Hermann Hauser’s Criteria For Judging A Business Plan

The average ratio of accepted business plans to rejected business plans is 50:1, aacording to Hermann Hauser, founder of the VC firm Amadeus Capital. How does he separate the wheat from the chaff?

 

Hsuer’s criteria for judging a business plan are:

 

1. There’s got to be a real need for that product or service;

2. There’s got to be a large market with high growth rate;

3. There has to be at least one star in the team;

4. There has to be defensible (i.e. legally protectable) technology;

5. It has to fit the partnership business model.”

 

In terms of personal qualities he looks for: “Enthusiasm. The fire in the belly. Unless people have a tremendous amount of energy, they will not get over the hiccups there will invariably be.”

 

After that come: “A fine brain, business nous, a team-building capability, and a good idea – a good business idea.”

Tags: business model, business plan, good business

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10 Comments

  1. Mike Bryant
    July 23, 2010 14:49

    We have assisted a couple of EDA software startups where they span out from universities and so much of the development was done but as you say they still have other costs and so had to raise capital. However both were below the million $/£/Eu level so this was possible.
    However the one I have been looking at recently is rather bigger as it requires around 50 man years of software development and testing and so is impossible to bootstrap. I suspect this one will die before it begins.

  2. July 23, 2010 12:01

    Mike
    If the EDA tools you refer to are pure software, then I’d suggest the bootstrap mode anyway, no need to sell off chuncks of equity too soon with such a business, at least not to get to 1st product.
    In the go to market phase though, I’d suggest getting some investment to properly support the marketing, precisely because Synopsys/Mentor/Cadence dominate the market. The only way in will be via strong marketing. If properly executed it will also build value into your business quicker than product revenue will.

  3. Mike Bryant
    July 22, 2010 20:32

    Spot on Geoff R. I have already seen that EDA tools are seen as not worth investing in by these government sourced funds as they don’t meet some arbitary criteria. This is despite some of the best ideas currently on offer being in that area and of course there still exists a valid exit stategy of “sell to Cadence/Mentor/Synopsys” wheres the “sell to Cisco” has gone from the end of telecomms business plans a long time ago. But of course because the government sourced funds won’t touch it neither now will most VCs.

  4. July 22, 2010 10:39

    Greg, I think we have started to see this VC ‘wait til later’ process in the UK too, perhaps because they’ve seen the vast wads of dosh being thrown in by the government and the EU to ‘foster innovation’.
    Time will tell as to the benefits of this approach to the countries economy. Personally I have my doubts that those managing the funds will be as returns focussed as VCs (for example) in their selection processes, because they tend to be measured more by how much money they dished out (over a specific period, irrespective of opportunity) that ‘met the criteria’ than by the returns to the economy such investments actually delivered.
    Such investments probably work for fostering specific sector research and even innovation, but whether they create real wealth through business generation in a cost effective fashion is debatable because it takes fostered and developed business and marketing skills to cross that bridge, and I see an unbalanced investment equation in that regard at the moment.

  5. greg
    July 21, 2010 18:47

    I guess it depends how ambitious you are attempting to be, and what niches you are expecting to be in. You’re right – your not going to stand up a general semiconductor company. You need to find something else. Probably about 2 months ago I was at a VC talk where they were lamenting that it costs about 100 mil of paid in capital to generate returns from the semiconductor space. They’re working on buyout expectations mostly of 2-3 times paid in. They actually suggested its a good idea to bootstrap if you can, partly because VC’s have started to move to funding late stage rather than early stage. 4-5 mil returns over 5 to 10 years are the bootstrapping norms for success. So adjust your expectations for bootstrapping on those numbers. VC’s are generally looking for 10′s to 100′s of mils. I met a fabless analog chip contractor who bootstrapped himself recently. It took him some years (about 8), but at least now he has some successful contracts under his belt and enough new ones and staff to generate that 4-5 mil if need be.
    VC’s expect control and the ability to set management styles/people, otherwise they won’t get any more cash when it goes peared. They are not out to do anyone a favor.
    I posted because I’ve seen the ‘stars’ walk out with very little even when it goes well. The ‘stars’ need to know how to empower themselves. I am often disappointed by how tragically little business nouse some engineers display and science graduates seem to be even worse. This is supposed to be a profession. ie professional practice = tech + business.
    I am actually on the other side of the pond. I am bootstrapping right now in the analog space. It may work out, it may not. I care but if it doesnt work I’ll try again. That other side optimism tells me that I need to have a go regardless – but you need to know who’s not doing you a favor. Its all about opportunity assessment and working within your capabilities, rather than leveraging anyone elses, unless you have that cash. It can’t be a ‘I’ll only try with 10mil of VC or nothing’ sum game. On the positive side I think its going to be a better time for engineers and less of a good time for the business only types because of that.
    VC’s are as afraid of big business bureaucrats as they are of the technocrats. They don’t want to fund either. They just want someone who can ‘do’ stuff while looking at the bottom line.

  6. El Rupester
    July 21, 2010 16:51

    Greg, it’s impossible these days to bootstrap anything significant in the electronics space. As David Tester’s blog pointed out, it is hard enough to fund it even then.
    The interesting point is how your post is the other side of the coin from Geoff’s. In the UK, we do not plan for success: we always look at the negative side. One aspect is your cynicism, the other is that because we see the worst we believe the worst of people who have failed.
    A bit of Silicon Valley optimism would be nice: people who have failed will learn from it and are a good bet; there is scope to make a successful start-up, and it is not inevitable all the founders get screwed.

  7. greg
    July 20, 2010 18:06

    I would expand point 3. There needs to be a star who will work for wages rather than equity. The star should not be the founder, but should be in the founder’s team.
    The reality is that VC’s will put in a professional CEO (code for one of their mates) at the earliest opportunity (technology fixed) in order to placate financial analysts into giving decent analytics which make it appealing for buyout or IPO. But for all this to work the ‘star’ can’t think he has a say over what happens. So they prefer a more docile, pliable character to run it from the get go. But they need the ‘star’ for street cred.
    My rule of startups is to avoid VC if its a real business opportunity. Try to bootstrap at all costs. If its a dick of an idea that sounds cool by all means try to sucker VC’s as they will try to sucker you in return. Its just a game.

  8. July 20, 2010 12:54

    Here here Mike Bryant!
    We should attribute a lot of success in high technology US companies to the US willingness to endure failure, pick themselves up and continue…and NOT BE JUDGED as a failed once you’re done – individual or company.
    The culture in the UK looks down on failure instead of realizing what a tremendous learning experience it can be. And worse we snipe at those who eventually succeed instead of lauding them.
    Just ensure you don’t make the same mistake (that led to a failure) twice.

  9. Mike Bryant
    July 17, 2010 12:09

    The number 6 I would add is to have someone who has done this before on-board at least as a non-exec but definitely in a capacity where they are advising the team on a weekly basis AND BEING LISTENED TO !!
    In fact the person doesn’t have to have succeeded as it is often the experience of failing that gives them the knowledge to succeed next time. This is an area the US seems to understand well but Europe doesn’t.

  10. Lefty Goldblatt
    July 16, 2010 17:53

    is there not a missing number 6 ?
    6. It has to be able to pump and flip inside 5 years max.

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