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Inside tech startups

Why Has LA Suddenly Gotten So Much Attention from VCs and Entrepreneurs?

Why Has LA Suddenly Gotten So Much Attention from VCs and Entrepreneurs? Bothsidesofthetable Oct 9, 2014

An abbreviated version of this post appeared yesterday […]

When Should Technical Founders Become CEO? Bothsidesofthetable Oct 15, 2014

Much has been written about when it is time to hire a & […]

IAC’s HowAboutWe co-founder: How to Avoid Delusional Thinking in Start-up Growth Strategy (Guest Post)

IAC’s HowAboutWe co-founder: How to Avoid Delusional Thinking in Start-up Growth Strategy (Guest Post) Andrewchen Oct 13, 2014

[Andrew: Trying to build and launch dating apps is a favorite pastime of 20-something tech entrepreneurs. However, dating products are notoriously hard to grow because it requires people to be "in-market" and also they don't necessarily want their friends to know they're online dating. Today, we have a great piece from a veteran of the […]

The Authoritative Guide to Prorata Rights Bothsidesofthetable Oct 12, 2014

Prorata rights are one of the most important rights of […]

Seed Round Pricing (Actual data warning!) Thisisgoingtobebig Oct 10, 2014

What should you price your seed round at?

Well, it depends...

I could probably write a book on venture round pricing dynamics. It would have lots of philosophy, religion, theory, fiction, and pontification.

However, since I only have time for a blog post, I'll settle for actual data.

Since January of 2010, when I led my first seed investment in Backupify, I have led or committed to 27 investments. That includes all the deals I did at First Round, with the exception of Refinery29, which was a Series A. That also includes 16 Brooklyn Bridge Ventures deals done and five agreed to term sheets. Yes, it's going to be a busy fourth quarter.

The criteria for what is a Seed and what is a Series A for these purposes is whether or not the first round of the company was within the same year that I did the investment, and it had to be less than $750k of prior money. Refinery29 fell out based on timing.

So what does the data say.

Well, if you group them all up, here's what you get:

Pre-Money Valuations (M)

Average
$4,797

Median
$4,000

You wind up with about a four-ish valuation, mostly right around four, but with some outliers that bring up the average.

But price doesn't tell the whole story. What about the round size?

Round Size (M)

Average
$1,188

Median
$1,000

So the average round that I'm participating in is about a million bucks. For those of you that have trouble doing division, not surprisingly, that puts the average dilution right around 20%, which isn't surprising.

Dilution

Average
19.85%

Median
20.00%

So, if you're looking at pre-money valuations saying "But hey, my deal wasn't valued at X, WTF??" then you need to take a look at the dilution numbers.

That's the dirty little secret of pricing:

Pre-money isn't the price. Dilution is the price and you're all pretty much getting the same deal.

On the other hand, stage matters, too... and stage generally impacts the resulting pre-money. How much money you ge [...]

What is the Definition of a Seed Round or an A Round? Bothsidesofthetable Oct 7, 2014

Marc Andreessen kicked off another great debate on Twit […]

How I learned to change the oil in my car and found a new office because of Shake Shack and a hackathon Thisisgoingtobebig Oct 3, 2014

Random story that I recounted recently to someone the other day. It's super interesting to go back and trace connections and relationships that led to new opportunities. If nothing else, it serves as a good reminder that every thing you do now is an investment in the future.

In 2009, I was introduced to Havi Hoffman. She was working as a developer evangelist at Yahoo! and got me on a panel at a hackathon she was working on. In turn, I wound up inviting her to a 300 person event that I threw at the Shake Shack in Madison Square Park. After seeing my ability to bring a big community together, she wound up introducing me to TK because he was running a hackathon of his own around the first Techcrunch Disrupt in NYC in 2010.

Hi Charlie,

My friends Daniel Raffel (colleague, yahoo) and Tarikh Korula (Uncommon Projects, Brooklyn) + Etsy’s Chad Dickerson are organizing a weekend Hack day on 5/22-5/23 in association with TechCrunch Disrupt. More detail from Tarikh below. They’d love your help getting the word out and can answer any questions. It’d be great to get a mention in NYC Innovation. Thanks in advance for help getting the word out.

Regards, Havi

I wound up not only helping to promote that event, but actually attending, because if a bunch of hackers were going to be in a place in NYC, as an early stage investor I figured I should be there. So I went--the only investor at the time to actually hangout during the pizza and hacking part of the hackathon, not just the demos.

Techcrunch Disrupt is where I met Steve and Jared from GroupMe and what led to me backing the company when I was with First Round Capital.

Later in 2010, I was introduced by Fabian to Andres Wuerfel, who was leading Deustche Telekom's Innovation Group. It seemed like a good intro for GroupMe, so then I put Andres together with the GroupMe team.

Andres stayed in touch. When I launched my fund, he reached out and asked if I'd be willing to speak on a panel in Berl [...]

Faulty Logic in the Venture Capital and Female Founder Discussion Thisisgoingtobebig Oct 1, 2014

Let's get one thing straight. The world and every individual in it is a biased place. We all have our inherent biases and what I am not arguing here is that the venture capital world is a fair playing field for anyone.

I repeat: I AM NOT ARGUING THAT VENTURE CAPITAL IS FAIR TO ANYONE.

HOWEVER...

It weakens your argument, whatever it is, when you use faulty logic. So, if you're going to argue that the process of venture capital is inherently unfair to women, here's the logic that you *should not* use:

"Less than 3 percent of the 6,793 companies that received venture capital from 2011-2013 were headed by a woman, according to a study from Babson College released Tuesday. That means that out of nearly $51 billion in funding that startups received over those two years, a comparatively teeny $1.5 billion went to women-led ventures."

Sounds awful, right?

It may be. It may not be. We really don't know, because we're missing some critical information:

HOW MANY WOMEN ARE SEEKING VENTURE CAPITAL?

Unless you're tracking that statistic, there's no way to use *actual data* to prove how bad the bias is, or if there is any. You can broadcast all the anecdotes you want about how badly women were patronized or not respected in other ways, but until you track that statistic, that's all they are--just anecdotes.

I AM NOT ARGUING THAT WOMEN AREN'T SEEKING VENTURE CAPITAL.

They are, and perhaps not often enough. There are studies that suggest that there are lots of perfectly fantastic female owned business that are undercapitalized because the founders aren't seeking it--perhaps they believe the system won't support it, perhaps it relates to perceptions of risk. This is where I think there's a great opportunity for investment. Right this very moment, I'm in the process of leading investments in two companies where I had to convince a team with a female founder to take capital.

Whatever the case, the stat that just says that venture capital doesn't wind u [...]

Three Words Entrepreneurs (and VC’s) Should Take to Heart Bothsidesofthetable Oct 5, 2014

Note: this is a non-religious post. This weekend was Yo […]

There is No Such Thing as a Great Team, Only Great Habits Thisisgoingtobebig Sep 29, 2014

Sometimes, an investor gets lucky. They invest in a company with an idea that doesn't go anywhere, the company pivots, and you wind up in the next big thing.

In hindsight, an investor will tell you that they knew they had backed a great team and that was the key to the investment. It's never luck.

I have a lot of trouble with the "great team" scenario, because it just doesn't seem to play out in real life. What about when a company clearly makes a stupid acquisition? When they spend hundreds of millions to buy you only to turn off your product and shut it off later, were you a great team, but you wouldn't have been a great team if you ran out of money two weeks earlier?

Is greatness innate? Are you born to be an entrepreneur?

Why don't all the people who have "great" entrepreneurial qualities succeed? Wouldn't there be some test you could give all first time entrepreneurs to gage their entrepreneurial prowess to understand how good they'll be at running a company?

It feels like a lot of hocus pocus half the time--where we mistake agressiveness and ambition for qualities of good management in startups. Maybe that's why half the time it seems that entrepreneurs are getting in trouble these days--because investors aren't as good as we think they are at funding the kind of people you want to back.

Adam D'Augelli, a very smart investor over at True Ventures, mentioned to me the other day something that rang true--that the best entrepreneurs update their investors with metrics, not stories. That made a lot of sense to me, but what also led from that was the idea that watching metrics was a habit, not something you're born with. It's something that anyone can get into the habit of doing. Knowing your metrics and following them is a discipline and being disciplined is really what being a manager is all about. Do you create processes that bring the right people to your company? Do you create processes that allow them to communicate well with each other and [...]

What I Hate About Selling Companies Bothsidesofthetable Sep 28, 2014

By all measures the past year has been successful. Team […]

What is the Right Burn Rate at a Startup Company? Bothsidesofthetable Sep 28, 2014

I was reading Danielle Morrill’s blog post today […]

Mobile retention benchmarks for 2014 vs 2013 show a 50% drop in D1 retention (Guest post)

Mobile retention benchmarks for 2014 vs 2013 show a 50% drop in D1 retention (Guest post) Andrewchen Sep 24, 2014

[Andrew: There's very little data out there on mobile, and so in the last few weeks, I've had guest posts on the % of users who opt-in to push notifications, as well as clickthrough rates of push. Today, I have some new metrics around retention, including for the first time, a systematic study of D1/D7/D30 […]

New data on push notifications show up to 40% CTRs, the best perform 4X better than the worst (Guest post)

New data on push notifications show up to 40% CTRs, the best perform 4X better than the worst (Guest post) Andrewchen Sep 16, 2014

[Andrew: A few weeks ago, the folks at Kahuna released some great data showing that up to 60% of users opt-out of push notifications. Now they're releasing some new data on the click-through rates of push notifications, showing the differences between app categories and breaking down the reasons why some apps are so much stronger than […]

The Things that Will Break in My Lifetime Thisisgoingtobebig Sep 23, 2014

The Cost of a College Education

I just looked up how much my alma mater costs in tuition. Fordham University, the 56th best college in the country, is now $44,000 a year. That's a 6% annual increase since 1997 when I started and it was $16,000 a year. Take that forward to when my future kid might be going to school and you're talking $141,000 a year tuition.

What in the world could college possibly do for you to justify over half a million dollars in cost. There's no way anyone will be able to economically justify that cost. Hell, it would be cheaper just to hire private tutors in every subject and pay for the kid to live in a cheap apartment somewhere. There's no way the college cost bubble won't implode.

Obesity

Diabetes rates, especially among kids, are off the charts and at some point, we're going to have to get serious about eating real food and exercising. You'll see more and more companies like Tinkergarten that motivate kids and parents to get out of the house and out from behind the screen. Maybe we'll figure out the ice bucket challege for heart disease, but if we don't turn our attention from long tail diseases that affect 30,000 people annually, a dozen potential ISIS trained Americans living somewhere in the US and the infintissimally small threat of child kidnapping, we'll figure out how to address the #1 cost burden on our healthcare system and actual killer of humans.

Mobile Distraction

Look around the next time you go into a restaurant. Both adults and kids are face down in their phones--swiping, liking, texting, etc. Up to a quarter of auto crashes involve cell phones these days. It's even causing marital difficulties as partners are complaining that their spouses just aren't present in the small amount of personal time they have together. We're soon going to realize that we don't need every single notification at every single moment and the phones will get put away in favor of devices like Ringly that screen the world and filter [...]

25 Pieces of Bullshit You Hear About Startups Thisisgoingtobebig Sep 22, 2014

This list needs no explanation:

1) You need a technical co-founder.

2) We're really interested in what you're up to, but would love to see just a little more traction before we fund it.

3) No one else can do this.

4) We decided not to charge our initial customers.

5) It's easier to get funded on the west coast.

6) This is projected to be a $54 billion dollar industry by 2019.

7) Google can't do this.

8) We're oversubscribed in this round.

9) We wouldn't take $30 million if someone offered to buy us right now.

10) We only fund great entrepreneurs.

11) This accelerator is really hard to get into.

12) We're using lean startup methodology.

13) Google will have to buy us.

14) I built that entire business for my previous company.

15) We have an agency that is going to distribute us to all the major brands, so we fully expect huge distribution and revenue in the next year.

16) We're not raising money right now.

17) We have proprietary technology.

18) We need to move fast otherwise we'll miss this opportunity.

19) And we haven't even spent money on marketing.

20) We're getting a lot of interest from top investors.

21) Once these big customers start using what we have, they're going to switch right away.

22) Every small business is going to sign themselves up.

23) People need a convenient way to have everything in one place.

24) We won't need to raise any more money after this round.

25) Richard Branson is really interested in what we're doing.

Why Recruiting Isn’t Over When an Employee Accepts Your Offer Bothsidesofthetable Sep 21, 2014

Recruiting. It is the bane of every startups existence […]

When VCs Play Defense Bothsidesofthetable Sep 19, 2014

Somehow the world seems to be spinning faster these day […]

Bad Notes on Venture Capital Bothsidesofthetable Sep 18, 2014

This week. On the phone … Me: So, you raised vent […]

Why We’re Looking to Fund Stuff With More Meaning Bothsidesofthetable Sep 15, 2014

Venture Capital is a tricky industry. If you’re f […]

Setting Kids Up to Fail Thisisgoingtobebig Sep 15, 2014

The nature of work is changing--we all know that. You're required to be a lot more entrepreneurial, which requires you to build your own networks in order to get customers and collaborators, since these functions won't be under the roof of a big company anymore.

You'll need to be more mobile, nimble, and able to go where the work is. You'll need to think globally.

You will need to be a continuous learner, willing to pick up new skills as the world changes around you--meaning that your sources of education won't necessarily be accredited academic institutions.

This is all pretty obvious, and has been for a while, right?

So how does this respond to how we seem to be teaching our kids?

Well, for starters, each generation seems to be facing a shrinking, not growing world. Below is a graphic from a DailyMail article that shows how far kids in a family were allowed to roam as eight year olds.

From the DailyMail

Could you imagine letting an eight year old roam eight miles away these days? You'd probably get arrested for child neglect. However, how prepared was that kid for the rest of life after making those trips, compared to kids today that rarely ever leave the house on their own? How prepared are kids today to face a global world when they can't walk off of their own block.

How likely are they to become lifelong learners when we've never had more emphasis on standardized testing, and therefore standardized learning? The school we create for kids now makes them want to be done with school as soon as possible.

It's like when people ask me how to get into venture capital. They're always asking about the right way to do it, how to get an interview--all these very structured ways of approaching a system. When I tell them stuff about adding value to the community, creating a personal brand, etc., it just doesn't compute. Nothing that I ever did to get where I am in venture was difficult or special--but none of it was anything you really learn in a [...]

Here’s How to Cancel a Meeting the Right Way Bothsidesofthetable Sep 13, 2014

I wrote a version of this post four years ago but given […]

Here is How to Make Sense of Conflicting Startup Advice

Here is How to Make Sense of Conflicting Startup Advice Bothsidesofthetable Aug 31, 2014

Everybody has a blog these days and there is much advic […]

Five Tips for Getting PR for Your Startup Thisisgoingtobebig Sep 8, 2014

Because, you know, who doesn't love a good startup list.

1) Figure out who has written about companies like yours and reach out--when you don't need something.

Think about who else is in your space--other wearables companies, companies also focused on the smart home, you name it. Those are going to be the reporters who are most likely willing to write about you. When you've got that list together, just individually e-mail as many of them as you can. Just introduce yourself and offer yourself up as a resource.

"Hi, I just wanted to thank you for covering this space. I like the angle you took on this particular article/I appreciate that you've taken the time to highlight what all these companies are doing because others aren't/something nice about the reporter's effort. I know all of these companies and a lot of others that are popping up because I have X expertise and experience, so if I can ever be a resource to you, even on background, please do feel free to contact me. I've included a short list below of a few 1-2 sentence thoughts, predictions, or generally crazy ideas that I don't think are shared by my peers about where the space is going to give you a sense of what my perspective is.

I'm actually starting a company/have started a company in this space and don't have anything to share at the moment, but will at some point would love to be able to share our funding news, product launches, or maybe collaborate with other companies on trend pieces in the space."

This way, the journalists most interested in what you're up to reveal themselves by engaging with you based on that note--and you've given them a reason to contact you. Maybe the fact that you think that Amazon will get into Cleantech for some crazy reason or that phone numbers will eventually disappear in favor of just connecting to people or companies will strike a chord--or maybe even inspire a future article.

2) Follow journalists on Twitter and Instagram

These folks are real human [...]

Never ask for "Just 5 Minutes!" Thisisgoingtobebig Sep 3, 2014

A few weeks ago, I was talking with a founder that I backed and he was telling me how excited he was about his company. He said the path was so clear that he could literally see it--and that's the way he's always been since I met him. He has a quiet confidence and he's excited to talk about his company--and he could go on and on if you let him.

It's a stark contrast to people who beg for "just five minutes" of my time. I understand that fundraising is hard, but if you do you best to leverage your network to connect to a bunch of investors, and you can't even get a first meeting, you may have to rethink what you're up to. When you ask for just a few minutes, it sounds like you're having a lot of trouble getting meetings. That's a signal the market is giving to you. VCs may only do 1-2% of the deals that come their way, but I'd say they probably take about 20% of the requests for first meetings.

Think about that for a second. If they only actually invest 1% of the time or less, and even half of those companies go out of business, then when you can't even get a meeting you're outside of the top 20%, and you need to be in the top 0.5%. That's not even close.

On the other hand, maybe you're just acting like you're not even close. When you approach investors as if they're taking mercy on you by talking with you about their company, they're going to assume that something's up. Imagine being on a date where someone says "Oh, thank god you actually showed up!!"

You might wonder whether you're both dating out of your league--with you being on the short end of that stick.

If you're working in a big enough market, you're the right person to be working on something, and you've made some headway doing what you're doing, you should have no problem getting investor meetings. Nothing ever gets done in just 5 minutes, so if someone says no to a meeting, either take that as market feedback or just move on to someone who is interested.

And trust me, a demo never makes [...]

Startup Traction Starts With The Right Goal. How To Get It Right. Onstartups Aug 28, 2014

Without traction -- sustainable customer growth -- your startup will languish or die. As such, traction should always be top of mind.

To focus your traction efforts, you need a traction goal to work towards. Example goals are 1,000 new users, 100 new customers or 10% market share.