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littleBits - Review of the Top Hardware Startups

littlebits-review

Launched by Ayah Bdeir in 2009, littleBits won over 20 awards at the MakerFaire Bay Area in the same year. Between then and 2013, the startup garnered over $14 million in funding for its product: kits and components that bring DIY electronic and programing capability to almost anyone. The kits include a variety of small modules, such as sensors, sound and light components, and power, and let users create anything from home security components to a toy Mars Rover. Consumers can buy kits for certain projects, or purchase deluxe kits that contain basic modules needed for multiple electronics products.

Bdeir's product isn't the first in the electronic education space–soldering kits have been around for years. But littleBits are easier to use thanks to snap–together technology, and the small, colorful modules lend to education in a variety of environments. We like littleBits as a hardware startup because of the sheer diversity and market potential of the product. DIY electronics gurus can invest in dozens of kits, including an Arduino coding kit. Schools can use the electronics to teach computer, design, engineering, and basic science lessons, and littleBits even works with other hardware companies to engage consumers and boost awareness of STEM activities and education.

In early 2015, littleBits partnered with 3D printing company Shapeways to host a contest. Entrants had to modify a traditional home object, such as a toothbrush, using littleBits modules and 3D printing to make the object more useful, efficient, or smarter. Such interactive marketing tactics are bringing littleBits slowly into the public eye, which bodes well for the continued success of this hot hardware startup.


Want to get information on angel investing and venture capital?  Get information from the venture capital expert on startups.  And find out if you qualify as an accredited investor HERE.

Ross-Blankenship-expert-investor

Ross Blankenship is the "expert on venture capital and angel investing" for startups and investments for venture deals. He is also a proven entrepreneur, and the Founder and CEO of AngelKings.com. Angel Kings is an investing platform that provides accredited angel investors the opportunity to invest in top startups and companies in sectors like cybersecurity, biotech, mobile, data and financial services. Angel Kings provides both venture capital funds for startup investing as well as private equity funding for early and middle-stage investments. Ross Blankenship has successfully founded several companies and now manages a Venture Capital fund focused on early stage, high growth startups in sectors such as mobile, cybersecurity, cloud computing and biotechnology. Learn more about Ross Blankenship, and how to become a successful, early investor at http://AngelKings.com.


The Top Software Startups in America

In 2014, The Economist noted that software startups were exploding across the world; venture capitalist Marc Andreessen went so far as to say, "Software is eating the world."

Though timing as of 2015 is somewhat favorable for any software startup founder with a strong product and plan, not every fledgling software company makes it. Many don't even make it to the seed stage of investing, partly because the ample competition in the niche makes it more difficult to attract investors. We'll review some recent hot software startups in a variety of stages and discuss some reasons they stand out from the global crowd, starting with:

apptus-software-startup

APPTUS

Product is definitely the deciding factor that's landing this hot software startup millions every time it steps up to the pitching mound. In early 2015, Apptus scored $41 million in funds as part of a Series B investment round, with much of the funding coming from Salesforce Ventures, an investing arm of Salesforce.com.

Apptus provides a number of solutions targeted primarily at e–commerce companies. Its first, and powerhouse, product is Quote–to–Cash, a platform that makes it easier for companies to move efficiently through revenue cycle and drive sustainable cash growth. Interestingly, Quote–to–Cash’s entire product line, as well as other solutions from this startup, is that the entire Apttus product line is based on Salesforce.com. In effect, Apptus piggybacks the extremely successful ERP solution with a number of integrations that improve experience for businesses using Salesforce.com.

Aligning its products with Saleforce.com gives Apptus at least two major benefits as a startup. One thing we like to see with a startup is that its product idea isn't first to market–a product that builds successfully on something else is much more likely to succeed. It's also more likely to see success faster than a ground–up venture, and faster success means faster time to value for an investor. By basing its product on the existing Salesforce platform, Apttus doesn't have to grow an audience from scratch. And, if you're going to tie yourself to another software company, why not pick one of the most successful? Salesforce itself grew 33 percent from 2013 to 2014, and was the fasted growing software company at the time.

The second reason the Salesforce.com connection makes Apptus a strong software startup is that it provides for an excellent chance at a future acquisition. At Angel Kings, we never invest in any startup that doesn't have an exit strategy, and linking arms with a company that is growing massively each year and has a history of generous acquisition purchases is about as good as any strategy we've seen.

Previous companies acquired by Salesforce.com include Buddy Media for $745 million in 2012, Radian6 for $326 million in 2011, and Exact Target for $2.5 billion in June 2013. As of early 2015, however, Salesforce.com appeared happy to invest in a growing Apptus rather than acquire it outright; in fact, according to Apptus, Salesforce.com's contribution to the startup's Series B funding is the highest investment amount from Salesforce.com that wasn't part of an acquisition.

Apptus also began as a traditional bootstrap, which is rare for software startups these days. Lean management during the first seven years meant slow growth, but once the company did come to investors, it had a strong project and a plan with many kinks worked out. Current CEO Kirk Krappe says that primary goals are to continue building a great company, but he acknowledges what many investors seem to be banking on: Apptus is positioned well for an IPO or sale in the future. 


If you'd like to learn about startup investing or want to see if you're an accredited investor apply HERE.  Angel Kings are the angel investing and venture capital experts.

Ross-Blankenship-expert-advisor

Ross Blankenship is the "expert on venture capital and angel investing" for startups and investments for venture deals. He is also a proven entrepreneur, and the Founder and CEO of AngelKings.com. Ross Blankenship has made more investments in venture capital before the age of 30 than most venture capitalists have made in a lifetime. Ross Blankenship has successfully founded several companies and now manages a Venture Capital fund focused on early stage, high growth startups in sectors such as mobile, cybersecurity, cloud computing and biotechnology. Learn more about Ross Blankenship, and how to become a successful, early investor at http://AngelKings.com.


Review of the Most Successful Lean Startups - Plenty of Fish

Plenty of Fish

After working for a number of tech startups, Markus Frind decided to launch his own company in 2003. Frind settled on the online dating market and bootstrapped his company from his apartment, where he received the company's first Google AdSense paycheck–for a whopping $1,100.

By 2007, the company was reportedly worth close to $1 billion, and at that point, Frind started hiring people to help him. For the first four years, however, he did most of the work himself and generated a great deal of revenue through a freemium website that was funded by advertisers.

Frind didn't stop there. Over the years, Plenty of Fish followed the build–measure–learn model we discussed above. It eventually gave up funding by an ad–based, freemium model. By offering paid subscriptions, the startup hoped to better engage users.

Frind also made a timely decision after studying consumer use and the market. He integrated his product onto mobile platforms, which he claims is responsible for a large increase in both user and revenue growth. Between 2013 and early 2015, Plenty of Fish experienced doubled revenues. By early 2015, it had 100 million users and expected annual revenue of $100 million.

Frind once stated that he didn't know anything about SEO, community, venture capital, or advertising when he began his startup experiment. What he did know is how to learn: he stated that, "I spent every waking minute when I wasn't at my day job reading, studying, and learning."


Want to get information on angel investing and venture capital? Get information from the venture capital expert on startups. And find out if you qualify as an accredited investor here.

Ross Blankenship is an expert on startup funding,  angel investing and venture capital.

Ross Blankenship is also the Founder and CEO of AngelKings.com.  Angel Kings is an investing platform that provides accredited angel investors the opportunity to invest in top startups and companies in sectors like cyber security, biotech, mobile, data and financial services.  Angel Kings provides both venture capital funds for startup investing as well as private equity funding for early and middle-stage investments.  

Total Addressable Market: Startup Market Size and Why It Matters

How much is the magic market share number? It depends on how much the investment ask is: you don't need a $20 billion market share to make a profit; niche companies often succeed with much small shares–they just succeed on a smaller scale.

In this section, we'll cover some basic ways you, as the angel investor, can estimate the addressable market share. We'll also talk about how to drill down in a startup's pitch deck, what to look for when the startup talks market share, and how to protect yourself against poor investments with regard to market.

 

Back-of-the-Napkin Considerations

 

You can do some back-of-the-napkin math to estimate a startup's future share of the market. The more you know about the industry or product type in question, the more accurate your math is likely to be, which is one reason many angel investors choose to operate in fields with which they have experience.

For a solid estimate of total addressable market (TAM), you'll need five pieces of information.

1.  The Total Population of Potential Users

This may be a geographical consideration: There are 100,000 people in the city where a restaurant wants to launch. More likely, this is a more abstract number, since the majority of angel investors are opting for opportunities in Internet, software, e–commerce and other virtual spaces. A total possible population for a mobile app launching in the United States, for example, might be up to 182 million people in 2015, according to Statista's numbers on smartphone users in the nation. The site also forecasts smartphone user population to grow to 220 million in 2018.

2.  Definition of the Market Segment and Estimated Percent of Target Customers

Your product limits the percent of your market segment. Angel investors should ask: Who is this product for? Who is likely to want, need, and purchase this product? Are people already buying similar products, and if so, who are those people?

Consider an app that acts as a virtual storybook for babies. The obvious market for such an app would be new parents with smartphones. There are a total of 318 million people in the US; if 182 million have smartphones, then approximately 57 percent of the population has a smartphone. There are around 4 million babies born each year—applying some dirty math, we can assume that 57 percent, or around 2.28 million, of those babies have at least one parent with a smartphone. That's the target audience for our app.

This back-of-the-napkin math is rough: the population numbers used to arrive at the above percentages counted young children and older individuals, which are less likely to own smartphones. Child–bearing parents are more likely to own the devices, which means the target audience could be as high as 3 million. For ease of estimation, let's assume 2.5 million. Out of 182 million smartphone users, that's approximately 1.4 percent.

3.  How Many of the Products Will Be Purchased At A Time?

If a company is selling software through licenses, businesses can purchase multiple instances of the product. Someone with a hot new cupcake recipe is going to sell in multiples as well; our baby app, however, is most likely to sell once to each user. 

4.  How Often Will The Product Be Purchased?

Does the product lend itself to repeat purchase? Is it a commodity or necessity that will be used up, so consumers must refill or restock? At first glance, a software product is going to be purchased once for each user, but what about new versions and upgrades? Are those free, or monetized?

5.  What is the Intended Selling Price of the Product?

We'll look at two possibilities with our baby app example. First, the startup may charge for its app.  Given app store prices, and depending on how much functionality the startup is going to provide in its app, price might range from 99 cents to $7.99. For the example, assume the startup charges $2.99.

The other possibility is that that startup offers the app free to users, but plans to monetize it through ads, in–app purchases, or professional relationships. In this case, the angel investor needs to see the startup's projections on how much per user the app might generate. For our example, let's assume the startup estimates $5 in revenue per user, per year. 


Possible Market Share Formula

The basic market share formula multiplies all of the data points above. So, for our baby app, basing market share solely on the purchase price of $2.99, maximum market share would be:

182 million smartphone users * 1.4 percent target audience * 1 purchase at a time * 1 purchase (no repeats) * $2.99

The maximum potential market share would be approximately $7,618,520 per year.

 

Drilling down: the Startup's deck

 

That $7.6 million market share number for our imaginary baby app is unrealistic–but some startups are optimistic enough to publish such numbers in their pitch deck. No matter how great the product and timing is, you aren't going to get 100 percent to buy–in from your potential market–and remember, the math we did to get to $7.6 million was all estimates and quick Internet statistics searches. You have to assume the numbers are off a bit.

Startups tend to make sweeping statements about market targets in their pitch deck. They might state, "We're targeting 1 percent of a $20 billion market by 2022." As the angel investor, you have to do your own math, as shown above, to vet the total market claim, and then you have to evaluate whether you think the startup is on point with their target. How likely is the 1 percent goal? At Angel Kings, we like to see startups that provide more specific market definitions, even if that reduces opportunities to $500 million instead of $20 billion. 

 

Is The Startup's Plan Backed By Data?

Startups with specific market definitions have some data to back up claims; as the angel investor, you should vet that data against your own research or knowledge of the market. The statistics we used to create our assumptions for the baby app market share are an example of data that anyone can vet. Startups should source such information, but a quick online search turns up information too.  You should also download the app yourself, try it out, and see if people would care enough to pay for it.

It's harder to tack down the percent of potential market a startup hopes to obtain. Ask how the startup came up with that percent. Did they conduct market surveys? Are they basing the data on comparable products? The startup launching our imaginary baby app might have polled 500 new mothers and mothers–to–be to find out if they would be interested in purchasing an app, and then applied that data to the overall market to determine that 20 percent of possible consumers would make a purchase.

Despite how much data the startup presents, you as the angel investor have to make a judgment call. Do you buy in to the market assumptions the startup makes? Do you think they are probably too optimistic? Even if the startup's assumptions are too optimistic, does the market share potential you see make the investment worthy?

 

tomorrow's market, not today's

 

As an investor, you are worried more about tomorrow's market than today's market. Understanding today's market lets you make evaluations of future market potential. In some industries, you can also use benchmarks, expert guidance on industry trends, and forecasts to estimate future market behavior. With our baby app example, an investor might use the estimated smartphone user growth from several statistical sites to gauge how much the potential market will grow. 

 

primary demand versus secondary demand

 

Numbers and data are important, but investors must also understand the difference between primary and secondary demands. Primary demand references the market size for a specific product or product category–baby apps, cupcakes, virtual hard drives, and point–of–sale software, for example.

Secondary demand refers to the size of the market for a brand.

When dealing with early–stage startups in most industries, angel investors are concerned with primary demand because fledgling startups often tout a single product idea. While concentrating on primary demand, keep secondary demand in mind as it plays a role in growth potential. What are the brand goals and plans for the startup? Will the startup pull its audience through branding more so than product, and does the startup plan to branch out with products that could capture greater shares of the market in the future?

In a few niche industries, secondary demand is the primary evaluation point. This might be true when evaluating biotech or social startups, for example, where audience buy–in to an idea is much more important than the product itself. 


Setting Limitations As An Angel Investor

 

You know the saying about going to the grocery store hungry or without a list? Chances are, you walk out spending more than you wanted and with items you don’t need. As an angel investor, enter evaluation phases with limitations in mind to avoid getting caught up with the people and idea and failing to see the potential market pitfalls.

Some angel investors won't consider a startup that doesn't have a potential minimum market share of $500 million or more. Others won't invest in a company where growth projections can't be reasonably estimated at 10 percent a year or more.  You shouldn’t set targets and ranges like this.

Even more important than arbitrary limitations is your own awareness of earning potential. No investment is 100 percent safe, but by calculating market share, the angel investor has a better understanding of the type of returns that can be expected if the startup is successful.


Want to get information on angel investing and venture capital? Get information from the venture capital expert on startups. And find out if you qualify as an accredited investor, http://AngelKings.com/angel-investing-101

           

Meet The Most Successful Lean Startups

Previously, we discussed the 5 lean startup principles to bootstrap your startups.  Let's recap what those are:

  • Entrepreneurs are everywhere.
  • Entrepreneurship is management.
  • Validated learning.
  • Innovation accounting.
  • Build-Measure-Learn.

So let's meet the startups who've managed to use these principles successfully, starting with:

Aardvark

Aardvark was founded by Max Ventilla, Nathan Stoll, Damon Horowitz and Rob Spiro in 2007.  It's a question-and-answer search engine that allows users to connect with each other and provide technical support and recommendations to other users.  Users connect submitted their queries via the Aardvark website, email, instant messaging or other social networks.  Similar to Pinterest, they tested their product by having beta users for their first release, and having those beta users invite new users.  They publicly released Aardvark in March 2009.

Google acquired Aardvark for $50 million on 2//11/2010 because the product was highly successful at querying users for subjective information and graphing the results.  


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