5 VC investment criteria

I reviewed 200 startup business concepts last week. Brainache.

The enterprises sold various goods and services. The concepts were achingly similar: give us money, we'll produce a product, then get more to expand. No different from daily plans and pitches.

Most of those 200 plans sounded plausible. But 10% looked venture-worthy. 90% of startups need alternatives to venture finance.

With the success of VC-backed businesses and the growth of venture funds, a common misperception is that investors would fund any decent company idea. Finding investors that believe in the firm and founders is the key to funding.

Incorrect. Venture capital needs investing in certain enterprises. If your startup doesn't match the model, as most early-stage startups don't, you can revise your business plan or locate another source of capital.

Before spending six months pitching angels and VCs, make sure your startup fits these criteria.

Likely to generate $100 million in sales

First, I check the income predictions in a pitch deck. If it doesn't display $100M, don't bother.

The math doesn't work for venture financing in smaller businesses.

Say a fund invests $1 million in a startup valued at $5 million that is later acquired for $20 million. That's a win everyone should celebrate. Most VCs don't care.

Consider a $100M fund. The fund must reach $360M in 7 years with a 20% return. Only 20-30 investments are possible. 90% of the investments will fail, hence the 23 winners must return $100M-$200M apiece. $15M isn't worth the work.

Angel investors and tiny funds use the same ideas as venture funds, but their smaller scale affects the calculations. If a company can support its growth through exit on less than $2M in angel financing, it must have $25M in revenues before large companies will consider acquiring it.

Aiming for Hypergrowth

A startup's size isn't enough. It must expand fast.

Developing a great business takes time. Complex technology must be constructed and tested, a nationwide expansion must be built, or production procedures must go from lab to pilot to factories. These can be enormous, world-changing corporations, but venture investment is difficult.

The normal 10-year venture fund life. Investments are made during first 3–4 years.. 610 years pass between investment and fund dissolution. Funds need their investments to exit within 5 years, 7 at the most, therefore add a safety margin.

Longer exit times reduce ROI. A 2-fold return in a year is excellent. Loss at 2x in 7 years.

Lastly, VCs must prove success to raise their next capital. The 2nd fund is raised from 1st fund portfolio increases. Third fund is raised using 1st fund's cash return. Fund managers must raise new money quickly to keep their jobs.

Branding or technology that is protected

No big firm will buy a startup at a high price if they can produce a competing product for less. Their development teams, consumer base, and sales and marketing channels are large. Who needs you?

Patents, specialist knowledge, or brand name are the only answers. The acquirer buys this, not the thing.

I've heard of several promising startups. It's not a decent investment if there's no exit strategy.

A company that installs EV charging stations in apartments and shopping areas is an example. It's profitable, repeatable, and big. A terrific company. Not a startup.

This building company's operations aren't secret. No technology to protect, no special information competitors can't figure out, no go-to brand name. Despite the immense possibilities, a large construction company would be better off starting their own.

Most venture businesses build products, not services. Services can be profitable but hard to safeguard.

Probable purchase at high multiple

Once a software business proves its value, acquiring it is easy. Pharma and medtech firms have given up on their own research and instead acquire startups after regulatory permission. Many startups, especially in specialized areas, have this weakness.

That doesn't mean any lucrative $25M-plus business won't be acquired. In many businesses, the venture model requires a high exit premium.

A startup invents a new glue. 3M, BASF, Henkel, and others may buy them. Adding more adhesive to their catalogs won't boost commerce. They won't compete to buy the business. They'll only buy a startup at a profitable price. The acquisition price represents a moderate EBITDA multiple.

The company's $100M revenue presumably yields $10m in profits (assuming they’ve reached profitability at all). A $30M-$50M transaction is likely. Not terrible, but not what venture investors want after investing $25M to create a plant and develop the business.

Private equity buys profitable companies for a moderate profit multiple. It's a good exit for entrepreneurs, but not for investors seeking 10x or more what PE firms pay. If a startup offers private equity as an exit, the conversation is over.

Constructed for purchase

The startup wants a high-multiple exit. Unless the company targets $1B in revenue and does an IPO, exit means acquisition.

If they're constructing the business for acquisition or themselves, founders must decide.

If you want an indefinitely-running business, I applaud you. We need more long-term founders. Most successful organizations are founded around consumer demands, not venture capital's urge to grow fast and exit. Not venture funding.

if you don't match the venture model, what to do

VC funds moonshots. The 10% that succeed are extraordinary. Not every firm is a rocketship, and launching the wrong startup into space, even with money, will explode.

But just because your startup won't make $100M in 5 years doesn't mean it's a bad business. Most successful companies don't follow this model. It's not venture capital-friendly.

Although venture capital gets the most attention due to a few spectacular triumphs (and disasters), it's not the only or even most typical option to fund a firm.

Other ways to support your startup:

• Personal and family resources, such as credit cards, second mortgages, and lines of credit

• bootstrapping off of sales

• government funding and honors

• Private equity & project financing

• collaborating with a big business

• Including a business partner

Before pitching angels and VCs, be sure your startup qualifies. If so, include them in your pitch.

In the early 2000s, I began developing SaaS. I helped launch an internet fax service that delivered faxes to email inboxes. Back then, it saved consumers money and made the procedure easier.

Google AdWords was young then. Anyone might establish a new website, spend a few hundred dollars on keywords, and see dozens of new paying clients every day. That's how we launched our new SaaS, and these clients stayed for years. Our early ROI was sky-high.

Changing times

The situation changed dramatically after 15 years. Our paid advertising cost $200-$300 for every new customer. Paid advertising takes three to four years to repay.

Fortunately, we still had tens of thousands of loyal clients. Good organic rankings gave us new business. We needed less sponsored traffic to run a profitable SaaS firm.

Is it still possible?

Since selling our internet fax firm, I've dreamed about starting a SaaS company. One I could construct as a lone developer and progressively grow a dedicated customer base, as I did before in a small team.

It seemed impossible to me. Solo startups couldn't afford paid advertising. SEO was tough. Even the worst SaaS startup ideas attracted VC funding. How could I compete with startups that could hire great talent and didn't need to make money for years (or ever)?

The One and Only Way to Learn

After years of talking myself out of SaaS startup ideas, I decided to develop and launch one. I needed to know if a solitary developer may create a SaaS app in 2022.

Thus, I did. I invented webwriter.ai, an AI-powered writing tool for website content, from hero section headlines to blog posts, this year. I soft-launched an MVP in July.

Considering the Issue

Now that I've developed my own fully capable SaaS app for site builders and developers, I wonder if it's still possible. Can webwriter.ai be successful?

I know webwriter.ai's proposal is viable because Jasper.ai and Grammarly are also AI-powered writing tools. With competition comes validation.

To Win, Differentiate

To compete with well-funded established brands, distinguish to stand out to a portion of the market. So I can speak directly to a target user, unlike larger competition.

I created webwriter.ai to help web builders and designers produce web content rapidly. This may be enough differentiation for now.

Budget-Friendly Promotion

When paid search isn't an option, we get inventive. There are more tools than ever to promote a new website.

• Organic Results

• on social media (Twitter, Instagram, TikTok, LinkedIn)

• Marketing with content that is compelling

• Link Creation

• Listings in directories

• references made in blog articles and on other websites

• Forum entries

The Beginning of the Journey

As I've labored to construct my software, I've pondered a new mantra. Not sure where that originated from, but I like it. I'll live by it and teach my kids:

“Do the work.”

Software can change any company.

Software is becoming essential. Everyone should consider how software affects their lives and others'.

Software on your phone, tablet, or computer offers many new options. We're experts in enough ways now.

Software Business Ideas will be popular by 2023.

ERP Programs

ERP software meets rising demand.

ERP solutions automate and monitor tasks that large organizations, businesses, and even schools would struggle to do manually.

ERP software could reach $49 billion by 2024.

CRM Program

CRM software is a must-have for any customer-focused business.

Having an open mind about your business services and products allows you to change platforms.

Another company may only want your CRM service.

Medical software

Healthcare facilities need reliable, easy-to-use software.

EHRs, MDDBs, E-Prescribing, and more are software options.

The global medical software market could reach $11 billion by 2025, and mobile medical apps may follow.

Presentation Software in the Cloud

SaaS presentation tools are great.

They're easy to use, comprehensive, and full of traditional Software features.

In today's cloud-based world, these solutions make life easier for people. We don't know about you, but we like it.

Software for Project Management

People began working remotely without signs or warnings before the 2020 COVID-19 pandemic.

Many organizations found it difficult to track projects and set deadlines.

With PMP software tools, teams can manage remote units and collaborate effectively.

App for Blockchain-Based Invoicing

This advanced billing and invoicing solution is for businesses and freelancers.

These blockchain-based apps can calculate taxes, manage debts, and manage transactions.

Intelligent contracts help blockchain track transactions more efficiently. It speeds up and improves invoice generation.

Software for Business Communications

Internal business messaging is tricky.

Top business software tools for communication can share files, collaborate on documents, host video conferences, and more.

Payroll Automation System

Software development also includes developing an automated payroll system.

These software systems reduce manual tasks for timely employee payments.

These tools help enterprise clients calculate total wages quickly, simplify tax calculations, improve record-keeping, and support better financial planning.

System for Detecting Data Leaks

Both businesses and individuals value data highly. Yahoo's data breach is dangerous because of this.

This area of software development can help people protect their data.

You can design an advanced data loss prevention system.

AI-based Retail System

AI-powered shopping systems are popular. The systems analyze customers' search and purchase patterns and store history and are equipped with a keyword database.

These systems offer many customers pre-loaded products.

AI-based shopping algorithms also help users make purchases.

Software for Detecting Plagiarism

Software can help ensure your projects are original and not plagiarized.

These tools detect plagiarized content that Google, media, and educational institutions don't like.

Software for Converting Audio to Text

Machine Learning converts speech to text automatically.

These programs can quickly transcribe cloud-based files.

Software for daily horoscopes

Daily and monthly horoscopes will continue to be popular.

Software platforms that can predict forecasts, calculate birth charts, and other astrology resources are good business ideas.

E-learning Programs

Traditional study methods are losing popularity as virtual schools proliferate and physical space shrinks.

Khan Academy online courses are the best way to keep learning.

Online education portals can boost your learning. If you want to start a tech startup, consider creating an e-learning program.

Conclusion

Software is booming. There's never been a better time to start a software development business, with so many people using computers and smartphones. This article lists eight business ideas for 2023. Consider these ideas if you're just starting out or looking to expand.

OpenAI's ChatGPT is an amazing AI-powered chatbot. It can write poetry, stories, and marketing campaigns, and it's also adept at coding. ChatGPT's coding is so amazing that it replicated itself. What happened:

Me: Hi

Hello! Can I help? I'll answer any inquiries you have.

Me: Build a python and flask AI chatbot that responds to user messages on the frontend.

CGPT:

from flask import Flask, request, jsonify

import openai
openai.api_key = "YOUR_API_KEY"

@app.route('/chatbot', methods=['POST'])
def chatbot():
    user_message = request.get_json()['message']
    response = chatbot_response(user_message)
    return jsonify({'response': response})


def chatbot_response(user_message):
    response = openai.Completion.create(
        engine="text-davinci-002",
        prompt=user_message,
        max_tokens=1024,
        n = 1,
        temperature=0.5
    )
    return response['choices'][0]['text']

if __name__ == '__main__':
    app.run()

To integrate a chatbot with a frontend, use Flask to serve an HTML page with a form for user messages and the chatbot's answer. AJAX can submit the form to the /chatbot route, and JavaScript can show the chatbot's response.

I imported code snippets at the top of the file.

Let's add a frontend interface, I said.

CGPT:

<!DOCTYPE html>
<html>
<head>
    <title>AI Chatbot</title>
</head>
<body>
    <h1>AI Chatbot</h1>
    <form id="chatbot-form">
        <label for="message">Message:</label><br>
        <input type="text" id="message" name="message"><br>
        <input type="submit" value="Submit">
    </form> 
    <div id="chatbot-response"></div>

    <script src="https://ajax.googleapis.com/ajax/libs/jquery/3.5.1/jquery.min.js"></script>
    <script>
        $(document).ready(function() {
            $("#chatbot-form").submit(function(e) {
                e.preventDefault();
                var userMessage = $("#message").val();
                $.ajax({
                    type: "POST",
                    url: "/chatbot",
                    data: JSON.stringify({message: userMessage}),
                    contentType: "application/json; charset=utf-8",
                    dataType: "json",
                    success: function(response) {
                        $("#chatbot-response").text(response.response);
                    }
                });
            });
        });
    </script>
</body>
</html>

To serve this HTML page using Flask, build a new route that returns the page as a GET response.

So far, so good.

Looked quite basic so I got chatGPT to add some tailwind to the project.

Me: Tailwind the chatbot.html page, please. Give it a futuristic style with purple and neon

After a few more prompts, Talk GPT aligned the form to the center, changed some colors, and added padding.

CGPT:

<!DOCTYPE html>
<html>
<head>
    <title>AI Chatbot</title>
    <link href="https://unpkg.com/tailwindcss@^1.0/dist/tailwind.min.css" rel="stylesheet">
</head>
<body class="bg-black flex flex-col justify-center items-center">
    <h1 class="sm:text-center text-purple-500">AI Chatbot</h1>
    <form id="chatbot-form" class="border-purple-500 bg-purple-800 rounded">
        <label for="message">Message:</label><br>
        <input type="text" id="message" name="message" class="min-w-30 rounded"><br>
        <input type="submit" value="Submit" class="bg-purple-500 border-red-500 transform hover:scale-110 rounded">
    </form> 
    <div class="flex justify-center">
        <div id="chatbot-response" class="text-white rounded"></div>
    </div>

    <script src="https://ajax.googleapis.com/ajax/libs/jquery/3.5.1/jquery.min.js"></script>
    <script>
        var colors = ['red', 'orange', 'yellow', 'green', 'blue', 'indigo', 'violet'];
        var colorIndex = 0;
        
        $(document).ready(function() {
            setInterval(function() {
                $("#chatbot-form").css('border-color', colors[colorIndex]);
                colorIndex = (colorIndex + 1) % colors.length;
            }, 1000);

            $("#chatbot-form").submit(function(e) {
                e.preventDefault();
                var userMessage = $("#message").val();
                $.ajax({
                    type: "POST",
                    url: "/chatbot",
                    data: JSON.stringify({message: userMessage}),
                    contentType: "application/json; charset=utf-8",
                    dataType: "json",
                    success: function(response) {
                        $("#chatbot-response").text(response.response);
                    }
                });
            });
        });
    </script>
</body>
</html>

Improved:

A few more prompts like “Add more vertical and horizontal padding to the submit button and vertical margin, and vertically align this file's body.”

The result:

Is it effective? Now, I'll chat with ChatGPT's AI Chatbot. I intervened minimally throughout construction. Chat GPT created numerous files, connected and interacted with its own API, and presented the user request response on the front end by itself.

Me to AI Chatbot: Hey, can you give me 6 name suggestions for a black horse?

Me to AI Chatbot: Write a poem in the style of Jim Morrison. Make sure to mention cacti and black holes

ChatGPTs Chatbot:

In the desert night, I am confronted by cacti, 
Their arms reaching out, As if to grab me and take me away. 
The stars in the sky, Beckon me to come, 
To a world of black holes, Where I can be free. 
I am in a trance, My body and mind, 
In a state of limbo, As I wander the night. 
I hear a voice, Calling me to the unknown, 
I cannot resist, The lure of the black hole. 
The cacti watch, As I take my leave, 
To a place of mystery, Where I can find peace.

Of course, the next question I gave it was to build a chatbot!

Me: Build a python and flask AI chatbot that responds to user messages on the frontend.

ChatbotGPTs:

import os from flask 
import Flask, request, jsonify 
from chatterbot 
import ChatBot 
from chatterbot.trainers 
import ListTrainer 

# Create a new chatbot 
bot = ChatBot( 
  "My Bot", 
  storage_adapter="chatterbot.storage.SQLStorageAdapter", 
  logic_adapters=[ 
    "chatterbot.logic.BestMatch", 
    { "import_path": "chatterbot.logic.BestMatch", 
      "statement_comparison_function": "chatterbot.comparisons.levenshtein_distance", 
       "response_selection_method": "chatterbot.response_selection.get_first_response" } 
    ], 
    database_uri="sqlite:///database.sqlite3" ) 

# Train the chatbot with a few sample conversations 
conversation = [ "Hello", "Hi there!", "How are you doing?", "I'm doing great.", "That is good to hear", "Thank you.", "You're welcome." ] 
trainer = ListTrainer(bot) trainer.train(conversation) 

# Create a Flask app 
app = Flask(__name__) 

# Define a route for the default URL 
@app.route("/") def index(): return "<h1>Chatbot</h1>" 

# Define a route for the /get_response URL 
@app.route("/get_response", methods=["POST"]) 

def get_response(): 
# Get the user's message 
user_message = request.form["user_message"] 
# Get the bot's response 
bot_response = bot.get_response(user_message) 
# Return the bot's response 
return str(bot_response) 
# Run the Flask 
app if __name__ == "__main__": app.run()

No matter how many times I tried, the second generation always used chatterbot instead of the ChatGPT API. Even when I told it to use the ChatGPT API, it didn't.

ChatGTP's ability to reproduce or construct other machine learning algorithms is interesting and possibly terrifying. Nothing prevents ChatGPT from replicating itself ad infinitum throughout the Internet other than a lack of desire. This may be the first time a machine repeats itself, so I've preserved the project as a reference. Adding a requirements.txt file and python env for easier deployment is the only change to the code.

I hope you enjoyed this.

Headline inflation is the raw Consumer price index (CPI) reported monthly by the Bureau of labour statistics (BLS). CPI measures inflation by calculating the cost of a fixed basket of goods. The CPI uses a base year to index the current year's prices.

Explaining Inflation

As it includes all aspects of an economy that experience inflation, headline inflation is not adjusted to remove volatile figures. Headline inflation is often linked to cost-of-living changes, which is useful for consumers.

The headline figure doesn't account for seasonality or volatile food and energy prices, which are removed from the core CPI. Headline inflation is usually annualized, so a monthly headline figure of 4% inflation would equal 4% inflation for the year if repeated for 12 months. Top-line inflation is compared year-over-year.

Inflation's downsides

Inflation erodes future dollar values, can stifle economic growth, and can raise interest rates. Core inflation is often considered a better metric than headline inflation. Investors and economists use headline and core results to set growth forecasts and monetary policy.

Core Inflation

Core inflation removes volatile CPI components that can distort the headline number. Food and energy costs are commonly removed. Environmental shifts that affect crop growth can affect food prices outside of the economy. Political dissent can affect energy costs, such as oil production.

From 1957 to 2018, the U.S. averaged 3.64 percent core inflation. In June 1980, the rate reached 13.60%. May 1957 had 0% inflation. The Fed's core inflation target for 2022 is 3%.
 

Central bank:

A central bank has privileged control over a nation's or group's money and credit. Modern central banks are responsible for monetary policy and bank regulation. Central banks are anti-competitive and non-market-based. Many central banks are not government agencies and are therefore considered politically independent. Even if a central bank isn't government-owned, its privileges are protected by law. A central bank's legal monopoly status gives it the right to issue banknotes and cash. Private commercial banks can only issue demand deposits.

What are living costs?

The cost of living is the amount needed to cover housing, food, taxes, and healthcare in a certain place and time. Cost of living is used to compare the cost of living between cities and is tied to wages. If expenses are higher in a city like New York, salaries must be higher so people can live there.

What's U.S. bureau of labor statistics?

BLS collects and distributes economic and labor market data about the U.S. Its reports include the CPI and PPI, both important inflation measures.

https://www.bls.gov/cpi/