Posts from entrepreneurship

What Does Trump Mean For Startups?

I got this tweet around 11pm last night:

Clearly the news that Trump will be the next President of the US is creating all sorts of financial jitters in the US and around the world this morning. There is a ton of uncertainty right now as many investors, me included, were not expecting this outcome. If there is anything that investors hate, it is uncertainty.

For me the best framework I have is Brexit. I feel that the economic and societal unease that has been brewing in much of the developed world over the past decade is coming home to roost and I believe that we will see more “brexits” in the coming months and years.

I wrote this right after Brexit:

But more than that, going into a foxhole right now seems like the wrong idea. Some of the best companies have been created in times of great economic turmoil. And, because of that, some of the best venture capital investments have been made in times when everyone was risk averse. I am not for getting too excited when times are good and I am not for getting too conservative when times feel bad. I am all for looking for opportunity at every turn.

I am certain that USV will continue to invest capital in interesting startups. While the financial markets may be in for a tough time, possibly a prolonged tough time, there is no correlation between startup success and strong financial markets. And those investors who understand that will act accordingly and be rewarded over the long term for doing so.

For entrepreneurs, this means be cautious and maybe even a bit conservative while all of this shakes out but don’t panic and don’t confuse uncertain times with a lack of opportunity. If you were excited about your business yesterday, you should be excited about your business today. But don’t be blind about the macro environment you are operating in. It’s going to be choppy for a bit here.

Founder Dilution

I saw a blog post this weekend that looked at the IPO filings of 79 tech companies and calculated the ownerships of the founders and the VCs at IPO.

The result of that analysis is that the average founder ownership at IPO was 17% and the average VC ownership at IPO was 56%.

I’ve written a bunch on this topic and here are two posts that address this exact issue:

Founder Dilution – How Much Is “Normal”?

Employee Equity: Dilution

In both posts, I lay out how the equity gets shared with employees and investors as the company grows and scales.

Here’s the most important quote from those two posts:

In my experience, it will generally take three to four rounds of equity capital to finance the business and 20-25% of the company to recruit and retain a management team. That will typically leave the founder/founder team with 10-20% of the business when it’s all said and done. The equity split at 20% for the founders will typically be; 20-25% for the management team, 20% for the founders, and 55-60% for the investors (angel all the way to late stage VC).

I wrote that seven and half years ago, but on this topic, not much has changed over the thirty years I’ve been doing VC.

Raising round after round of venture capital is expensive. There are some entrepreneurs who figure out how to get profitable and not raise round after round (or avoid VC altogether), there are some entrepreneurs who are able to raise a very high valuations and avoid a lot of dilution, and there are many entrepreneurs who choose to sell the business before they take a lot of dilution. But for the entrepreneurs who raise four to six rounds of VC before going public, the math is the math. If you end up owning more than 20% at IPO, you are beating the averages.

Enjoying The Struggle

The NY Times has a great longish piece on David Letterman today.

This quote got my attention:

Maybe life is the hard way, I don’t know. When the show was great, it was never as enjoyable as the misery of the show being bad. Is that human nature?

Building companies includes a lot of “misery of the show being bad” as David Letterman puts it.

And I really love the idea that you can enjoy that struggle.

Obviously you want the “show” to be great, but his point is that greatness is fleeting and you have to go through a lot of bad shows to get to some good ones and you’d better figure out how to enjoy that struggle, as he and his team did.

Good advice for all of us who hang out in startup land.

Relaunching At Age Fourteen

Our portfolio company Meetup was launched in June of 2002. We invested five years later, in 2007, when the company was already profitable and was approaching double digit revenues. Nine years later they are 3x the size when we invested in revenues, meetups, and more. But the founder and leaders of Meetup feel like they are just beginning to scratch the surface of their mission which is to get people out of the house and into the real world doing things they enjoy with other like minded people.

This video, which they created as part of their re-launch this week, shows the range of things people use Meetup to do with others:

Many people associate Meetup with night time events where people with name tags on them walk around and introduce themselves to others. Those sorts of things happen on Meetup for sure. But the more common uses are runners using Meetup to schedule group runs, moms using Meetup to hang out with other moms, and, apparently, jugglers using Meetup to juggle together.

So Meetup is relaunching the Company this week, fourteen and a quarter years after its initial launch. This means a new logo (the name badge is gone), new mobile apps that use deep learning to understand what you want to do and encourage you to do more of it, a new team (with women leaders in both product and engineering) with lots of new engineers and data scientists, and a sharper focus on marketing.

If you want to see what the new Meetup is all about, download the new app (iOS and Android) and check it out. Maybe you will find yourself juggling in the park this weekend. I sure hope so.

Team and Strategy

I’ve been in board meeting blitz since the summer ended. Many of the companies I work with are well past the startup phase and are well into or even past the growth/scaling phase. And the thought that keeps occurring to me as I go from board meeting to board meeting is the key to success when you are past the startup/product market fit stage comes down to two things, team and strategy.

You have to get the strategy right and you have to have a team that can execute it without your day to day involvement. The CEOs that I work with that are struggling are usually running into issues with their team and/or their strategy. And the CEOs that I work with that are doing great generally have gotten the strategy set and have built a strong executive team underneath them.

This sounds so simple. But it is not.

Most of the companies I work with didn’t really start out with a strategy. They started out with an idea that turned into a great product that found a fit with a market. And they jumped on that and used it to build a company. Most of them wake up at some point and realize that a single product in a single market is not a strategy and they need to come up with a plan to get a lot bigger and build a sustainable and defensible business. I like to think that this is one place where a good investor group can help. If we are doing our job, we push our portfolio companies to work on their long term strategy and refine it to the point where it makes sense and is executable. But an investor group cannot give a company a strategy. It has to come from the founder/CEO and a small group of senior leaders. The smaller the group that is working on strategy, the better. Strategy is not something that can be done by committee.

The second thing, building an executive team that can execute the plan without day to day involvement of the CEO, is even harder. Most of the companies I work with go through a lot of hiring mistakes on the way to building this team. Some hire too junior. Some hire too senior. Some hire bad cultural fits. Some hire people that are nothing but cultural fit. And an investor or investor group can help with this but I believe that founders/CEOs need to learn how to do this themselves and make these mistakes. The best thing an investor group can do is to help a founder/CEO to understand when they have the wrong person in the job. Or help them understand that more quickly.

These are both areas where experience is huge. The CEOs I work with who have done the job multiple times get these two things right much more quickly. But even they can take a year or two to get these right. First time CEOs often take three or four years to get these things right. But sticking with founders who are first time CEOs through this process is usually worth it because they have a connection to the initial vision and mission that a hired CEO has a hard time replicating. There is not a good rule of thumb on this issue (who should run the company). Facts and circumstances on the ground will generally determine how that should go.

My final point on this is that once you have the strategy and team locked down, you should step back and let the machine do its thing. I like to say that CEOs should do only three things; recruit and retain the team, build and evolve the long term strategy and communicate it effectively and broadly in the organization and externally, and make sure the company doesn’t run out of money. When those are the only things you are doing, you are doing the job right. Very few CEOs get to focus on only these three things all of the time. Things break and you have to fix them. But when the machine is working and you can step back and watch it hum, it is a thing of beauty.

Gold, Silver, and Bronze

Winning a medal at the Olympics is a big deal for athletes all around the world. Obviously a gold medal is better but silver and bronze are pretty awesome too.

In startup land, it works out pretty similarly. In each and every big “winner takes most” market there is one big winner (the gold medal winner) and a few other big companies (silver and bronze) and then not much more.

If you look at web search, Google won the gold medal and has a $550bn market cap to show for it.

In social, Facebook won the gold medal and has a $360bn market cap to show for it.

In ridesharing, Uber won the gold medal and has a purportedly $60bn market cap to show for it.

You can do well with silver and bronze. Twitter is worth $13bn. Lyft is supposedly worth $5.5bn. But coming in second or third in a big market is generally an order of magnitude (or two) less valuable in the long run.

And you had better get on the stand and get a medal if you are working in a big “winner take most” market because fourth or fifth or sixth is rarely worth much, if anything.

These are high stakes markets where winning is everything and losing is nothing. And things play out pretty quickly. Within five years, we generally know who won, who placed, who showed, and who whiffed.

It is possible that with the emergence of decentralized networks these dynamics will change and we will be on to a very different market dynamic. But for now this is how it goes. Go big or go home.

Reboot Podcast With Jerry and Brad

Jerry Colonna, Brad Feld, and I go way back in the venture capital business. We met in the mid 90s and worked very closely together during the late 90s. I still work closely with Jerry and Brad but not quite as intensively as we did back then.

We got together a couple weeks ago (virtually) and chatted for an hour about the personal struggles we all dealt with and overcame as we grew up in the business.

It’s a pretty revealing discussion. I just listened to it and cringed a few times. Jerry has this uncanny ability to get people to say things they don’t often say. He did that well on this one.

There is a lead in of about five minutes. The conversation starts after that.

Dear Fred

I get so many emails from people who are thinking of starting a company and they share their idea with me and ask me if they should do it. They want my feedback on their idea. These are, for the most part, people I have never met and have no context for. I came across five of them this morning in my inbox. It reminded me of this tweetstorm from last year.

tweetstorm

I understand the need for validation. And part of me wants to tell them “go for it.” I would like to see more people get up the nerve to chase their dreams. But I don’t want to be complicit in that. So most of the time, I just delete the email and move on. Sad, but true.

The State Of The NYC Tech Ecosystem

Matt Turck has penned a “State Of The City” post about where the NYC tech ecosystem is right now. I get asked this question all the time and I haven’t been doing a great job of answering it. I will use some of Matt’s work the next time that happens.

Here’s some of my favorite points from Matt’s post. If you live and work in the NYC tech ecosystem, or care about it, you should go read the whole thing.

NYC as a leading AI Center:

The New York data and AI community, in particular, keeps getting stronger.  Facebook’s AI department is anchored in New York by Yann LeCun, one of the fathers of deep learning.  IBM Watson’s global headquarter is in NYC. When Slack decided to ramp up its effort in data, it hired NYC-based Noah Weiss, former VP of Product at Foursquare, to head its Search Learning and Intelligence Group.   NYU has a strong Center for Data Science (also started by LeCun).  Ron Brachman, the new director of the Technion-Cornell Insititute, is an internationally recognized authority on artificial intelligence.  Columbia has a Data Science Institute. NYC has many data startups, prominent data scientists and great communities (such as our very own Data Driven NYC!).

 

NYC as a home to “deep tech”:

Finally, one trend I’m personally particularly excited about: the emergence of deep tech startups in New York.   By “deep tech”, I mean startups focusing on solving hard technical problems, either in infrastructure or applications – the type of companies where virtually every early employee is an engineer (or a data scientist).

For a long time, MongoDB was pretty much the lone deep tech startup in NYC.  There are many more now.  A few of those are in my portfolio at FirstMark:  ActionIQ, Cockroach Labs, HyperScience and x.ai.   But there’s a lot of others, big and small, including for example: 1010Data (Advance), BetterCloud, Clarifai, Datadog, Dataminr, Dextro, Digital Ocean, Enigma, Geometric Intelligence, Jethro, Placemeter, Security ScoreCard, SiSense, Syncsort or YHat – and a few others.

 

The Diversification and Broadening of NYC’s Tech Ecosystem:

One way of thinking about New York’s tech history is one of gradual layers, perhaps something like this:

  • 1995-2001: NYC 1.0, lots of ad tech (Doubleclick) and media (TheStreet)
  • 2001-2004: Nuclear winter
  • 2004-2011: NYC 2.0, a new layer emerges around commerce (Etsy, Gilt) and social (Delicious, Tumblr, Foursquare), on top of adtech (Admeld) and media
  • 2012-present: NYC 3.0 – in addition to the above, just about every type of technology covering just about every industry

Certainly, the areas that put NYC on the map in the first place continue to be strong.  New York is the epicenter of the redefinition of media (Buzzfeed, Vice, Business Insider, Mic, Mashable, Bustle, etc.), and also home to many great companies in adtech (AppNexus, Tapad, Mediamath, Moat, YieldMo, etc.), marketing (Outbrain, Taboola, etc) and commerce (BarkBox, Birchbox, Harry’s, Warby Parker, etc.).

But New York has seen explosive entrepreneurial activity across a much broader cross-section of verticals and horizontals, including for example:

  • Fintech: Betterment, IEX, Fundera, Bond, Orchard, Bread
  • Health: Oscar, Flatiron Health, ZocDoc, Hometeam, Recombine, CellMatix, BioDigital, ZipDrug
  • Education: General Assembly, Schoology, Knewton, Skillshare, Flatiron School, Codecademy
  • Real estate: WeWork, HighTower, Compass, Common, Reonomy
  • Enterprise SaaS: InVision, NewsCred, Sprinklr, Namely, JustWorks, Greenhouse, Mark43
  • Commerce infrastructure: Bluecore, Custora, Welcome Commerce
  • Marketplaces: Kickstarter, Vroom, 1stdibs
  • On Demand: Handy, Via, Managed by Q, Hello Alfred
  • Food: Blue Apron, Plated
  • IoT/Hardware: littleBits, Canary, Peloton, Shapeways, SOLS, Estimote, Dash, GoTenna, Raden, Ringly, Augury, Drone Racing League
  • AR/VR/3D: Sketchfab, Floored

 

 

I like the NYC 3.0 moniker. It’s a very different place to start and invest in tech companies than it was even five years ago. Bigger, deeper, broader, and scaling nicely. Just like the companies themselves.