Startup Chatter by Donna Bogatin

The Commonwealth Capital Ventures mission is straightforward: A team of experienced investors “guides outstanding entrepreneurs from startup to success.” Elliot Katzman is one of the five Commonwealth Partners spearheading $600 million under management and the Commonwealth Capital Ventures IV $250 million venture capital fund.

Commonwealth takes lead, active investor positions with board seat representation. Katzman, himself, travels monthly to Colorado for Me.dium Board meetings, a recent Commonwealth investment.   

I asked Katzman for his insights into what it takes to build a successful business: He underscores that a “great idea” plus “money” is NOT a sure fire formula for success.

Elliot Katzman has been helping build technology entrepreneurship success for more than 20 years, both as an startup founder and investor. Below are some of his startup lessons learned, excerpted form a recent presentation to prospective entrepreneurs.

STARTUPS ARE ABOUT PEOPLE

People are your employees. People invest in your business. People buy your products. Buying is a human behavior.

WHAT MAKES A GOOD STARTUP TEAM

Startups never go in a straight line from concept to liquidity. Management needs to constantly “bob and weave,” assess and reassess.

Domain expertise is required–someone who truly understands the customers’ pain. Have founders been part of a success before and know what it is like to win?

Will management create a positive culture of high achievement, mutual respect and trust? Are all skills properly represented and balanced? Will management be able to recruit the needed talent to build the business?

WHY FINANCIAL STATEMENTS ARE IMPORTANT

Making money is important and financial statements–WITH THEIR ASSUMPTIONS–allow you to demonstrate you understand how to make money.

Financial statements provide an opportunity to make your company come alive by translating product/market and distribution success into a financial story.

THE ROLE ASSUMPTIONS PLAY

Understand every number is wrong from an absolute perspective, the relationship between the numbers is what is important, such as:

Unit sales is a function of market demand and sales productivity,
Sales expense relates to revenue,
Service/subscription annuity is a function of installed base…

Challenge your assumptions, explain what you know and what you do not know. Don’t make assumptions that essentially say, “all the trees have to fall north to be successful.”

Be conservative, but discuss opportunities for expansion and upside.

IDENTIFY KEY PERFORMANCE METRICS

Cash is KING, so focus on cash, not accounting such as: How much cash will it take to bring product to market, AND How much cash is required to build business post release to breakeven…

What is the value of a customer–how much money will a customer pay over five years compared with cost of sales and support? What are the switching costs?

What is the sales productivity model? Is there an annuity?

ELABORATE ON BUSINESS MODEL

Allow investors to “feel the business.” What are the leverage point to the business opportunity?

ANNUITY model of service? (software)

ADDDICTIVE nature of product? (the more you use it, the more you need it, the more you use it…)

LONG-TERM VALUE proposition? (pain with switching)

THANKS ELLIOT!

GOT A STARTUP? MAKE YOUR PITCH!