Making your way in Silicon Valley - action plan

In the IT sphere, the hottest, most profitable and accessible topic for even a schoolboy is application development. The Forum talked to experts, entrepreneurs and investors in America and found out how Russian-speaking startups achieve success in Silicon Valley.

On According to research firm Forrester Research, revenue from mobile apps will grow to $ 86 billion this year.

Indeed, in this area the potential profit is high, and the threshold for entering the market is minimal. So, in 2013, a seventeen-year-old schoolboy sold the Summly news application to Yahoo for thirty million dollars. In 2014, Ukrainian immigrant Yang Kum made the biggest deal in the history of Facebook, selling his Whatsapp messenger for $ 16 billion. Launched in 2008, the Airbnb startup — in June, 2015 received an investment of $ 1,5 billion.

The Forum gathered a few tips and compiled a step-by-step instruction for a startup.

1. Make sure there is a need

It is important for a startup to be in the right place at the right time. A striking example of this is airbnb - a service with which you can rent housing directly from owners around the world. The company appeared during the 2008 crisis, when no one wanted to spend money on hotels. And she shot. In 2014, Airbnb's value exceeded ten million dollars.

Anyone who plans a startup, it is important to answer for yourself the following questions: why is it necessary right now? for whom is this application? what problem does it solve?

Thirty-two-year-old Russian woman Diana Tkhamadokova founded the start-up application IStyleMyself five years ago, which recently recognized as the best at the Silicon Valley Open Doors conference. The idea arose, as is often the case, from one’s own unmet need. Diana worked in the field of capital management in London, and it was important for her not only to impress at meetings, but also to be remembered for her stylish and spectacular appearance.

“Due to the fact that they remembered me, I rotated operations faster than my colleagues. But the choice of clothes every morning took a huge amount of time and energy - and I wanted something that would take these decisions for me. Then I began to search Google for applications that tell you: you have such a skirt, and you can wear it like this. I was shocked when I realized that there was nothing that could give me these answers instantly, no, ”Diana recalls.

To ensure that such a need exists, Diana conducted research. “I interviewed women at the age of 16 + to see if this is a real problem or if it exists globally. And ninety-four percent of women confirmed that they need help choosing and buying clothes, ”the girl says.

2. Assemble the right team

Igor Gitlevich, a former Muscovite who has been working in the American IT market for over twenty years and founded the company Business Intelligence Professional Services, believes that the CVs of startup team members are often more important to potential investors than an idea or even a business plan. “The idea, in the process of negotiations with investors and consultants, is modified beyond recognition, and only a strong team will be able to pull it out,” says Gitlevich.

Igor Gitlevich, IT-pedprinimatel. Photo: personal archive

Experts interviewed by the “Forum” recommend the following line-up:

1. The engineer who builds the application;
2. Marketer;
3. Accountant or financier. The team needs someone who will draw up a professional business plan, calculate taxes and control the budget;
4. Actually the ideologist and author of the idea;
5. A lawyer who will maintain all project documentation and ensure that all decisions and actions are within the law.

Diana Thamadokova tried to look for future employees through recruitment agencies. “I do not advise anyone to do this. It’s just a waste of time and money. I began to write directly to the people I like on Linkedin. So I contacted our advisors from Google, and through them we got programmers,” explains the startuper.

3. Make a prototype

It took Diana’s team twelve months to create the IStyleMyself algorithm. She tried to attract investors to finance this stage of work, but to no avail. “The investors we talked to had not seen a single algorithm that could automatically select stylish outfits, so they doubted that we could create such a thing. The only way to prove otherwise was to do this algorithm,” she says.

The application currently has thirty-one thousand active users. The goal for the coming year is to increase their number to 1400000.

4. Find money

Beginner startups have four main sources of money:

• Bootstrapping, or borrow money from friends;
• Attract angelic investments;
• Find a venture investor;
• Crowdsourcing (Kickstarter/Indiegogo) - sites that allow to collect small amounts from independent donors, usually up to one hundred thousand dollars.

Diana had to sell an apartment in Moscow to pay programmers to create an algorithm for her application. This is bootstrapping: in order not to give away a part of your company and to avoid the dictates of investors, start-up entrepreneurs will scrape the bottom of the barrel: they mortgage property, borrow money from friends and relatives.

When the project has already attracted the attention of users, you need to go to investors. “Investor interest arose when we went to the United States for a conference of women entrepreneurs. We showed the numbers: the number of users, how many come and how many subscribers remain. And then they began to seriously listen to them. We began to receive investment proposals and demands to move the company to the USA, which is what we did,” Diana shares.

Where to find an investor, how to convince him, and what rules to follow in working with him - read below.

5. Monetize the project - start earning money

You can earn on IT applications in four main ways:

1. Sale of a subscription to the application (the main type of earnings);
2. Advertising banners in the free application;
3. The implementation of paid features in free applications;
4. Sales through applications.

IStyleMyself makes money using the fourth method - by selling women's wardrobe items presented in the application. “If a woman likes a product, she buys it through our app, and we get five to ten percent commission,” Diana explains her business model.

All about investors: find, convince, work together

The angel investor is a philanthropist, an individual, one of whose businesses is an investment in startups. Typically, these investors are willing to invest about twenty-one hundred thousand dollars. For this money they get a certain share in a startup.

The difference between angels and venture capital investors is well illustrated by Brian Hill and Dee Power in his book “Business Angels. How to attract their money and experience for the implementation of their business ideas. ”

A year ago, Maxim Chernyavsky, a famous developer from Los Angeles and a business angel, decided to invest money in IT together with his Russian partners. He threw a cry in his instagram, where Maxim has 436 000 subscribers: “I am looking for interesting startups for investing. Send ideas. ”

During the year, more than ten thousand applications were collected in the Chernyavsky mailbox. None of them impressed him.

“There were some interesting ideas. But the people who sent them never held in their hands the amounts they were asking for. I haven’t received a single professionally written business plan explaining exactly how the project will pay off,” says Chernyavsky.

In his opinion, developers first need to find a business plan of a successful, proven project on the Internet, and write down their idea in a language of numbers that is understandable to a potential investor. “I want to read and see how exactly the application will generate income and monetize. Out of seven startups, according to statistics, one survives. Of these six, three fail due to poor cash flow management. Therefore, it’s easier for me to invest in ten startups, knowing that at least two of them will most likely generate income,” the businessman shares his experience.

Diana, who is constantly faced with failures at the beginning of work on her application, advises not to give up.

We were told “no” three times a day.

“The statistics are that if you are chasing a hundred investors, ten of them will probably show interest, and maybe two or three will invest. You have to have very thick skin and be prepared for rejection. Investors are afraid of risks, and the only way to convince them is to show growth by leaps and bounds. Show it, and then they will run after you,” advises Diana.

At the stage when developers need amounts of more than one hundred thousand dollars, they attract venture capital investors. If an angel investor expects to increase his contribution three times in a year and a half, then a venture investor will usually five times in two years. Moreover, venture investors specifically give money in small portions so that the developer until the end only works with them.

Igor Gitlevich explains the logic of venture investors by their capitalist mindset. According to the specialist, venture capitalists deliberately make it so that it is difficult for a developer to earn a lot of money right away and leave, abandoning the business in which he understands best. “Contracts will be used, anything to keep the creator,” explains Gitlevich.

Therefore, they usually joke about venture investors, calling them Vulture investors, from the word “vulture” - vulture. “After all, if a person really loves his idea and has a certain amount of vanity, he is ready to do anything to make his idea work. And they, as experienced professionals, take advantage of it,” the businessman is sure.

At the same time, Maxim Chernyavsky is confident that investors give more than just money. Their main capital is useful connections, without which there is nowhere. The best luck is to find an investor who has just launched a similar product, moreover, successfully. He has a freshly rolled-in scheme, he has the right contacts with the right people (gatekeepers).

Gatekeepers are key people, links, guides to money, publications in the press, depending on what is specifically needed. The investor is obliged to know such people, to know where to advertise, and in what cases. If you have found an investor who has caught on the idea and is ready to invest, but has nothing to do with the product, has never done anything like this - then all you get is money. And no growth. So, you will quickly get around competitors who have connections.

How to go to investors

• found on the Internet;
• through educational institutions, most often - MBA schools.

The largest online platform for communication with startups - Angel.co. In the five years of its existence, developers from different countries have attracted more than 104 millions of dollars to their projects. Last year, 2678 active investors were registered on the site.

There is also a directory of Russian-language sites where developers and investors find each other - here.

With a high-quality professional business plan, you can try to reach investors and via the Internet. They are very friendly, and listen to innovators with great respect. If they themselves do not take up the project - they will advise who to turn to.

An example is the Summly app of a seventeen-year-old schoolboy from London. The initial version of the app automatically squeezed every article up to 400 characters. The venture capital firm Horizons Ventures, owned by Hong Kong billionaire Lee Kashin, drew attention to it. The company has invested thousands of dollars in the 250 project. The investment attracted other famous people, including Hollywood actor Ashton Kucher, British TV presenter Stephen Fry, singer and artist Yoko Ono, as well as the head of News Corp. Rupert Murdoch.

Igor Gitlevich believes that personal communication in a business school is more effective than dating sites with investors. “At the end of their studies, when graduates have a ready-made business plan, venture investors come to the school. They accept business plans as examiners. And they ask very specific questions,” he says.

How to convince an investor

Usually, investors are happy to hear the so-called “Elevator pitch”, a convincing and concrete retelling of the idea for up to three minutes (the time of the trip in the elevator). In addition to the “pitch” it is necessary to have a professionally written and clear business plan.

A typical mistake of beginning developers is that their business plans contain a lot of unnecessary information, what investors call “psychology.” Investors look at the numbers.

Diana says: “I know that many entrepreneurs attract investment through eloquence, but I have no such talents. Therefore it was necessary to operate with bare figures. If the product is good and the user base is constantly growing, then it is much more convincing for investors than any words. ”

How to work with an investor

Maxim Chernyavsky advises regularly sending reports to investors, even if they do not ask. Let the investor receive information every two weeks and know exactly what is happening with his investment - this is how trust is built. He also advises regular and transparent reporting.

Do not be afraid to admit their mistakes, experts advise. Venture investors just appreciate those who did not succeed in something, because they know that this person will not allow himself to miss more, and will be much more attentive in making decisions, and therefore more successful next time.

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