Let's imagine that you’ve been trying to attract investment for a long time and nothing is happening, or you want to invest, but do not know how to start. The average success rate for investment in startups is 20%. This means that only 2 out of 10 startups are successful!! As a novice investor, you are likely to be racking your brains trying to find ways to recoup the money you’ve lost in these 8 failed startups using the proceeding from 2 successful ones. Or wondering how to build a strong portfolio of startups so that at least 5 out of 10 would be successful?
There are a lot of stakeholders in the investment market: Startups aim to attract investments (instead of focusing on promoting, launching, and operating), Accelerators are interested in promoting themselves and ensuring that their wards receive funding without changing the paradigms of the teams themselves, but only by “wrapping them” so that investors would “buy/invest” in their project. Then there are numerous Intermediaries who are interested in the success fee only. In a nutshell, there is chaos in the investment market. So, while sharks feel good, everyone else is "risking their lives", i.e. with their money.
IPN's mission is to bring order to chaos of the investment market, to create a self-sufficient ecosystem, where everything is clearly laid out on the shelves, like in a supermarket.
Let’s look at a grocery market and a supermarket. In the first case, vendors sell a variety of goods at various prices. To buy the best, you need to shop around and select the best value product in each of them. On the contrary, in a supermarket, you will see products grouped by type and organized on a single shelf, where all varieties and brands are presented together. Depending on the price and quality you seek and fill your shopping basket with easy payment at the exit.
Today the startup investment market is very similar to the grocery market, where the best-located shopkeepers hit the jackpot.
In order to fulfil its mission, IPN does not promote startup projects, and does not sell projects to investors, but strives to educate and train investors and startup teams instead. It is important that the startup teams do not just pack their project and sell it, but start to focus on their business and their strategy themselves. So that they hard work to launch and promote their products to start operations by all possible ways.
It is not uncommon that teams who attracted investment, spend it within a year on marketing, promotion and product development. As a result, without additional injections for the purpose of advertising, their product won’t get the attention it deserves. Then the teams start to look for the next round of investments. Having had some previous experience in attracting investments, these teams can easily draw money from unlucky investors, for whom the previous successful round is a criterion for the success of the project. Although, the reality of the situation is quite different - exactly the opposite, in fact.
IPN receives hundreds of applications from startup teams looking to raise funds, and only one of them will be a successful startup, especially when it comes to the pre-seed stage. Because truly successful startups are trying to launch their project on their own, at least before the successful sales of their MVP. They test various hypotheses, trying to establish various communication links with potential buyers, find opinion leaders, etc. Furthermore, they try to establish relationships with all their suppliers not paying for services but instead organise some sort of exchange or expand the payment plan. Some startups are so sophisticated that with nothing tangible at all they can launch an enterprise. These are often the most successful startups you find.
In the early stages, such teams are not looking for investments as they often have no time to do this. Instead, they are focused on the launch. IPN technology is about finding teams like that, or at least teams carrying this kind of approach.
We believe that the skill of fundraising and the ability to launch and run a business are completely different, so that these skills are often not compatible on the same team. This is the reason why so many startups fail in the end. In addition, fundraising is a skill that is used several times in life, and the skill of running and promoting a business is needed every day. That is why IPN knows how to find and determine such teams and help them in fundraising by two different ways: IPN invest on its own or offer an access to its network.
During our work together with teams, we devote much more time to the launch strategy and development of the startup itself than to the fundraising process. IPN works with teams to evaluate their strengths and weaknesses. Together we develop a long-term vision for the business, then a strategy, followed by a sales and marketing, and only lastly, a fundraising strategy. We test all developed strategies and enable teams to test their own ideas. To do this, we sometimes fund teams with small amounts ($ 1-10 thousand) outside of the round. This allows us to see how rationally teams utilise the funding. We believe this is the good way to understand the potential of a startup project.
Mentoring teams is a very important component. We provide them with our technologies, set assignments, conduct training, webinars and summits in order to guide them. The Invest Hack Online Summit is one such educational event. We do it for free, except for the cases where the startup teams cannot do something by themselves, for example, to draw up financial models, to prepare a valuation report, etc. In these cases, we provide them with paid services.
Why are we doing this for free?
Because this is a long-term investment for us. We select the best teams, increasing the success rate of investments from the standard 20% to 40%, then help them attract investments from our network. And in the next round, we independently invest in projects that we believe have achieved significant success, thus increasing our own success rate to 70% in average. This model is beneficial for everyone: startups, investors participating in the network, and ourselves.
We are very often asked why we do not take a success fee when we organise investments in a startup. We represent the investor side. For me, personally, being an investor, it seems inappropriate to use attracted investments to pay a broker fee. From the very beginning, this suggest that teams do not know how to manage other people's money. For example, with an investment of $ 1 million, a 5% success fee is $ 50,000, which could be used to pay up salaries for a small team for three months. I believe that if the same team spend a couple of months of their own efforts to attract investments, or even better, to promote their product, forming their own fund, then this will bring much greater benefit.
If you share our belief in this approach, you should start by attending our events here and to see our work in action. Moreover, you’ll get some insights into the way the leading investor’s World.
Co-founder & CEO at IPN
Speaker at Invest Hack Summit