The Startup Ecosystem – Avoiding the Leeches!

The Startup Ecosystem – Avoiding the Leeches!

When I started going to China for business I was amazed how many “helpful” people who I found at events with US Business people. They all knew people, in my industry and especially in the government. It was later that I discovered that those weren’t the real people you wanted to meet. But they were the people who knew how to find the brand new, “fresh off the boat”, business travelers to China. The same is true in the startup ecosystem…

The Startup Ecosystem

There is a support community for entrepreneurs:

  • Sponsors – are the companies and firms that sponsor events – they buy you beer and pay for your food. You see their logo’s up on the screen and in the agendas. You probably don’t pay much attention until you need something, then a name rings a bell, usually after you ask for a legal referral. THANKS TO THE SPONSORS!
  • Groups & Organizations – in Seattle its groups like NWEN, Washington Technology Industry Association WTIA, Meetups like Seattle Entrepreneurs , Lean Startups, Founder Dating
  • Programs – in Seattle
    • TechStars is a great program and sees 600+ applicants a year in Seattle at takes 10 companies. You’ll need a co-founder and be ready to be full-time, but you’ll get some seed funding and a convertible debt round after graduation
    • Founder InstituteRead the full story here
    • University programs lean more toward the book and business plan version. Though the entrepreneur programs continue to develop
  • Resources – Startup City has created a job board, calendar and location to host events at The Easy @techstars. You can also find a list of activities organically curated at Co-working spaces are great for startups and there are a growing number in Seattle
  • Media – GeekWire does both online publications and events. Other publications include the Seattle Times as well as Xconomy and TechFlash through the Business Journal.
  • Employees and staff – we have great talent in Seattle
  • Angel Groups and Investors – though you may not agree with all of their methods or approaches, it is their money. The link is a great post from GeekWire on Angel Groups in Seattle and what they cost, and what they invested in 2011 – do some digging you can find a similar list for your city
  • Service Providers – there are legitimate service providers that attend event, many small startups themselves. You can get help with your financial model, you can even find someone to build your first minimum viable product. This, however requires some cash on your part and isn’t the scrappy option most entrepreneurs are following
  • Investment Bankers – most don’t work with startups, so don’t expect to get them excited until you’re raising a much bigger number then you will need for your seed round

Want to start a great ecosystem and community for startups in your city – check out Brad Feld’s book Startup Communities

The Startup Leeches

Then there are the other folks in the ecosystem…

  • The Never Sponsors – companies that send their sales people to events to find startups to sell their services. Of course they don’t realize that startups don’t have any money. They had out flyers for their product or event, but they never pay the price to build an event themselves
  • Wantrepreneurs – the person that has been working on the same (bad) idea for seven years but never launched. Yet they don’t know why the can’t find a co-founder
  • Startup Groupies – the people who want the upside of stock options in your brilliant idea, but also want a salary. They want the chance to make a big payoff, but don’t want any of the risks. If you’re not careful, you’ll burn some of your savings on a sales and marketing person before you have a product to sell. All they will end up selling is themselves into your bank account
  • Fundraisers and Introducers– these are the people who are looking for you when you step off the boat. I get it, fundraising is hard and you haven’t done it before. You’ve just been approached by someone who has told you they can make it easy for you, after all, they “have a big network of investors”. How do you recognize them?
    • They aren’t broker dealers or investment bankers – but they want to take “a small fee (7-9%)” to put you in front of investors, likely a monthly retainers and some equity. But according to Washington Law you need to be a registered broker dealer to take a fee for selling a stock. This isn’t a grey area in Washington State. So, the contract won’t reflect a commission, but a “service fee” that roughly equals the percentage. I’ll admit the allure of easy money is appealing, I started down this path with a startup one time and thankfully stopped
    • They never invest themselves
    • When you hear this proposition run away…You’ll end up doing all of the work. And they will get a fee on all of the money you raise.

The fundraiser topic came up on a Startup list serve that I subscribe to a few months ago. It was amazing how many of us in the group had this experience as first time entrepreneurs. What I wasn’t surprised about was how strongly the group felt about it. The general experience was many of use signed a contract only to find out that their network was a network we could have found ourselves (see above). Or that all us ended up doing all the work anyway and then the promoter wanted a percentage on the funds that they didn’t introduce me to in the process.

Offended? No worries: Sponsor something. Launch something. Take a risk. Become a real banker.

3 Replies to “The Startup Ecosystem – Avoiding the Leeches!”

  1. About the Brokers… I think I was contacted by one, but I’m not sure. Does this look like a broker?
    “I have just seen your startup advert for investments partnership/Loan on Startup F6S. Is the venture still available? Do you have a ready business summary that we can see?
    We hope our Investor client will be interested in the opportunity if it is still available for funding in JV/Loan investment line.
    Please send us more details on the project venture plan for our review/recommendation. If inline with the investor’s scope of investment, ROI will be agreed between you both.”

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