Tag Archives: venture capital

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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Beware the Generalizations

This week I got the rare opportunity to have a low key dinner with the founders working at the NewME Accelerator in San Francisco.  It was a great visit—the energy and sophistication of the teams there was really strong, and I enjoyed the time.

This talk was strictly Q&A—just me sitting with a group of around 15 founders, fielding questions one after another.  I love this format.  But if you’ve spent time with me, you’ll know once I get started I don’t really stop talking, so this may not be all that unique.  :)

The founders’ questions were many.  Some were specific and use case oriented, such as, “Our team has built a product, we’re getting traction, and we think we need to raise a small seed round.  Some are suggesting we raise more, what do you think?”  In your case, given the instincts that’ve gotten you this far, I reco following them going forward.  If you have an offer to raise more, then think about that then.

Or, “I’m a founder with unique and differentiated real world experience in a specific market, and I want to hire a tech team to build a product this industry needs.  How do I raise money to hire them or how to do I hire them before I have money?”  Catch 22 — not sure what to say, just have to figure out a solution.

Others were pretty hypothetical, “If you had one company with 2 million users and no revenue, and another company with a small number of users and $50,000 in revenue, which would you be more likely to invest in?”  Hm.  Totally depends on trajectory and relative opportunities of the two.

In answering the questions, I often had to reiterate a caveat I find myself making a lot these days.  Namely, when I’m answering a question on a business I know only lightly, as in when I show up at a Q&A with founders, my answers are going to be broad brushstroke generalizations.  These generalizations may not work for you in your particular situation.  Mileage can vary, a lot.  The core truth is that your on the ground reality may be the sort of thing where my advice, or the advice of other outside perspectives, is pretty useless or even harmful.

In my own experience, in building startups the core on the ground reality is pretty muddy and opaque.  This is a constant reality—startups are inherently dealing in uncertainties, and uncertainty creates ambiguity.  Uncertainty and ambiguity is more the norm than the exception.

At the same time, many in our community, investor types like me and other outsiders, present a worldview that is much more certain.  Company 1 is screwed, Company 2 is can’t miss.  Do A, do not do B.   The world is black; not white.  Approach y worked for company x, so you should think about doing y too.  In an uncertain world, the narrative of certainty is valued.

I disagree with this thinking.  Far more is unknown than known, especially by those of us far removed from the front lines of our business.  I encourage founders to hear out different opinions, but retain your own perspective, informed by the reality of your situation.

In most cases, the situations we’re dealing with aren’t black and white.  They’re gray.  Beware of people who make you think the answers are simple and that generalities work.

If the answers were simple, anyone could do this stuff.

 

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Reflections on Y Combinator Demo Day

Image representing Y Combinator as depicted in...

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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How to Get a Job in Venture Capital After B-School

Aside from receiving a lot of pitch decks (which I generally love receiving), the second largest category of emails I get are from MBA students (and recent grads) asking how to get a job in venture capital.  This post is for you.

The emails I receive generally take this form:

 Dear Jay,

I’m a second year student at XYZ MBA program, and I’m interested in getting into a career in venture capital (or private equity) after I graduate.   I believe that with my strong analytical background, intellectual curiosity, and leadership skills that venture capital would be a great fit for me.  I would appreciate learning whether BlueRun Ventures has any plans to hire an Associate, and if so, whether I could speak with you about this opportunity.

Sincerely,

Joe (rarely Jane) MBA

 There are a few parts to my answer to this type of approach.

The first question that I would discuss with you is whether working as an Associate help you build a career in venture?   I don’t think that this is at all clear.  The most common post-MBA entry-level jobs are  investment banking or consulting, and both have very established Associate programs.  You join the ‘i-bank’ or consulting firm, and you work at a certain level, and things follow a well defined pyramid of ‘up or out.’  After 12-24 months, you’re either promoted up to the next level of the pyramid, or you move on.  And the skills you learn as an Associate, generally help and prepare you to be a Vice President, which in turn prepares you to become a Managing Director, etc.  Very clear and generally well understood processes exist there.

In venture, this defined process doesn’t broadly exist.  While some firms take an approach similar to what an I-bank or consulting firm would do in an Associate program, most especially in early stage investing don’t take that route.   Instead of setting the Associate up to become a Principal or Partner, the firm asks the Associate to get out into the startup community and meet as many founders as possible, to see everything.  Generally this involves a very large expense account and lots of parties and networking—a job that can be fun as all get out, but not one that necessarily sets you up with the skills you’d need to be value accretive to the firm or the venture industry long-term.  More often, these Associate roles are kind of a two year hiatus of meet a bunch of founders and build your network, help run due diligence, and give input at partner meetings.  Then after two years, you’re meant to get out into the ecosystem to ‘build operating chops.’

This is certainly a route, and to be fair, some who start as Associates do end up climbing the ladder to become Partners.

At the same time, if you’re going to consider doing the Associate gig at a firm, it’d be useful for you to know whether there is a track record at that firm of Associates moving through the ranks or whether it’s more a 2-years and out program.  So that’s the first thing.

The second element to this though is probably even more important, and deserves deeper consideration.  That is a more strategic view of how do you as an individual add sustainable value to a venture firm, thereby giving you differentiated substance as to why you should earn the role relative to your competition.  This is important not only to land a role in venture; its important to think about how you add value over time once you’re in a firm.

To me this is all about what is the equation of value creation in venture, and how you showcase it.  To me there are three elements of value that really matter: (1) proprietary deal flow; (2) credibility; and (3) value add with founders.

Deal flow is lifeblood to a venture capitalist.  And proprietary deal flow is about how do you get access to great deals.  The more of the great deals you can bring to the firm and get done, the more valuable you are.   This is true for anyone in the industry: top partners at the top firms, all the way down to first day on the job associates.

If you don’t have a network in tech startups, you’re at a severe disadvantage IMHO, and you need to work on remedying that.  One MBA candidate who contacts me every few months to look for a job in venture attends a top B-school in the Midwest.  Every time we speak, I tell this person that he’s got to get out here and get to know people and get a network.  Sitting in b-school class in the Midwest does nothing to get him any network or any insight as to what deals are interesting or what teams are worth watching or knowing.  Why wouldn’t a venture firm just hire some kid from Stanford who’s worked on their on campus incubator?

If you’re a b-school student who’s not out here in the Bay Area, then find ways to get out here.  Do a summer internship out here.  Visit during breaks.  Get involved in any way you can so you can meet people and start building a network.

Credibility is also important to build: both with the partners of a certain firm and with founding teams.  This is also a challenge for most MBA candidates targeting early stage firms.  The challenge most often is that the MBA candidate lacks both technical skills and insight and concrete experience working in a very early stage company.  While the MBA candidate may be analytically rigorous and a quick study, their inability to approach a partner or portfolio company founder with credibility of having been in the environment or having had strong technical skills makes it difficult to convey value to stakeholders key to your career.

So my recommendation here is that if you have no operating background in the high tech startup world, then get some.  Work for a small company or even work for a larger established company, e.g., Facebook, Google, etc.  The most important key here is to establish that you have operating chops and you have a perspective formed around getting products into market and getting users interested in what you’re effort has produced.

Finally, and related, you’ve got to have credible value add for founders.  If founders think you’re a joke, you’re not going to survive in the industry.  The good founders all know each other and your reputation in the industry is mostly controlled by these folks.  If you’re useful and effective, then they’ll say that.  If you’re not, they’ll let the network know that too.  Whenever I speak to an MBA candidate about getting a job in venture, I’m visualizing what an interaction with that candidate and one of our portfolio company CEOs would look like.  Too often, my assessment is that the CEO would basically ask me to never put the MBA candidate in the room with them again  as they would be a time waster.

With these as the core components of creating value in venture, then my recommendations to MBA candidates seeking to build a career in venture are basically the following:

Don’t limit yourself to looking for a venture role right out of B-school, look also at operating roles at tech companies.  Especially as so many Associate roles are 2 years in duration and then you’re bumped out into industry to gain operating skills, why not just start by building the operating skills?  In an operating company, you’ll have the opportunity to build a network.  You’ll gain opportunities to create real value and gain experiences that give you credibility in your industry.  This helps you gain credibility with the partners and the founders in your space.  And when you start interacting with rockstar founders, they’ll see you as someone who’s accomplished something, who knows what you’re talking about.

Get out to the Bay Area.  New York and Los Angelese are both surging as startup areas and I don’t mean to take anything away from them.  If you have strong proprietary networks and connections in either place, then sure, consider those markets carefully.  But all things being equal, more venture firms, more startups and more people in the industry are here in the Bay Area.  If you want to build a long-term career in this industry, the smart bet is to come out here.

Evaluate your progress on the 3 elements of value I describe abve, and commit to joining venture in the long term.  I’ve described above what I think are the 3 core elements of adding value in venture.  If you’re really passionate about joining this industry, then commit to getting there in time.  Understand that irrespective of when you join the industry, it will be important to always be making progress on these 3 elements of value add.  In my view, you want to track progress on these 3 elements before and during your career in venture.  So I’d say get started, build your network, build your credibility, and figure out how to add value to founders.

 

Good luck!

 

 

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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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