Business Rx Entrepreneur Q&A with Elana Fine

Elana Fine, Associate Director of the Dingman Center recently participated in a live chat with the Washington Post’s Capital Business magazine for their Business Rx column answering questions from regional entrepreneurs. This post features some of the questions from the live chat. Follow the Dingman Center’s Facebook Page and Twitter Page for information on the next live chat and other Dingman Center news and events.

Q: What resources would you recommend for entrepreneurs interested in starting a business but in need of guidance?
A: The DC area has a number of great organizations including Foster.ly, ProudlyMadeinDC.org (for resources), the VA and MD economic development organizations, StartupMD/DC/VA, DC Tech Meetups, DC Tech Facebook group and university resources at UMD, Georgetown, George Washington and George Mason.  I’d also suggest reading Business Model Generation to get started.

Q:I have always wanted to start my own business but have no idea what kind or where to start. Are there any resources that could help nudge me in the right direction or help me find what my strengths/weaknesses are?
A: There are a couple of ways to go about it — think about the things that you are most passionate about — and the things that drive you crazy.  What are your “I always wish there was a place to do this..or a way to do that?” Where do you see people waiting in lines…and why? Talk to your friends and colleague about the businesses they’ve always wanted to start.  My mom is a great example; she retired and started getting into writing because she always kept a journal. Now she is thinking about starting a business that gets groups of people together to write about shared experiences.

Q: What industries, other than tech, are successful startups? 
A: Cupcakes! All kidding aside, I think we are seeing a lot of activity in the food space.  Look at trends around specialty restaurants – burgers, cupcakes, frozen yogurt. Also a lot around organic, locally grown foods.

Startups around improving education and healthcare have no shortage of problems to solve. Also, there is also a blurred line in many cases between tech and non tech. A lot of product companies now sell online.  Is that a product of a tech company because they have a website?

Q: I have been working on a great idea that will revolutionize the way people shop online. The problem is, most investors or prospective customers refuse to sign a non-disclosure agreement and I don’t feel comfortable talking to anyone about my idea without a certain level of protection. How do I protect my idea from being stolen?
A: This issue comes up very often, so you are not alone in this dilemma.  Investors at all stages rarely sign NDAs because they often speak to so many companies and can’t be precluded from an investment opportunity.  If you aren’t already in prototype or beta testing stage, you are probably too early to even talk to investors.  Select advisors that you know and trust for early feedback — and then conduct market research to determine if you are solving a problem or creating a product that potential users will find valuable.  I think there are very few examples of investors stealing an entrepreneur’s idea — they have reputations on the line as well.

Q: My company is currently looking for angel funding. I am the brains behind the business, but I am horrible at pitching. Will investors be turned-off if I bring in someone else to pitch my business for me?
A: I always suggest the CEO should pitch because at the end of the day you are also the chief selling executive. Investors want to feel comfortable that you will be able to sell to customers or other partner who you need to sell on your vision.

Pitching takes A LOT of practice. At the Dingman Center we spend a lot of time coaching students and local entrepreneurs on their pitches because it is for more than just raising money. Find advisors and coaches who will help you — you’d be surprised how much progress you can make. Also, find the venues where you feel comfortable. Pitching investors doesn’t have to be in a crowd, one on one meetings are also very successfully in building rapport.

Q: My partner and I are working on developing a beta version of our app. He says since it’s functional we should release it to our beta testers. I say we need to improve it so people are wowed and don’t get a bad first impression. What’s your take on this?
A:  I recommend releasing it as that is the purpose of a beta test.  Beta users know it is in its early stages but can provide you very valuable feedback.  Many local startups have been extremely successful in launching companies following Lean Startup principles — get your minimally viable product out there and then get feedback early and iterate.

Q: How ambitious should a start-up be when it comes to capturing one or two markets versus getting really big quickly? We’ve seen examples of local firms that have taken both approaches. Obviously money can be a limiting factor, but are there other considerations?
A: Startups always need to think big — but execute smart.  Think about splitting your time so that it is focused on your top 1-2 markets, but that you allow some time to be opportunistic.  Focus on creating a replicable sales/customer acquisition model — that is often easier to do by focusing on one market.  You can learn what works/what doesn’t and then move on to other or larger markets.  Money is not the only limiting factor — you don’t want to dilute your expertise either. One step off your path is okay, but sometimes it takes you 2 steps off focus which can be hard to find your way back.

Q: How early should founders start a conversation about equity, both among themselves and with early employees? What are some good guidelines when approaching the subject?
A: Founders should have these conversations VERY EARLY. I’d decide what size of an option pool you want to set aside (I recommend 10-15%) and then determine what percent you will give to certain hires (senior management, developers, sales, etc). This will give you a set amount of equity to play with and help guide your hiring/grant decisions.

Q: It can often seem like investors have the upper hand when it comes to equity conversations — after all, they’ve got the money. How should entrepreneurs approach conversations with financiers about how much of the company they turn over in exchange for an investment?
A: Before you start talking about valuation, startups need to find early investors that share their vision and can also add value to the company.  Finding angel and VC investors is a two way street — you are selling them on the investment opportunity and they should also be selling you on what they bring to the table.  Most angel deals are done at $1-4M pre-money valuation, so you need to think about how much you are willing to give up in equity and how much you really need to raise to get company to next milestone.

 Elana Fine joined the Dingman Center for Entrepreneurship in 2010 as the Director of Venture Investments and was named Associate Director in January 2012. In this role, Elana continues with her primarily responsibility of managing the Dingman Center Angels, a network of active, accredited angel investors providing open and efficient access to early-stage capital for entrepreneurs in the Mid-Atlantic region, and is also the primary center contact within the Smith School and on campus.

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