Golden Horn Ventures

What does Venture Capitalist protect?

Venture Capitalists main job is not to protect paper bills/ paper money. However, for paper bills to multiply, venture capitalists need to protect the mind-set, with which innovation can live and prosper. This is why venture capitalists ask for high management fees and success fees from their investors. The art of venture capital is in living and practicing this mind-set.

Billion-dollar idea is the focus of a venture capitalist. Disruptive technologies, paradigm shift, finding the black swan is what venture capitalists need to think, live and die for. The rest is in the hands of entrepreneurs and the team.

In the emerging markets - including Europe- where when entrepreneurs choose the path to innovation, technology and start-up life - the world is quite lonely. In a path to creating "billion-dollar" companies, the tools in emerging markets - such as law and accounting system - as well as people around (family, friends, teammates), aren't positioned for support, but rather create barriers when there is a conflict. And there is always a conflict when you are moving and growing and especially disrupting.

I have come to realize more and more that there is a "billion-dollar" mind-set.

Billion-dollar mind-set represents:

-- no entitlement, pure meritocracy,

-- courage and fearlessness,

-- honesty and self-esteem,

-- discipline and asceticism,

-- investing in a long term vision and believing that long term vision always wins,

-- lust for meaning and mission,

Did I say courage and fearlessness? I want to say it twice. It is crucial to remind the value of "Mission" and "Courage" together.

The dilemma of a venture capitalist in an emerging market is that it is very schizophrenic to protect the mindset without tools in place. The tools in place need to be in accounting, law, business society rules, etc. 

For example, according to accounting and written law in Europe and most of emerging markets, "value" is only defined by hard assets such as real estate, machines, doors and chairs. In this definition, "value" is very well defined and easy to part or share.

However, when the value is in soft assets, especially when it is startup value, things get complicated. If soft value isn't turned into hard assets and "paper money" yet, then what does law protect? How can it be written in the books? When the accountant writes it in the books, can she defend it? Can a lawyer defend the company and company's soft assets to anybody who is trying to kill it? Can any company lawyer in Turkey say " It is all about the entrepreneurs. It is all about the company"?

If the company lawyers, company accountants doesn't understand the value, then who protects the company and the soft value in the long term? Just the entrepreneur? How can she defend it if the lawyer doesn't believe her? Quite often, so-called venture capitalists in the emerging markets are too busy protecting themselves rather than investments.

If there is no one else in the business environment to think, live and protect the mind-set then how can there be any venture capital, innovation and wealth creation? It is an uphill battle that we are fighting. We are not finished yet, in fact we are just starting as we have just started understanding.

The Dirty Dozen Mistakes of a Startup Entrepreneur

Entrepreneurship is hard. Tackling technical and business problems and building a business from the initial idea up, one step at a time is very difficult.

Starting from the idea, technology entrepreneurs make certain mistakes that make their lives even more difficult. These mistakes can be caused by the entrepreneur fixating on what she is comfortable with - people tend to stay in their comfort zones -, or misconceptions of what is valuable in business or maybe simply being a first time entrepreneur. As investors in early stage technology companies, we keep on seeing similar problems in different companies, which tells us that these are common mistakes, especially in emerging regions.

Below is a list of these mistakes which we have seen and which might eventually cause a business to fail or or an opportunity to be missed. It isn't intended to be exhaustive but rather indicative. Some of the mistakes listed are common to the nature of the technology entrepreneur, but some are the results of the state of the sector in emerging countries.

Mistake No 1: "We are a framework company and can do it all"

The idea of a framework company sounds attractive. Especially, in this region entrepreneurs tend to collect their expertise into a "framework" with no product or application definition. Having a framework that works can be very advantageous. However, the downside is the entrepreneur's indecisiveness on selecting a focal application that will act as the showcase for the power of the framework. Sometimes, because the entrepreneur lacks sufficient knowledge on a specific area or the "productization" knowledge and expertise, she tends to sell the framework - and that puts her in a very difficult play.

An example of a successful framework is what the Skype entrepreneurs had. They had a great peer-to-peer distribution application that they developed in a company prior to Kazaa. Later they used this framework in Kazaa. Afterwards, in Skype and now in Joost. Each one of these applications are products that rely on solving the hard peer-to-peer distribution problem.

In a startup, a showcase application and the usability, traction, revenue model of this application is very important in the proof-of-concept stage which will eventually turn to a profitable business.

In addition, honestly, it takes enormous money and effort to be a framework company. It doesn't happen overnight.

Mistake No 2: "Everyone will love this cool technology"

Fall in love with its technology and produce a product that nobody wants

Many entrepreneurs forget that few people buy a product or consumes a service because it is just a cool technology. Unless the end product or service is any use to many, the business can hardly scale to a size that makes you a significant company.

It is the product that matters not the technology in order to become a company that is significant. The technology is an enabler, a differentiator in the product. With technology you can deliver things that you weren't able to before. With technology, you can make it cheaper, faster, better,... But nobody buys the technology by itself, the buyers/ consumers don't even understand the underlying technology. They see the end results.

Mistake No 3: "I want to raise a lot of money so I can feel secure"

Raise too much money and Burn too much cash

Raising too much money is a killer. It actually makes a company die faster. I would say, raise small amounts, test if the bet is the right bet, if not learn and modify and revive. (It becomes harder to be profitable if not anything else)

Smart entrepreneurs debug and test what they think is true and verify with their market that their bet is actually true. They don't assume too much and try to build a huge business depending on their assumptions.

Mistake No 4: "We have the same features as X and more (X being the leader or worse a giant)"

Run after the Competition

Entrepreneurs, believing they have a technology that is much better than that of the big players, the usual suspects, try to adapt the features set of the competitors. That doesn't necessarily make any difference in the product, nor in the experience that the end user receives.

Try to be revolutionary instead of evolutionary and try to disrupt the very rules of the big players. After all, in disruption you have a big advantage being a startup.

Mistake No 5: "While we do our advertisement product, we will also run a content site that uses the product"

Startup with No Focus, No defined Bet

A startup has limited time and limited money to spend. Therefore, the startup shouldn't try to do too much. The startup needs to concentrate on what the entrepreneur and the team knows and can do best. They need to create a value there. They don't need to waste their precious and scarce money and time on things that they don't want to bet on.

The real value that the startup can gain is in the creation or expertise that the entrepreneur and the team will gain in testing its bet, focusing on the core business. Doing that, the company gains huge value learning the market, rather than guessing.

Therefore, the startup needs to focus on a defined bet and learn. When they hit the target and really create something wanted then they can build the business around it. But their core needs to be valuable and most of the work and value creation (operational and strategical) needs to support the core of the company.

Mistake No 6: "We can't define the Product, We don't have a CTO, we don't have ...."

Lack of Talent in the right places: The Human Resources Problem

The gap between technology and a useful and wanted product is hard to cross over. It is the entrepreneur's job to find the right people and build the team. However, especially in the emerging world, experienced talent who believes in a startup can be hard to find.

The entrepreneur's job is to find and partner with the right people for the right reasons.

The lack of management talent and the lack of productization experience becomes a killer for the company very early on.
That is why you see many hard core technologies with no specific products.

Another important talent for the startup is the CTO (chief technical officer). CTO is a very important person that a startup needs, who is key in finding the right ways and using the right technical tools and strategies for adoption, stickiness, openness, scalability, etc.

Mistake No 7: " I need to make money fast"

Chose early revenue and divert from the grand vision

An entrepreneur needs to focus on the milestones.

If you are in technology business in an emerging country, it is harder to keep believing in and keeping your head straight out of the local ups and downs, how other people are making money, etc.

Local dynamics become a threat for the entrepreneur, because the technology market is still in its infancy. However, big corporations need consulting budget and have just asked for the entrepreneur's help. Todays' money looks sweeter than risk and tomorrow's gains. And the entrepreneur usually chooses to dedicate some or all of her and the company's time doing consulting and making money, without working on the grand idea or the product.

Lack of success stories yet, lack of respect for innovation and the lack of an existing ecosystem to support the idea owner/ entrepreneur in the region causes the entrepreneur to divert from her idea. By working with a company that doesn't have a place in the grand vision, causes her to give it all up. It is the story of the boiling frog. When she realizes that she hasn't done anything for her product, the window of opportunity is long gone. She probably will realize what she has done when she sees some other entrepreneur doing exactly what she wanted to do.

But thanks to the Internet and the global World, that is changing rapidly. Success stories from the emerging world enlighten the path more and more.

Mistake No 8: " I can't tell anybody about my project. They will copy it right away!"

Secrecy: The tendency to create a closed environment and keep the ideas and projects secret

A smart entrepreneur knows that execution is the key for an idea to be successful. A smart entrepreneur also knows that she needs to learn through the process of talking and sharing. If she keeps the idea to herself and not share and have the opportunity to discuss it with other people, then she will end up learning what others think after she has spent a lot of time and money.

Ideas need to be collaboratively worked on to make it practical for many to use. A smart entrepreneur gets all the information she can about what potential partners can think or what the customers say, even if it is just a preliminary stage. Ideas are very valuable and different ideas concerning

This also has a really negative effect in the environment as the ecosystem of innovation needs and open environment where everybody shares ideas, and opinions and ideas become mature through a collective sharing process. Open environments readies and allows innovation.

It is healthy to get in discussions and create conflicts. No conflict no interest!

Mistake No 9: " We don't have the Stock Option Plan"

Don't share the upside with team members

Stock option plans still don't exist in the emerging countries. It is crucial for a startup to have the stock option plan, because it is the only way to attract talent. Stock option plans allows the wealth to be created to be distributed among the team members. It sends the signal to the team members that the success is through the work of the team and the rewards will belong to the team.

Mistake No 10: "My first motive is to get rich"

Try to get rich instead of changing the world

Creating some local copy of a winning business is an easy win. However, in a fast globalizing world, this strategy will soon be futile. In addition, without understanding the business deep enough, a person can't really make a successful copy. A successful copy needs a lot of understanding of the
business as well. When the entrepreneur's target is to only get rich, we don't believe technology is an area that is easy to play in.

Instead, innovate, innovate, innovate...

Mistake No 11: "Who Needs Mavens, Connectors and Salesman?"

In an era where information is abundant and reachable by anyone, for a product to stick the entrepreneur needs mavens, connectors and salesman. In an emerging World this is another challenge, which we will keep the issue to another post for now.

Mistake No 12: "Show me the Money!"

Venture Capital isn't just a game of finance, it is more a game of operational management capabilities, expertise, network, simply "the business itself". Finance is just the means to be cash flow positive and stay alive without facing bankruptcy during 'the idea' to "to-market'. Venture capitalists need to add significant value to the company. In our mind, that is much more important than the finance that a venture capital firm provides.

Without the value big threats await the startups. The finance speed up the process in a company's growth, in other words capital buys the time to market, make the process faster. In parallel, the entrepreneur and the team needs to be equally ready to deal with the problems that come up faster than they will be ready to face. They need to be emotionally ready to understand the market, interpret what the market tells them, what the next steps need to be or many times deal with the company and team problems, which require more emotional objectivity.

That is why choosing the right Venture Capital firm very important in a startup's life. Seasoned executives know the roller coster ride, foresee the problems before happening and support the entrepreneur and the team and help them keep their business and help them grow.

Mae Ozkan

Leveling the Field for Innovation

One of the problems with the entrepreneurial environment of the emerging countries is not the lack of ideas, but the lack of tools that help the entrepreneurs to make something out of their ideas and the examples of successful companies.

The scarce resources are finances such as venture capital for early and seed stages, business experience and an open environment, where innovative ideas are fed by each other and talented people are supported by experience and networks.
In emerging countries, all of these important ingredients are lacking. The environment doesn't have finance tools. The environment doesn't support openness. There is no conversation among companies where they encourage each other for more innovation and build on top of each other's ideas. An open environment could easily be supported by rewarding the talented and innovators and encouraging dialogs among them.

The scarce resources are barriers to produce meaningful products and companies from innovative ideas and technologies. The end results are what makes the difference in the world. The consumers don't buy the ideas, but the products. However, the scarcity of tools and opportunities to make the end results and successes from meaningful ideas stay on the way of an entrepreneur.

However, luckily, the world is changing. Some of the ingredients that are needed to turn ideas into products are becoming more available for people all around the world. The result will be leveling the field for innovation and thus, the ideas will worth more and more as the needed ingredients are becoming abundant and commodities.

For example, the Internet has leveled the reach of information for most parts of the world. The open source movement has been a great force in the industry. It has disrupted many companies, while giving opportunities to many entrepreneurs with ideas.

Now, the rise of services such as Amazon’s Simple Storage Service (S3) and Elastic Compute Cloud (EC2) that are cheap alternatives to storage and heavy lifting of Internet applications, will level the playing field. Solving heavy lifting problems will result more time being dedicated to differentiated ideas. The result will be more innovation and smaller market cycles, therefore more opportunities for the ones that have the right alignment, and more threats for the ones that are big, hard to move and lack an understanding of the industry dynamics.

The technology industry is going through a faster chage more than ever. It will change other industries related with it, including the venture capital industry. When the ideas matter, the power of whoever holds bigger chunks of money will be replaced by whoever holds the bigger and better ideas and whoever has the value to add. This exciting change will disrupt many things along with it. These changes will give a chance to the world's best kept secret projects to be secret no more!

Mae Ozkan

A Brand New World: The Promise of Globalization is Here to Stay

The cover of Economist magazine's Sept 16th issue reads "Surprise! The power of the emerging world". The articles inside are very interesting and supports Golden Horn Ventures belief in the emerging markets and Turkey in particular. There is one survey on the world economy titled, The New Titans.

Here is an excerpt from it:

"Last year the combined output of emerging economies reached an important milestone: it accounted for more than half of total world GDP (measured at purchasing-power parity). This means that the rich countries no longer dominate the global economy. The developing countries also have a far greater influence on the performance of the rich economies than is generally realised. Emerging economies are driving global growth and having a big impact on developed countries' inflation, interest rates, wages and profits. As these newcomers become more integrated into the global economy and their incomes catch up with the rich countries, they will provide the biggest boost to the world economy since the industrial revolution. Indeed, it is likely to be the biggest stimulus in history, because the industrial revolution fully involved only one-third of the world's population. By contrast, this new revolution covers most of the globe, so the economic gains—as well as the adjustment pains—will be far bigger..."

The chart numbered "2" shows that countries that were once strong, became weaker with the industry revolution and they are"re-emerging" again.

The article continues as follows:

"Emerging economies as a group have been growing faster than developed economies for several decades. So why are they now making so much more of a difference to the old rich world? The first reason is that the gap in growth rates between the old and the new world has widened (see chart 3). But more important, emerging economies have become more integrated into the global system of production, with trade and capital flows accelerating relative to GDP in the past ten years...."

"What is also new is that the internet has made it possible radically to reorganise production across borders. Thanks to information technology, many once non-tradable services, such as accounting, can be provided from afar, exposing more sectors in the developed world to competition from India and elsewhere..."

As the Internet and the abundance of information and technology has connected the emerging world to the developed world (to the distribution points, the centers/hubs of economy), there are more changes coming up.
The Internet feeds emerging markets with information and brings different communication and business rituals. The globalization itself has created know-how in the emerging countries. I have partly discussed the very same points in my previous post titled, Innovation, Technology and Emerging Markets.
What I would like to add to the Economist's article is innovation from the emerging countries and the disruption that it creates on the world economy and markets. Technology introduces many new ways of distribution and creation. It also allows the voices of the poor and far audible all over the world. The products and services of the ones in the emerging markets become available in the international markets as the barriers to entry decreases or better to say, the ability to distribute and innovate is democratized. That will result more innovation from the emerging countries, thus creating more disruption in the world economy.
As a result, the catching up to the developed world standards will be faster than we envision it will be. The way that it will happen will be disruptive. Just as startups can rock the monopolies (eg. the entertainment industry), companies from the emerging world can rock the world economy's existing equilibrium and create more prosperity for many in and outside of the emerging markets. Pretty soon the definitions of "emerging" and "developed" will change. The macro stories will be changed by "micro" successes and disruptive company/product/service names.

Wasn't that the hidden promise of globalization anyway? The promises are there for us to grab. It isn't easy, but it is here and it is the future.

What the Brand New World means for IT?
• Countries that have only been used for outsourcing start creating innovative products and services,
⁃More innovation will come out of the emerging countries as the emerging countries have piled up information and ideas and the reach of technology and building a technology company getting cheaper everyday, thus the geography of the innovation is becoming trivial,

• Local will become international more quicker than ever,

• In addition to big companies (such as Microsoft, IBM) being international and harvesting the benefits of being international, startups from the emerging countries will become international if /when there is a value (a new technology, a new business model, a new distribution model, etc.) in them (I specifically say startups, not companies, because I believe that only startups can pursue opportunities and create disruption),

• The markets are getting bigger (the transition from the mainframe to PC has created more than $300 billion wealth, the transition from PC to services will create even more significant wealth). The sharing of this wealth between the developed and emerging markets is starting to shift as innovation comes from any geography,

• New distribution models make it possible for emerging market players to become global for service businesses and digital products as broadband connection becomes prevalent,

• New business development models are rising: (Business 2.0, A VC blog by Fred Wilson) that are more independent of the geography of the company, but are dependent on the technology and usefulness and their disruptive qualities,

• New venture capital models are rising:( Venture Capital 2.0 , Early Stage VC blog by Peter Rip)
⁃"The basis for competition in the Venture 2.0 Crossover model is a focus on markets, independent of stage, geography, and risk capital instrument.",

• The disruption is happening everyday. The strong is weak when it lacks to innovate (eg. The rise of new business models, the struggle of Microsoft with advertising model vs. the software as a package),

• Innovation, disruption and links; The innovators that have a link to the centers of the economy have a global impact and influence. Disruptors that have links to Silicon Valley will effect the equilibrium of the market.

Mae Ozkan

How to Create the Right Environment for Startups and How to Link to Silicon Valley?

On my last post on Social Entrepreneurship and Startups, I have mentioned Paul Graham's essay on how to be a Silicon Valley. In the post before that, Brain Drain or Brain Circulation, I have mentioned news.com's interview with Anna Lee Saxenian. I agree with her when she points out knowledge circulates with people. When people who have worked in Silicon Valley come back to their home towns and establish similar businesses, they carry the knowledge and business experience of Silicon Valley with them.

In this post I would like to combine my thoughts on these two topics and discuss how to create the right environment for startups and how to link to the heart of technology, Silicon Valley. This post will also shed a light on why we, Golden Horn Ventures, would like to build a bridge between Silicon Valley and Turkey.

For a knowledge / technology economy or innovation, the first and most important ingredient is people. People and their visions are crucial. People and their ability to dream and the passion to execute their dreams make all the difference. With dreams humanity have built and collapsed nations, have invented and built machines, sytems, medicine, etc. Dreams have brought us from homo sapiens to mankind of today.

As Paul Graham puts it in his essay:

"What it takes is the right people. If you could get the right ten thousand people to move from Silicon Valley to Buffalo, Buffalo would become Silicon Valley."

We can't move people from Silicon Valley to Turkey, however many people who got educated and worked in Silicon Valley end up back in their home towns in Turkey. They want to work and produce as they have done before. They are used to the ways of Silicon Valley; the openness (open organizations, open discussions, open software, open ideas, etc.), the competitiveness, the venture capital, the values (to 'dare' is valuable), the business rules and the business rituals. They are used to the ways of how to innovate as in Silicon Valley, get your product out there, release early, build business partnerships early, etc.

He adds:

"I think you only need two kinds of people to create a technology hub: rich people and nerds. They're the limiting reagents in the reaction that produces startups, because they're the only ones present when startups get started. Everyone else will move."

Rich people and nerds. However, they both need to be more passionate in Turkey than they are in the US. In the US there are reference success stories. There are numbers that show that when you innovate, you succeed! In our case, the rich needs to believe in building a startup / technology economy and building a better future for all. The rich and the nerds both need to understand the global dynamics and the opportunities that lie under.

In developing countries, or in any place where there is not a startup / technology economy - where startups haven't become successful businesses and haven't generated wealth for the many- nerds end up with some work to sustain living such as fixing PCs. Eventually their ideas and their dreams die with every PC that they fix. That is why in places where there is no startup economy, the rich needs to have a clear vision of what future holds for those can innovate and those that can not and the opportunities that are waiting for those who can.

But how about the accumulated know-how, capital and talent? Just because we have 5 teams and 5 startups set up, Turkey wouldn't become the centre of technology and innovation. We need links and partnerships to the accumulated know-how, capital and talent. We need connections to the world of technology, Silicon Valley.

By connections and links, I mean people and partnerships. They will help how things get done, how technology is applied, how technology turns into a product and a business.

By the web, we all reach to information, blogs, codes, examples, theories, messages, discussions at the same time. But connections are needed to be a player, to get more of the accumulated information in the Silicon Valley case by case. With each project the teams will get smarter, understand it better, get the culture of the Silicon Valley in their DNA. Later this will accumulate in the form of know-how and talent. By every sucess story capital will add to the equation. As a snow ball, it will get bigger in every turn. Please note that for know-how and talent to accumulate 'openness' needs to be deep in the culture - open discussions and open organizations.

By the rich people and the links, the nerds will get an access to experience, capital, advise and connections.

It is the people and people only that will make the difference.

Another point that I want to quote in Paul Graham's essay is:

"A corollary is that you have to keep out the biggest developer of all: the government. A government that asks "How can we build a silicon valley?" has probably ensured failure by the way they framed the question. You don't build a silicon valley; you let one grow."

Nerds want to think free and act free! People with dreams could only be fed by other entrepreuners financially and business-wise! People who have dreams to change the world by production and innovation should be set free to do so and supported in an entrepreunerial way. In this way a healthy ecosystem will evolve for technology and innovation and startups.

Mae Ozkan

Social Entrepreneurship and Startups

Most people don't understand what a social force startups and innovation can be. There are a lot of changes that can only happen through startups. Startups are changing old business ways and shaking monopolies.

There are many social entreprenueurship projects coming out all over the world, whose goals are enabling the other half of the world with ideas and innovation. For example, microfinancing and Grameen Bank. Their story is very inspiring. Here is an excerpt:

"When we started giving out tiny loans under a system which later became known as the Grameen Bank, we never imagined that one day we would be reaching hundreds of thousands, let alone five million, borrowers."

This project created disturbance in loaning and credit systems. Banks that think most aren't worthy of a credit saw a business that is profitable and changing the world one credit at a time.

It all starts with an idea. I believe as many do, entrepreneurs' need to change the world. When you want to change the world and make a difference, you definitely succeed!

This is what Golden Horn Ventures' targets: To be a social force by supporting startups and helping them become companies that change the markets. One company at a time, innovation and information of how this innovation becomes successful businesses will accumulate in Turkey and success stories will change the society. The environment that supports it will change. More VC's will be present, more people will support more ideas. This all circles!

Technology is one of the disturbing forces in the society because it gives the ability to people to reach to information cheaper, produce faster and cheaper, etc. etc. (This is a big topic and I don't want to be sidetracked.) To create an ecosystem for technology startups requires some ingredients. I would suggest reading Paul Graham's essays on How to be Silicon Valley and Why Startups Condense in America to understand the ecosystem better. They are excellent essays!
Mae Ozkan