harder to raise money today and investors are a lot warier of throwing their money at just any startup.
We also work with many investors, providing them business due-diligence on potential investments, and we clearly see that most of them put a lot more emphasis on making sure that not only is the startup interesting and “sexy”, but also that it has a viable business model, that there is a real understanding of the market and its hurdles, and that the founders know their business inside-and-out. Such a process increases the chance of success (see our blog article) and did not happen during previous bubbles.
8. What one piece of advice would you offer to startup founders?
Work with Investable Solutions before you make all the mistakes and before you run out of money. We are not expensive but we do charge fees. We are very effective when we have the time and resources to help, a bit less so when we don’t. Bringing in a third-party, that is not the startup and not the investor, provides a lot of value for both sides, and ensures that there is real, impartial, research-backed methodologies to reach crucial business decisions, as well as freeing up the entrepreneur to focus on the startup and not on the minutia of investment materials.
9. For fun: What website do you go to check when your internet isn’t working?
Is this a trick question? When my Internet isn’t working I can’t check out any website!
Aaron: I like to waste time on Quora. Check me out: www.quora.com/profile/Aaron-Rothenberg and you will find out that in addition to being an excellent business consultant, I am also an expert on a wide variety of topics.
10. For fun: Any advice for Startup #nofilter?
There are no free lunches (or free advice from consultants).