Category Archives: Fund raising

Reflections on Y Combinator Demo Day

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As a venture capitalist, I often say when speaking with founding teams, everything is a signal.  Everything is a signal, because as a potential investor in a team and the earliest stage of an idea, business and company, you are dealing with the most intangible, the most uncertain of situations. With as much imprecise, uncertain information as you are sifting through all day as a venture investor, I find that I tend to pick up on little signals.

Several months ago for example, I was taking a pitch from 3 co-founders.  The ideas was pretty interesting.  Not in my sweet spot as an investment, but a credible, if early, idea.  Something about the founding team struck me as a little off, however.  About halfway through the pitch, I stopped them.  “Tell me about the three of you came together as a team,” I said, “I’m hearing an interesting idea, but to be honest, guys, I can’t get a read on the chemistry between the three of you as a team.  If I had to guess, I’d say you three met for the first time this past weekend and thought it’d be fun to start a company together.”  They got a sheepish look on their faces and said that in fact, they’d met for the first time at a bar 10 days prior and had cooked up their plan.  Not a bad thing at all, in my mind, they just needed more time together as a team to figure out what kind of organization and company they wanted to build. This example is one of many I could point to where small signals make an impact.

With that as a framework, what was signaled at this week’s Y Combinator Demo Day as to the state of Silicon Valley and tech startups in general?   Y Combinator, of course, is the well-known startup incubator co-founded by Paul Graham.  It is a terrific organization, the gold standard of startup incubators. This batch of startups had over 70 companies, and hundreds of investors of all stripes filled the main auditorium of the Computer History Museum in Mountain View, California. With this many companies presenting, and with this many investors, there were signals galore, from which to try to point to what’s going on in the world of start-ups in Silicon Valley.

Here are the key observations I saw coming out of the Demo Day.

Revenue is happening faster.  It is well known and oft discussed that the costs of starting a company has been dropping all the time.  Open sourced software stacks and development tools, and low cost cloud resources from Amazon Web Services, all conspire with Moore’s Law to drive lower and lower startup costs for software companies.  These trends enable teams to do more with less, and this trend will only continue.

The newer phenomenon, however, is the capability to build and drive revenue faster than ever before.  More YC companies this batch than I’d ever seen before were ramping revenue, and in some cases ramping it quickly.  This is a great trend for all involved.  The signal here is that startups have an opportunity to drive revenue sooner and faster than I think ever before, and I expect this to continue.

Software continues to chomp.  VC Mega Firm Andreesen Horowitz has as their mantra software is eating the world, and this Demo Day showcased this trend in an interesting way.  Here’s what I mean.  Several years ago, critics would complain that YC companies were so single minded in their efforts to deliver a basic quantum of value by Demo Day that they were really building only features and dressing them up as companies.  Some would say also that the earlier YC efforts were far too consumer focused or limited.

I think those critiques were overblown then, and they’re totally obsolete now.  This year’s YC batch showcased companies with solutions aiming to disrupt a vast array of markets.  Several of these markets are ripe for disruption: trucking and logistics (Keychain Logistics), non-profit fund-raising (Amicus), rental price prediction (Rent.IO), interior design (Tastemaker).  All of these markets suffer from fragmentation, a low tech, antiquated value chains, and so on.  It’s awesome to see these YC companies driving to disrupt these markets.  I’m thrilled for them.  And the signal here is that if you’re thinking about starting a company, consider a sleepy old industry and what and whether you might be able to build something that dramatically upends the value chain as it is currently established.

Companies are combining bricks and clicks.  One change in this batch of YC companies, in my view was that more are stepping beyond pure software, to include real-world elements.  For example, Viacycle is a new bike sharing platform.  It combines technology with real-world equipment to enable users to rent and share bicycles.  Tastemaker is a software oriented approach to requesting a bid for design, but there are real-world steps in its process, including professionals who measure your room, and getting a hard copy of your design brief delivered.  The signal here: as software continues to disrupt more and more of daily life, we’re going to continue to see software extend beyond purely virtual and online, into real-world everyday implementations.

Venture is continuing to shift.  The trends in startups I mentioned above, will have I think a few impacts on investors.  First, focus will matter.  Startups that are getting more focused on disrupting specific verticals or value chains will, I think, over time start seeking money that’s smarter and more aligned with what they’re doing.  Second, investors will have to realize and adjust to the reality that more companies they seek to fund early will likely have revenue coming in through the door.  This will, in some cases, drive valuations.  In other cases, it will drive a healthy conversation around how to think about growing the business.  All in all these are all great things.

To close, I tell people that YC Demo Day is like Christmas morning for me.  Its a day I look forward to always.  It is a delight and a privilege to watch these many founders showcasing their hard work over the last several months, and its a great experience to remind me why we’re all so fortunate to do this job here in Silicon Valley.

 

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UberConference’s Awesome Video

For founders seeking funding and investment, one of the most common pieces of advice is to start a pitch by answering this question:  “What problem do you solve?”

It’s good advice–the last thing you want to do is launch into some obtuse description of your game-changing, proprietary, patent-pending, SaaS-based architecture with a REST API thingamajig without providing any context for the pain that your thingamajig will ease.

For pitch days, top tier startup incubators like Y-Combinator, 500Startups, and AngelPad do a terrific job getting all their founders to describe cogently and quickly what’s broken and what they aim to fix.  It’s grounding, it builds confidence and credibility in the team.   One of the many, many reasons that these and other incubators are providing so much value and usefulness.

One of the challenges though is to understand at what altitude to fly with these problem statements.  Do you just go with “Job hunting sucks,” or “We find your lost socks!”, or is there something more to it.

In general, I’d say stay high-level.  Fewer words are better.

At the same time, in a longer pitch, you are going to want to show concrete and clear understanding of the customer pain point you are trying to solve.  In my mind, this speaks to the product chops of the team, and the depth of understanding of the opportunity.

For a *GREAT* example of this depth and concreteness of understanding, check out Uberconference’s video.  It’s 90 seconds of awesome.

It frames up as well as anything I’ve seen in a while the problems with Conference Calling that the team is seeking to solve.

 

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BizWorld

BizWorld & The Lean Startup

My son, Hobie, and his fourth grade class recently completed a mock business and entrepreneurship class called BizWorld.  I had the good fortune to visit and mentor these 10 year old would-be founders.

It was a blast to watch these kids work through the different steps of the business.  Three highlights worth calling out, as lessons and perspectives to startups at any stage.

First, don’t run out of cash.  BizWorld is a turned based simulation.  The kids are split into teams all building, marketing, and selling little friendship bracelets.  Buying materials and doing marketing costs money, which they have to get through early stage investment from mock venture capitalists.

At each turn, the instructors/facilitators would have the kids work through their P&L for the turn and build a rudimentary balance sheet.  Watching the teams argue about why their ledgers didn’t reconcile was hysterical.

The message I reinforced to them was that pointing fingers at who spent what didn’t really matter at the end of the turn.  What mattered is understanding (a) how much cash was on hand; and (b) what spend they could avoid or trim in the next turn so that they could preserve capital.

Don’t run out of cash!

Second, just go.  Kids are fun to watch, because when you ask them to say, build a marketing and promotion campaign in 10 minutes, they just do it.  Not much time, they just start slinging. Obviously with some stuff in startups, deep and careful thought and design is required.  With most other stuff, especially very early on, taking a ready, fire, aim approach works just fine.

Third, a critique of BizWorld, don’t raise first! I started my mentoring and guidance at the BizWorld by helping a team of kids assess the order of stuff they had to do, based on a worksheet the BizWorld moderator was making us fill out.

The worksheet had a set of steps that the kids were supposed to discuss and put into order.  The steps were things like:

  • Market and sell your product
  • Design your product
  • Raise money from investors in order to buy materials
  • Count up profits

The kids first thought was that they needed to raise money.  As a coach mentor, I suggested to them that maybe they’d want to actually design their product a bit first, so that they’d have a better chance of getting capital from an investor.  They thought this made sense, so they decided to put “Design your product” as the first step, with “Raising Money” coming later.

I stood back and beamed at my good mentoring, thinking we’d have a good discussion about what to do first when he called on us.

When he did call on us, and we said, “Design Product,” was our first step, he kind of rocked on his heels and said, “No, in this case, we need to Raise Money first.”

I gasped a bit, and the facilitator guy moved right along…  Raise Money, then Design Product.

A good thing he’s not raising money from me!

This is a light critique, as we did eventually return to this topic and discuss the reality that ‘it depends’ in terms of when a company raises money.  But for all you founders out there, raise as late as possible!

 

#STARTUPPROTIP — Inevitability

Last month, I had the good fortune to host a group students from Duke University who had come out to SF & Silicon Valley for their spring break to get exposed to the startup world here.  We ended up at The Counter on California Avenue in Palo Alto, and the folks there at the Counter really took great care of us (topic for another post).

During our time together, one of the students asked me “What exactly are you looking for in the people or the teams you invest in?”  This student then followed it up saying he wanted to understand how what he’d need to do to break-through and gain the attention of an investor despite being just a student.

Now before I go off on my thoughts on this, I’d say that “being just a student” isn’t an obstacle to investment, at least from what I consider the best venture investors.  Benchmark Capital’s Bill Gurley’s recent post, Why Youth Has An Advantage in Innovation & Why You Want To Be A Learn-It-All, illustrates why it’d be a sucker’s bet for venture investors to look past an investment opportunity purely based on the youth of the founder.

Net: if you’re a student and you want to start a company and need to raise money, my view is that you have the same challenges that every other founder faces—you’ve got to build something people want and you’ve got to blast through whichever walls are in your way.

So with the being just a student thing set aside, then to the heart of this guys question, namely, what am I looking for?   If there were 1 single word that I’d site as the thing I’m looking for with the people that I invest in, it’d be this….

Inevitability.

Inevitability means that no obstacle will be too large.  Inevitability means you have a vision of where the world can go that you see, and that you’re the unstoppable force to get the world to buy in to that world.  Inevitability is about focusing on not stopping until you get any number of commitments that are needed—the code written, the product shipped, the customer sold, the investor closed.  Inevitability.

When I think about the many CEOs we are actively working with at BlueRun Ventures, we see different personalities.   Some are very technical, some business driven, some both.  Some are extroverted, others are introverted.  Whatever, there really isn’t a template in my view, different folks thrive at running different types of companies.

But a common thread that I definitely see is a push that drives for inevitability.

So don’t worry about whether you’re still a college student or whether you’re even in college.  (Believe me, having a college degree does not correlate to startup success, just ask Bill Gates, Mark Zuckerberg, or Michael Dell.)   But do worry about how much inevitability you are driving in your business effort.

 

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Here’s what’s next

I got an email today from a company founder, working on a product that was heading into beta, seeking “outside perspective on what’s next.”

As I get a number of emails from early stage company founders that are looking for advice when they are at that very early beta stage, and as this email was pretty representative of those contacts, I thought it’d be useful to turn my response into a blog post.

Here’s basically my reseponse:

Hi [Founder], thanks for your email.  Here’s my  take FWIW.

My recommendation on “what’s next,” is probably to suggest that you read the book The Lean Startup by Eric Ries.  The key point that I think is most important for any start up is the core focus and need to gain concrete, clear evidence of two basic issues:

(1)                Evidence of product market fit.  That is, do people actually want to use your product?  Evidence that you’ve built something people want is what you need first and foremost, and the question is do you have a convincing story here.

(2)                Evidence of user growth.  That is, what evidence can you show around how much time, work, and money it takes to grow your user base.  You want to showcase how you grow your users and what feedback is required to make that happen.

So there you have it.  If you’re getting your product out there in front of users, great.  If you’re asking ‘what’s next,” then the answer IMHO is to get evidence first of product market fit and then of customer growth.  Ries’ book speaks well to this, and I recommend it highly.

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Welcome!

Thanks for visiting my blog.  I’ve had this here for a while, but as there was a recent surge of visitors, over 90% of whom have never visited before, I thought I’d try to roll out a bit more of a welcome and introduction in this post. :)

First off, its nice to meet you.  To learn more  about me, go to the About Me page.  Definitely feel free to drop me a line at jjamison <at> brv <dot> com.  I do my best to respond quickly, but I may be brief.

Second, here are some quick links to stuff I write about here and elsewhere.

  • StartupProTips.  This is a collection of quick tips and tricks that I try to pass on to founders, generally in the context of either building a company or fund-raising.  These have been relatively popular.
  • Naming & branding your startup. (Slide deck.)  I’ve given this talk at Adeo Ressi’s FounderInstitute several times, and I think it generally provides a useful, concrete approach to thinking about coming up with a name and brand.
  • SlideShare decks galore!  Some of the greatest hits talk about building your revenue model, hiring, and a general overview of lessons learned in Silicon Valley.  Worth what you pay for them, but quick and hopefully painless to read.

So again, welcome.  Happy to have you here.  Please let me know if there’s content you’d like to see more or less of.

 

 

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StartupProTip: re-read Venture Hacks!

Venture Hacks is a great resource for early stage founders.  If you’ve never read Venture Hacks or if its been a while, I’d recommend rereading.

Today, I was trading mail with a founder looking to get in for a pitch.   I generally try to keep my door as open as I possibly can, to meet as many founders as possible, as you just never know.  At the same time, this founder’s approach really hurt his or her credibility with investor.

I’m pasting the thread below, not to humiliate the person in question, but rather to illustrate the points that are so important from the Venture Hacks recommendations on how to approach an investor.

StartupProTip of the day: read or re-read Venture Hacks!

Mail #1

———————–

Subject: Important Email

Hello Jay,

Hope your day is going great, I found your contacts through linkedin and

wanted to drop you quick email

Our team is working on some of the biggest, baddest, innovation & game

changing technologies which are going to have global impact and we are

looking for advisors/mentors & board members for this project

Do you have few minutes to jump on quick call to go over beta version of our

platform ? rest assured, this will be well worth your time

best,

[Founder name ommitted]

 ——-
Mail #2

To: Jay Jamison

Subject: Important Email,

 

 

Hi Jay,  wondering if you received my previous email, I look forward to

hearing from you at the earliest

 

best,

– [founder name omitted]

—-

Mail #3 — my response #1

Can you give me any context on what this is about?  It is very difficult to

parse.

 

Thanks!

 

Best regards,

 

Jay

 

Jay Jamison

BlueRun Ventures

 

 —-
Mail #4 — founder response

good to hear from you Jay,.technology is related to

mobile, social media, bigdata advertising platform

for business owners. let me know if you have few

minutes to jump on quick call. I’ll connect you with

our super star founders for a demo early next week.

 

mail #5 — my final mail

Hi  {name omitted},

 

Thanks for the mail.  I am going to pass on this opportunity.

 

In the spirit of trying to help you and your team, I would strongly recommend that you and the founding team read these posts in particular: http://venturehacks.com/articles/elevator-pitch and http://venturehacks.com/pitching.  If you are serious about building a company, then I’d also strongly recommend seeking admission to Adeo Ressi‘s FounderInstitute.

 

Your current approach raises a range of red flags, and you would benefit greatly from following the advice described in these articles and / or the opportunities offered through the FounderInstitute.

 

 

 

Thanks!

 

Best regards,

 

Jay

 

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2012 Prediction: Early Stage = Revenue Stage

2011 was an eventful year in the our industry.  The tech behemoths showed how dynamic things were.  Once the unassailled leader in business and mobility, RIMM saw a string of setbacks.  HP, the granddaddy of them all as far as tech brands, was completely humbled in its venture into mobile, and put into place yet another CEO.  Google saw Android surge to the top of the market share leader board, and they bought Motorola Mobility for good measure.  And, sadly, we grieved with the passing of Steve Jobs.

With emerging franchise businesses, we saw the reopening, slightly, of the IPO window, with Groupon, Zynga, LinkedIn all going public.

Despite all this activity, we also saw the very rapid rise of early stage companies that have literally exploded onto the scene.  These companies (AirBNB, Instagram, Pinterest, etc.) are driving revenue, eyeballs, etc. at rates once unthinkable, now more common.  In a recent Economist article, angel investor Ron Conway provocatively posed the question: “Perhaps 2012 will see a company develop a $1 billion business inside 12 months.”

Exciting times indeed.

At the same time,however, there is evidence that a coming ‘pause’ is on path for 2012, at least from the venture side.  Yesterday’s a WSJ article described the enthusiasm in venture investors in 2011, and noted that Marc Andreessen‘s venture capital firm Andreessen Horowitz has “taken a step back.”  The article then goes on to describe how investors are seeking ways to make investments at less heady values and with more thoughtful consideration.

I don’t think things will pause too much.  Still a lot of great companies out there doing innovative things and showcasing more and more traction along the way.  While I’m not worried about a crash, convulsion or whatever in 2012, my take is that 2012 will be a great year for early stage companies that are driving to and scaling revenue early.   A few reasons for this.

The first, and the most important, is taht founding teams that have revenue coming in the door have vastly more flexibility than those that don’t.  If investor markets cool, as the WSJ predicts, revenue generating firms can hunker down and postpone raising; pre-revenue firms are subject to forces beyond their control.

The second is that unlike 5 or 10 years ago, there are so many more established revenue models that startups can roll out “from day 1.”  As a marketplace, AirBNB was making revenue basically from the first transaction on its system.  Selling virtual goods, Zynga was able to drive revenue from some of its earliest days.

And third, with the dramatic growth and ubiquity of twitter, facebook and mobile, distribution and promotion capabilities enable much more rapid growth of all new tech services, including those that are making revenue.  Zynga built on FBK’s platform, eg., AirBNB has similarly leveraged different broad scale social (Facebook) and commerce platforms (CraigsList) masterfully.  In other words, startups can both build eyeballs fast and build revenue early.  That’s a change.  It used to be choose eyeballs or revenue first, where most chose eyeballs first, monetization later.

An “eyeballs first, revenue later” business model can absolutely still work.  Pinterest, Instgram, etc. are living examples that this approach is still yielding the most broad, ubiquitous new consumer tech services in our industry.

My sense though is that as the 2012 “pause” filters its way through the industry that those start-ups that are showcasing revenue and growth will find navigating 2012  easier and valuations more strong.

 

 

 

 

 

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StartupProTip: The One Simple Word You Want Investors Thinking At the End of Your Pitch

Continuing the series of StartupProTips, today’s SPT aims at helping founding teams preparing to pitch hone in on the one simple word I’d want investors thinking about your business when you finish your pitch.

Of course this oversimplifies things.  You will have pitched a bunch of information–your problem statement, a kickass demo, your awesome forecast, why you’re different than competitors, your terrific team, etc., etc.  And your efforts will lead to investors having a bunch of thoughts bouncing around in their heads.

Given the problem of having to cover a lot of ground with investors while still needing to keep a cogent message forwarded to them, today’s SPT focuses on the One Simple Word You Want Investors Thinking at the End of Your Pitch.

Inevitability.

Image representing iPhone as depicted in Crunc...

Image via CrunchBase

I think about the first time I ever used products like the Google, iPhone, Dropbox, or Spotify.  For each, I can remember the first time I used them.  Where I was, how I’d heard about them, what the experience was like.  Each was magical.  And my  reaction was, “well of course, I want to use this for the rest of time.”

 

Pitching a startup though, is of course many many steps prior to a first use experience of the Google, iPhone, Dropbox, or Spotify.  What do you do at square 0 (or 1) ?  In a sense, you hone your sense of vision and your plan for execution to create a perception of inevitability.  Put into pitching terms, here’s are some ideas of the specific impressions you want to create:

  • The problem is so acutely painful and the market opportunity is so ripe and large that your offering is inevitable.
  • Your team is a bunch of super high energy fire-breathers that have banded together to overcome collectively whatever limitations you encounter.  No mountain is too high–with this team, moving forward is inevitable.
  • Your product execution clearly, obviously, quickly creates value by solving the pain point your targeting–showcasing a glimpse of the inevitable change in how we  use products and technology.
  • The customer validation of product market fit sparks a sense that having dug in on your potential offering, they see an opportunity to make their lives or business better.

Inevitability.

As you build and practice your pitch, ask yourself the question: is the story I’m telling evoking a sense of inevitability about our startup?

 

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