Tag Archives: Startup company

Where are we?

Over the past few weeks, I’ve noticed two themes in press and analysis around the tech world.

economist cover

Theme #1 : Where has the innovation gone?  This was represented best I think with this week’s cover of the Economist, asking whether we’ll ever invent anything as useful as a toilet ever again.  This echoed folks like Michael Arrington who quipped that he was bored and Peter Thiel who griped that instead of flying cars, we got instead 140 characters.

Usually, when I hear lots of mainstream concern that innovation is dead, that’s when I start getting excited.  The froth is coming out of the market, and the true innovation is out there, lurking, perhaps unrecognized (yet).  But it’s out there, just waiting to delight.

So on one hand, I’m excited.  Bullish about the future.

Theme #2: Thoughts on the Series A crunch.  Lots has been written about the pending Series A crunch.  I basically agree with Michael Maples Jr’s as quoted in a PandoDaily article, where he says (paraphrasing) that every year there are about 10 fantastic startup companies.  Irrespective of funding environment, those 10 are the ones everyone wants to get into and those have little trouble finding funding.  The goal is to start or be involved with one of those companies.

With that as context, I’ve read with increasing alarm the press that prominent incubators are putting out about how much follow-on funding their companies have attracted.  Here was one such announcement just made today.  I can understand why its useful and its not to take away from the work that incubators are doing to help companies get themselves started and off of the ground.   I’ve never been much of a fan of funding announcements though.  I’m more of a fan of announcements of big customer wins, market share achievements, and partners that are committing to your solution.  That’s real traction and where you have those wins, funding will follow.  I do worry that the signal from incubators on follow on financing is going to, if anything, prolong the Series A crunch.

These are just thoughts.  The concrete action feedback, if you’re a startup, is to stay focused on winning in the market place through traction–customers, market share, partners, revenue, growth, etc.

Delight a rapidly growing customer base and the Series A crunch and the concerns on a lack of innovation in today’s tech market will magically work themselves out.

 

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Cha-ching! AngelList’s new round

TechCrunch is reporting that AngelList is raising a “big round of financing at a valuation that multiple sources say will top $150M.”  As a first round of outside financing, it’s a whopper.

I couldn’t be more excited for the team and for AngelList.  It’s been a great service, one which has inserted itself into the necessary workflow of any early stage company executive or investor, making it one of the great interest-based networks out there.  I look at AngelList  a bit like a look at Quora–a key new social property that is immensely useful in my everyday life.  Kudos and congratulations.

I am fascinated by what the opportunity this round holds and by the potential of what AngelList seeks to become.  It is riding several important waves, which the TechCrunch article points out–notably the recently passed JOBS act.  Always a good thing.

If you’re a startup, you’ll want to be working on your AL profile.  AngelList will gain an increasing importance for startups, if it hasn’t already.  It’s like keeping your LinkedIn profile up to date–make sure you’re keeping your AngelList profile up to date.

If you’re a professional investor, you’ll want to be working on your AL profile.  Basically the same type of thing.  If you’re not there or you don’t ‘get’ ANgelList, then spend the time to figure it out.

About the only word of caution I’d have is this.  If you’re a startup, then getting on AngelList <> getting investment.  There’s a lot that goes in to building a company and attracting investors.  AngelList postings aren’t going to do it on your own.  If you’re an investor, same type of message.  Early stage investing is risky business.  The JOBS act and other efforts are lowering the barriers to anyone investing in these early stage ventures.  The adage of fools and their money holds true here.

 

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Mobile Brand Connect Dinner

Last night in San Francisco, BlueRun Ventures co-hosted the Brand Connect Dinner.  We work with Mark Evans at Social Local to put these events together, and we were thrilled to have speakers from Facebook, Proctor and Gamble, and Topsy speaking.  Also, it was a great audience of brands and entrepreneurs, seeking to build relationships and trade information.

There are a few takeaways I had from the event.

We are in early innings of what’s possible for brand advertising through Facebook, Twitter, and other social media platforms.  These social platforms are offering a new way for brands to communicate and connect with users.  Currently, most brands are merely repurposing content and media from existing campaigns (TV ads, magazine content, etc.) and just pushing it onto the Facebook wall, where they attempt to drive views and likes, etc.  What we saw though were several very interesting examples of new types of campaigns and engagements that leveraged some of the unique elements of Facebook to enable users to engage in more personal, more deep connections with the brands.  This was exciting.

There will need to be a continuing evolution here.  But this is to be expected if you study the history of media.  When TV first came out, for example, the first ads were basically radio ads just read on TV.  It took a while for everyone to figure out how to leverage TV.  But leverage it they did.  Same thing will happen in Facebook.

Big brands need massive scale from a startup to really engage.  On the one hand, many of the big brands–P&G for example–are getting much more serious about engaging with innovative young startup companies.  We saw this at the Big Brand Hackathon earlier this summer, where Home Depot, Toblerone, Ritz Cracker, and Kraft Mac & Cheese, all joined us and a bunch of hackers to build mobile-oriented demo projects that met their specific brand objectives.  Big companies and brands recognize that these new media types and these new innovations are areas they need to build musclature around, and it is great to see them engaging and working to stretch themselves to strengthen themselves here.

At the same time, its important for a reality check.  Concretely, big brands are driving massive scale and massive P&Ls.  This means that for a startup to really matter to a brand, there is a very high hurdle that the startup has to cross to become meaningful.  As Sonny Jandial, P&G’s Head of Innovation pointed out, the Brand Manager for Dawn Dish Soap is selling $1B worth of soap per year at around $4 a unit.  That Brand Manager has to move *a lot* of soap.  By definition, for the brand to engage beyond a little pilot or experiment with a startup, then, the startup has to be able to deliver meaningful numbers.  It’s a tall order, and as Sonny pointed out, his role is to be more of an experimenter on P&Gs behalf and help startups get nurtured to a level where they can grow to a point where they’d have an appopriate amount of scale to engage.

Budgets seem to be coming.  Without holding the brands to any fixed numbers, it did sound as though there was real understanding and thinking around th e need to spend here.  Engaging with Silicon Valley is not a hobby effort–it’s real and it’s serious.  The bar is of course high, but it did seem as though the budget is there.

All in all, over the last 6 months, I have seen a tremendous amount of interaction between large brands and with our portfolio and with the startup ecosystem more broadly.  This is an exciting trend.  At BlueRun, we will definitely continue to drive further into helping engage and connect brands into the ecosystem, and I’ll look forward to the next opportunities to get together.  See you at the next Brand Connect dinner!

 

 

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Support info for Anatomy of a Pass

I’ve recently written an analysis of pitches I’ve taken in the last several quarters and what drove whether I invested or passed.

Below is a more detailed description of the scoring rubric I built and used.  Happy to take questions and receive sugestions on how this could be improved in the future.  Also, on Scribd, I’ll post the raw data anonymized and this scale, so that people can dig in.

Again, hope this is useful.

 

 

 

 

 

Score

Team Market Traction Product Likelihood of Term Sheet

5

Founder(s) are known entities, prior CEO startup experience.  E.g., Max Levchin, Mike McCue, etc.  No questions on character, work ethic, etc. Firebreather.  If achieved, opportunity would change the world, change an industry, etc. Breakout market traction.  Most likely shown not just through Unique Users or Downloads, but also through engagement (time on site, repeat visits) and user growth. Market leading product in market. Agree to invest & offer term sheet

4

Founder has strong technical chops, startup experience, and unfairly specific subject matter expertise on the business and customer s/he’s chasing.  Core foundation of team is in place.  Highest calibre of work ethic, character, etc. Exciting.  Opportunity to build a significant business, and potentially very interesting independent company. Early indications of strong market traction.  May be on a short time horizon, or after a short burst (e.g., getting featured on iTunes App Store), making telemetry a bit early. Product in market, getting traction, vision towards market leadership Pass, but with close monitor

3

Founders have strong tech backgroudn, may or may not have startup experience.  Team may be incomplete.  No quesiton on work ethic, character, etc. Medium.  Some opportunity to build an interesting business.  Some question about the size and scope of the opportunity. Early indications of product/market fit, though too early to tell.  Usually very shortly after launch. Product in market, getting traction, vision towards market leadership Pass, passive monitor

2

Founding team has some specific background shortcoming, which they are prepared to address.  (E.g., too few technical people, overabundance of MBAs and/or Advisors.)  May have an open question on work ethic, capacity, character. Weak.  Difficult to see how achieving business success with the opportunity yields large scale disruption, impact, or opportunity. Zero or very early market traction, with founders showcasing compelling model and approach towards how they plan to address and adjust. Product in demo / alpha/non-public form. Pass, cold

1

Founding team has significant credibility isuses in terms of core skill set and requirements, may also have core issues on work ethic, basic organization skills, character, etc. Missing totally. No or weak market traction and weak understanding of how important focus on market traction and product/market fit is. No demoable product. Pass, avoid

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StartupProTip: view an incubator as a means, not an end…

I’m a huge fanboy for startup incubators.  YCombinator is, in my view, hands down the highest quality, most effective startup incubator on the planet.  The companies and teams coming out of YC are fantastic and attending Demo Day is for me a circle-the-calendar, Christmas-came-early-this-year kind of experience.  500Startups, newer to the game, is coming on strong, having seen in its short existence a host of winning exits including CardMunch, Punchd, and others.  AngelPad, TechStars, StartX, and Founder Institute (where I’ve often mentored and had facilitated the first SF chapter), among others are all helping young new companies get their start and I try to engage and help with each of them as much as I can.

These programs offer several benefits–alums of these programs will site things like the YC network, the access to mentors at Founders Institute, and the focus on design and metrics that 500Startups drives.  When speed and crispness in execution matters is so elemental to an early startup, these programs are extremely valuable to first time founders.

Given the benefits these startup incubators provide, its easy to understand why founding teams in growing numbers seek acceptance into these programs.  Totally makes sense and in most cases, I’d say early teams should pursue this route.

The one counter to this though that I’d share is this: view the incubator as a means, not an end.   I was meeting with a founding team recently that wanted advice.  After getting the elevator pitch and seeing a working demo, I asked them what the team’s next step was.  Their answer: “we’ve got to get into an incubator.”

This was a bizarre answer to me.  When I’m thinking about a company that’s got a demoable product, I’m generally thinking about next steps that are around doing customer development, continuing to iterate on the product, starting to build a community, seeking to raise money, etc.  I understand the notion that a next step for a company might be to apply to incubators as one of several tactics to undertake, but to have that be the next step was to my mind wrong.

I think its important to emphasize that while an incubator does offer tremendous value (again, I’m a fanboy), its a means to building a company, not an end.  My own view is that no YC (or other incubator) company  is ‘done’ when they graduate the program: indeed the work for any company is just beginning.  The implication of that is that an incubator is really a stepping stone, but that you need to drive your business forward with or without that support.

Incubators are a great means, and its an avenue most early stage teams should investigate.  But if you’re going to build startups, understand that its not about getting outside validation of an incubator, of an investor, etc.  Its about–to quote YC partner Paul Graham–”build[ing] something people want.”  That’s an end worth shooting for.

 

 

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#STARTUPPROTIP — when pitching, bring 2 or 3 people

I’ve recently started tweeting fortune cookie style tips to startup founders, generally focused on pitching and fund-raising, with the hashtag #STARTUPPROTIP.

These have seemed to engage people.  As I’ve got a bunch of them, some longer than tweets, I figured I’d write about some of them here.

Bring 2 or 3 people.  The first STARTUPPROTIP blog post to tee up has to do with how many people a team should bring in to pitch a VC.  My recommendation is 2 or 3.  The solo co-founder, if unknown to the investor, is I think too few–I can’t get any sense of the team that is being built, what the chemistry is, the culture, etc.  4 or more is too much of a zoo for a pitch meeting IMHO.  That leaves 2 or 3.

As to who to bring, it depends a bit on the type of startup.  One plan is to bring one person who’s responsible for building the product and the other who’s responsible for selling.  If your startup is heavily tech oriented, its perfectly fine to show up with 2-3 engineers/developers and no one who’s involved in business/marketing.  A CFO type, in a pre Series A, not as relevant.

Give each person a role.  Now that you know who’s coming to the pitch meeting, give each person a role.  If you have a presentation slide deck and a demo, figure out a logical role in the presentation for each of the attendees to get an opportunity to present or, at a minimum, give them a role answering some question (e.g., how the tech is architected, etc.).  Giving everyone a specific role provides each team member an opportunity to present, giving an impression of cohesion.  This also enables the investor to assess (in as positive a light to you as positive) the relative strength of the team.  In the best example of this scripting I’ve ever seen, a startup that pitched a year ago had 2 founders who knew exactly which slides or areas they presented.  They were masterful in transitioning between the two of them, and it conveyed a level of teamwork and unity that was quite powerful.

Have a scribe who records all questions asked.  When  you have 2 or 3 people attending a VC meeting, I would also recommend strongly that you assign one person to act as the scribe.  The scribe’s job is to write down every question that is asked during the meeting.  Whoever is presenting isn’t going to be able to write these questions down real-time, as she should be answering the questions asked.

Writing down the questions you get asked is important.  It gives you a great source of intelligence: the questions you get from the first investor you meet are likely to have strong overlap with questions you get from other investors.  By writing down the questions, you get an opportunity to prepare for future meetings anticipating the common questinos you’ll get.

With the scribe acting as the recorder of questions, then after each meeting, you and your team should review the questions that were asked, building optimal answers to each in anticipation of the future.

 

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