The startup ecosystem is a living and growing organism that most cities are trying to add to their modern economic development strategy for job creation. The startup ecosystem is typically a very positive kumbaya environment. There are lots of smiles around town while people with rose colored glasses are selling more commercial and residential real estate with the improvement in the local economy if companies are raising capital, paying better wages and having successful exit events such as an IPO on Wall Street or being acquired.
Sometimes the community is cruising along Complacency Road and forget to notice that some aspects of the ecosystem have become stale and have stopped growing but the leaders are resting on the headlines from recent accomplishments of the entrepreneurs. Yes, entrepreneurs are the focus of successful ecosystems. Brad Feld of Techstars makes this clear in his books.
Wilmington, North Carolina has had tremendous success in the last seven years in the growth of the ecosystem. Live Oak Bank had spun out a startup called nCino and they now have a younger company called Apiture. George Taylor and his son Kurt had started an exciting beer and wine app called NextGlass. Companies like Lapetus Solutions, EasyVote Solutions and Performance Culture have since raised multimillion dollar rounds from investors.
In 2020, three of the high profile startups “graduated”. nCino had a record breaking IPO on Wall Street, NextGlass / UnTappd made a huge deal with a private equity fund from Boston and in a smaller deal, PlayerSpace was acquired by a Texas based company. (We still have work to do to brand Wilmington as a webinar leader recently thanked us for joining the call from Delaware.)
Who are the next startups to keep up the momentum of the ecosystem?
Those earlier companies had raised significant venture capital and angel capital through decades of industry experience and contacts, learned how to overcome setbacks, great product development and startup success including exits. The next generation of entrepreneurs in Wilmington are mostly first time entrepreneurs. Wilmington is just now seeing some of the employees of those exited companies start to reach out as they start their own companies.
In exciting and positive news, Wilmington is now seeing a return of UNCW graduates who left town after graduation to find jobs in bigger cities. They are now returning with experience and ideas to start new companies at the coast. Three recent presenters at the 1 Million Cups Wilmington chapter were UNCW grads. (And a UNCW graduate who also is now a combat veteran of the Army is returning from living in Maryland to build a new company in Wilmington.)
First time entrepreneurs don’t have the reputation to simply make a few calls, get meetings and line up capital and clients quickly. When they do get investor meetings, they get the polite NO, which means “call me when you get revenue / clients”, which of course means the entrepreneurs have to take ALL of the risk to develop the product without outside investor capital. (Maybe it should be that way and the entrepreneurs would keep more equity but there is a bit of jealousy about Silicon Valley startups who can raise capital at a MUCH earlier stage.)
First time entrepreneurs tend to only share their business ideas and practice their investor pitch with friends and families in the earliest stages. These friends and family of course do not want to rain on the parade and ruin holiday dinners by telling their entrepreneur friends that their startup is an “ugly baby”. All startup babies are ugly, just some have more resources to buy makeup to hide the flaws. All startups have flaws, warts and scars. Good management can fix those flaws.
By the way, bureaucrats in the community surrounding the ecosystem are in the same position. They can’t really be critical to entrepreneurs as public (government) employees or the entrepreneurs complain to the Mayor or head of the Chamber and keep in mind that everything is supposed to be rosy / supportive in the ecosystem with VERY few exceptions.
The fix for a complacent ecosystem is some “Tough Love” from outside sources
For the last 15 years, I have been holding one of my most unique events called my “Tough Love” or Uncle Curmudgeon event. I started this event in Asheville, NC when local companies were really struggling to make progress with investors within a brand new ecosystem organization and a new set of angel investors who were new to the concept. The Asheville event helped 4 early stage entrepreneurs raise millions of dollars in the next six months.
The startup companies / entrepreneurs that participate in this event are in a variety of stages from pre – product, pre – revenue to ones that have graduated accelerator programs but have not been able to finish raising a round beyond the obligated family and friends. Entrepreneurs need to realize that it is not enough to be the best startup in your small city. Good connected investors see startup pitches from entrepreneurs from bigger cities in nearby regions.
There comes a time in the ecosystem when the new entrepreneurs have been pitching for 6-9 months with no positive outcomes and this is particularly painful in a young ecosystem in a smaller city where the young companies are more visible. Sometimes the community is a bit fatigued by seeing the same pitch from the same companies over and over again at regional events. Sometimes the problem is the quality of the presentation and sometimes the presenter has given this presentation so many times that they are going through the motions because of so many previous rejections. And sometimes the CEO is just not a good presenter. This is a good time for this kind of event to change momentum. The fact is that good entrepreneurs have thick skin, are eager to learn and can put mentor advice through the filter of their own values. We just held this event on March 4th with 8 local and regional entrepreneurs with a working lunch.
The process of the “Tough Love” event is that you provide a standard 12 slide / 20 minute presentation format for ALL of the entrepreneurs to use. The entrepreneurs should have an existing presentation deck and the provided format should have similar information just maybe in a different order. ( Of course an early test of the entrepreneur is if they use the provided format or if they ignore the request of the event organizer which in turn shows the entrepreneur may not be coachable. Red Flag #1)
The key to the event is to bring in judges that are respected in other regional ecosystems to give the critical feedback required that the local people choose not to give due to the future awkward social situations if there is negative feedback about their startups. These people can be retired venture capitalists or the tougher mentors on ecosystem committees within the region or even out of state. You may even offer to pay them for the full day.
Five insights from the most recent Tough Love Event (March 4th, 2021)
- The investors have a good BS meter – The investor pitch is different from the marketing and sales pitch. The entrepreneurs need to realize that the goal of the initial investor pitch is to get the 2nd meeting for the more hard hitting due diligence questions. You don’t need to sell your product to the investors. Don’t spend too much time explaining the great technology you developed. You need to show the full potential of your startup to the investors and they can see an exit event.
- The 8 second rule – The investors have a limited attention span. Your first couple of slides really need to grab their attention. If the early slides are unclear and you don’t seem to be presenting a true solution to a true pain point that someone is willing to pay for, the investors will check out and they will start checking messages on their phone and start daydreaming about a steak dinner with a tasty red wine. (or is that just me?)
- The Bloated Elvis Slides – The presentations need to evolve as your company matures. Yes this sounds like common sense from Captain Obvious but you would be amazed that as companies start to achieve some milestones, they simply add these things to the presentations without taking out slides from older presentations and suddenly you have a BLOATED 40 slide deck.
- The Investors likely did not make their money in YOUR industry – The entrepreneurs need to be careful about using the jargon of their specific industry. By using acronyms of products or organizations in the industry, you can not expect the audience of investors to keep up and make informed decisions because they don’t know what the hell you are talking about. If the entrepreneur says, “We won a SBIR grant for our IOT product from the NSF”.
The investor may think out loud, “WHAT? Why did a startup get a grant? Don’t non – profits get grants from companies? Is your startup really a non-profit? Why am I here if this is a non-profit pitch? “
- Less is more – The entrepreneurs can be so excited about their own startup and their own technology that they want to tell the audience everything like a person just returning from a European vacation with too many pictures of every member of the family trying to push up the leaning Tower of Pisa.
– Stay with three bullet points per slide. Don’t have paragraphs that you read word for word on the slides.
– Don’t put EVERY competitor in the industry with 70 logos on the competition slide. How much investor money would it take to overcome 70 competitors?
– Too many images you have on the slides can distract the investors from focusing on the important text information you need them to understand.
Again, this unique event goes against the norm of boosterism of putting entrepreneurs on a pedestal in the community but it hacks the ecosystem complacency and lack of momentum problem by potentially preventing the future NO from the investors where the entrepreneurs only get one chance to make a positive impression. This event can also clarify any “mentor whiplash” where they have received conflicting advice from people in the community who may mean well but are giving outdated insights. After dusting themselves off and a bruised ego, the entrepreneurs are better off and their companies will have a better opportunity to succeed in the long run.
And who knows? There have been direct investments into the startups from the judges at these events from previous years. So the tough love really just makes the whole ecosystem stronger.
Jim Roberts has worked in entrepreneur development for 20 years in Charlotte, Asheville, Durham and Wilmington. Jim started the UNC Wilmington CIE as Founding Executive Director, started Network for Entrepreneurs in Wilmington (NEW), Wilmington Angels for Local Entrepreneurs (WALE) and led expansion of Bunker Labs into Wilmington. Jim also has his own podcast called 3 Sips of Advice. Jim serves on several state committees for NC IDEA, NC Tech Association, CED and 1 Million Cups.