Chasing Venture Capital Will Kill 99.78% of Games Companies and App Startups

Chasing Venture Capital Will Kill 99.78%*
Of Games Companies And App Startups
www.thechocolatelabapps.com

Delusions
“Lets build a cool random social app, raise millions of dollars, get tons of users, and sell
within 3 years for a bunch of money!”
When starting a games company or a new app business, chasing investor capital can be
life threatening for your startup.
Delusions of business grandeur can include signing up to incubators, looking for Angel
investment and spending months (incorrectly) chasing venture capital. At a minimum will
waste your time and potential VC companies time, and miss out on opportunities to grow
your games business. At worst this strategy is likely to kill your app business – dead.

Delusions
Remember for every Facebook, Instagram & Pinterest they are millions of dead zombie
startups, dying and dead, strewn by a roadside littered with corpses of failed hopes and
dreams.
And despite the hype in startup circles and the press – Venture Capital is the
exception not the norm for companies looking to raise funds. And there are good
reasons why this is.

Here Are What VC’s Are
Looking For In High Potential
Companies

What VCs Are Looking For In High Potential Companies
 Great street cred – are you from Harvard, MIT or have you worked at Google or
Facebook? Do you look great on paper?
 Co-founders with incredible backgrounds, skills and insights to make this company
happen yesterday.
 Have you put together a killer team including developers so good at least 10
companies in the Valley want to hire them right now?
 Do you inspire, and blow people’s minds when you talk to them about your
product?

 Have you got potential 1 billion dollar international market you want to slay, in a
hot & growing niche? VCs are NOT interested in a $10 million dollar exit.
 VCs want to invest in businesses that have some unique advantage, whether it’s
patented IP, trade secrets or team members with unique abilities and knowledge that
no one else can easily replicate. They always ask what are the barriers to entry.
 Have you got experienced mobile focused team members with successful exits and
companies under their belt already?
 Has your business got traction? Has it started to take off already?

 Are you hungry and ambitious enough to slave away for a few years, with no sleep
and no family time, and sell your soul to create the next killer company and world
level IPO?
Have you already got great connections with Angel investors and VCs in the major
tech hubs, including San Francisco & London?
- Do you plan to hire top AAA players and scale aggressively?
 Are you the ultimate co-founder – a die hard, never give up, ‘I’ll do it if it kills me’
passionate gutsy entreprenuer with grit who entertains no option but to make things
happen? Investors believe in betting on the horse, and not always on the race.

Facing Reality
Incubators usually take a % of your games company and will also focus your attention
towards the VC route. But less than 1 percent of U.S. companies have raised capital
from VCs, and the VC industry is contracting.
Here are 65 questions VCs might ask you.

Figuring Things Out
There are app business and there are app businesses with SERIOUS BILLION
DOLLAR POTENTIAL. Right from the beginning one of the most important things
you need to do for your games startup is to figure out what category you fall into.
One of the worst mistakes you can make – for your time, your business, your money
and your health, is to chase the VA dream or incubator lifestyle with a startup that
has no chance of success.

Lifestyle Business
VS
High Potential
Startup

Lifestyle Business VS High Potential Startup
A lifestyle business is generally a business with a turnover of approx. $100,000 to
$500,000 per annum. Depending on your costs, your take home pay can be far
higher that the average salary in most countries.
A lifestyle business is the startup equivalent of the instant gratification.
You sell something people want (apps or games in this case), profitably (with mobile
ads or IAPs) and you try to start earn money as soon as you can. It’s lean startup
101. Get the first few paying customers on the app store, learn what they want and
make your product better. Hustle, and focus on satisfying the people who are going
to make your company profitable – your customers. You’re the boss. You have
complete freedom to do as you wish – sink or swim.

Many of my friends are lifestyle app business owners, growing six figure businesses,
and are on track or have already hit seven figure turnovers.
All are bootstrapped, and all worked really hard to understand their customers and
the market demand, without a term sheet in sight.
You can bootstrap your games business and grow organically – slowly or quite
quickly, that’s up to you. But self funded businesses don’t have to stay small…
Laura Roeder’s Social Media Marketing business turns over millions each year
teaching people how to use Facebook and Twitter.

Github is used by nearly a million people to store over two million code repositories.
Founded in 2008, Chris Wanstrath, PJ Hyett, and Tom Preston-Werner started Github as a
bootstrapped weekend project. Instead of chasing VCs, they focused on growing their
business. Tom worked both at GitHub and at a full time job, while Chris and PJ consulted
on the side. Their salaries grew as profits increased. In January 2009 they won a Crunchie
for best bootstrapped startup.
Sara Blakely, inventor of Spanx, invested her life-savings of $5,000 to create “body shaping”
undergarments and bodysuit shapewear – intended to give the wearer a slim and shapely
appearance. She came up with the name, designed the logo on a friends computer and
taught herself how to file a trademark to save on lawyers fees. The Spanx company and
brand are now valued at more than $1 billion and Sarah owns 100%.

WooThemes sells premium wordpress themes. In 2008 Adii Pienaar, Mark Forrester,
and Magnus Jepson founded WooThemes. With sales starting nearly immediately,
money from their customers meant they could leave their jobs and focus on
WooThemes fulltime. “We’ve been making money from the very first minute we
released our first themes, which means that we didn’t need to pay back loans or
really invest in any infrastructure when we started out,” said Pienaar. WooThemes
has over 40,000 users and more than 1.8 million downloads, generating over $2
million in revenue.
Co-founder Pienaar gives this advice for hopeful startups; stick it out and bootstrap
for as long as you can, seeking outside funding should be kept as a last resort.

Why You’d Rather
Not Have VC Funding

Why You’d Rather Not Have VC Funding
1. Having no money is a bonus. It means you have less money to lose. It also will
force you to innovate, keep your costs really low, hustle, and get your hands
dirty and educate yourself on how to do some of the tasks required in your
business.
2. You have 4.5* times more time. You can spend 18 hours every day – if you
want – working on figuring out how your startup can earn more money. If you
are chasing VC money, you’ll probably be spending 18 hours trying to put
together pitches, proposals, networking, doing business plans, etc. None of these
things will earn you a penny from your potential customers. Time is money.

3. You will have a profitable business much sooner. Having money in the bank
and knowing your bills will be pay on time gives you peace of mind that
nothing can buy. VC backed startups are different – and are usually focused on
one large payout at the end when the business is sold, which may be years later.
VCs want you to grow your company aggressively, and then exit for big bucks
when the time is right. Monitisting what customers you have today is not the
top priority.
4. You do stuff instead of talking about stuff. Business plans are mostly bullsh*t.
Last time I checked no one could predict the future.

5. Don’t give away your equity. 100% of a lifestyle business is much better than
20% of a soon to be doomed, VC backed, team mutunity, co-founder battling,
sleep deprived, sold my soul company you hate and can’t escape from due to the
amount of debt you owe.
6. The VC industry is also under going huge change at this time. With the advent
of public fundraising the whole industry is going to get a lot of favorable for the
startups in the next few months. Think what happened when amazon launched
the Kindle and book authors were able to publish ebooks without having a
literary agent.

Growing Without
VCs & Incubators

Growing Without VCs & Incubators
1. Learn from people who are already successful. This is the fastest way to get a
truly valuable education.
2. Make use of the existing free tools and app related companies who exist to
support your business.
3. Start small and release a handful of small reskins to start to learn the whole
process.
4. Work on putting together a great team. Hire slowly with the Haystack Method.
if they don’t perform well, fire them so fast it makes you dizzy.

Growing Without VCs & Incubators
5. Study your market. Live and breath the app store, find patterns in popular apps
and figure out why certain apps are successful.
6. Realize what's really important in the app business – cash flow, app theme
choice, ASO, a killer team, often outsourced, market research, monetization
methods, killer icons and screenshots and app store keyword research.
7. Make money from your customers as soon as possible. Aim to ship your first
app in a week (like I did) and to start earning money in 2 weeks, (allowing for
the app review cycle).
8. Never give up.

Chasing Venture Capital Will Kill 99.78% of Games Companies and App Startups

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Chasing Venture Capital Will Kill 99.78% of Games Companies and App Startups