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Entrepreneurs: Post Seed with Marc

Thursday, December 8th, 2016

Marc

Vator’s Post Seed Conference last week in SF was another enormous hit for those who missed it. The consistently high level of speakers, content and relevancy of the information shared is what was perhaps the most salient take away. The open and frank candor of the discussion was also refreshing.

It’s a bit of a challenge to write this article because there is so much to communicate in a succinct way, but I’ll do what I can. While most of the content is geared to entrepreneurs, and some applies to both, I gave the info specifically for investors its own section at the end.

In the interest of brevity, most of what follows are generalized thoughts, bits and bytes summarizing points expressed during the meeting. My goal being to give you the most info succinctly as possible.

For starters, the cost of starting a business is way down. Now, it can be anywhere from 50-500K. So it’s a disruption in Venture. In the 90’s, it used to be 4 – 5M to start. In an early A round, proper sequencing of funding is important. As is being capital efficient. Be a contrarian. Because everybody bets on the consensus winner.

Raising a series A can be a crunch! 2009 was a peak. Rate of graduation from seed to A is less than 10%. It’s getting hard to get more seeding, although initial seed VC’s are plentiful. Getting to A round nevertheless remains difficult to very difficult.

Why post seed? More control. More optionality, more likely to supersize A, so stay lean to accomplish that.

Great Companies solve big problems and work at 2X the speed. Optimize processes. It’s about onboarding . The 15% of your best accounts pay for everything. Commit to winning. Great venture takes risks on non-traditional things.

Money is tightening. Less competition is good for choosing spaces. It’s going to be hard to raise the next round. Milestones are key. Corporate investing is currently very passive. In good part because in venture, you’re wrong 90% of the time.

There are 3 types of companies: 1) Bits to atoms – exp: Tesla. 2) Sticky bits – exp: Facebook. 3) Everything else is poo and a time suck.

Social media is modern feudalism. We do the work but don’t get paid. New media eliminated scarcity. There is no “Truthiness” in social media. A monetization formula dominates social media.

Hard things take time and are worthwhile. Everyone thinks everything happens in 2-4 years, it doesn’t. Be thoughtful about experimenting.

VALUATION MEANS NOTHING! Value it at zero until you go liquid. Less liquidity in last 5 years than ever.

There is more profit in hard businesses. Winning is about recruiting. It’s getting harder to be successful and get funding. Companies that produce the most with the fewest people and resources win.

Series A difficult to raise yet big successes still happen. Top 5 companies in the world are in tech. There is no certainty in raising funding.

Originality and how you tell your story is absolutely key. It is as important as anything. The product / story / solution has to sell itself. It’s a crowded angel and seed stage market.

Raising series A is hard. Seed round is much easier. Partner with seed investors who will help you with getting an A round. We’re in a tougher market. Spend as little as possible to get to market fit. Premature scaling is the main reason companies fail.

Book Recommendation written for the entrepreneur: Magic Box Paradigm A Framework for Startup Acquisitions. Startups wait too long to think about M&A. Acquisition isn’t an exit but an entrance. An entrepreneur’s narrative to a VC should be; “I’ve got everything figured out.” How do we fit into the direction of the acquiring company? Value only exists in the eyes of the buyer. Have a shared view.

You’re going downhill when they’re coming to you and uphill when you’re going to them.

Entrepreneur’s need passion to get through the tough times. You’ve got to love the customers you’re serving.

Remove friction to innovation. In biz, create more at-bats for yourself. When investments work, double down on them. Convince your customers who will then convince investors. Tell people what you’re going to do, then go do it. It’s the best way to get people on board. The #1 thing you’re selling is trust. Values and culture matter. Why do people continue to walk through the door? Add meaning to your company.

Bits for investors

The idea of 10 – 15 great co’s a year is not consistent with the data. There were a lot of great companies in a little period of time. 38% made greater than 10X in last 10 years. Market fit and momentum work together. Post seed is about data. Look at a company’s value creation. Listen, ask difficult questions. How do you define success?

Figure out what people are all about. It’s more about how a company is performing rather than a funding round. Do you really click with the founder?

Liking the CEO is of paramount importance. Do they have high EQ? Empathy is critical. The ability to see forward from multiple perspectives. Are they ambitious and bold? Are they willing to try at what has been failed many times before. On the other end is founder drama which is a huge killer.

Look for problems when thinking about what company to invest in. What’s on demand? Realize 6 – 10 years equals how long until a market gets created.

The above is just a smattering of the shared wisdom from the conference and proof positive why attending future Vator events is well worth while. Not only for the insights, but also for an incredible networking opportunity that is far above most others, not to mention engaging, fun time well spent.

Entrepreneurs: Post Seed with Marc Dorneles

Thursday, December 10th, 2015

Today we welcome Marc Dorneles, another new voice at MAPping Company Success. Marc is a very untypical commercial insurance broker whose employer won B Corp status (definitely not the norm in his industry), plus he’s extremely knowledgeable about startup needs. (Click About Marc to learn more.)

MarcThere it was and here we are, Post Seed Conference SF 2015. There were many pearls of wisdom and insight offered at the event by the likes of John Doerr of Kleiner Perkins and others substantiating its strong attendance. From, Ideas are easy, execution is hard and the notion of challenging thinking to the more precise strategy of Empowering, encouraging OKR’s (Objectives Key Results) because it gets Alignment and Operational Excellence.

It was the place to be if you wanted to hear more about the key ingredients for a leader in the start- up environment. Namely; technical expertise, outstanding leadership, strategic focus on large opportunities, reasonable approach to finances, and having an incredible sense of urgency.

It reminded us that story telling, show and tell, is critical. Equally as instructive; a question to ask yourself when entering any partnership is: do you want to make mistakes with this person? Said another way, can you have the attitude with them that “I’ve got your back, let’s go tackle this problem together.” 

There were market insights discussed such as the analysis that there are approximately 200 unicorns in the world, “Americorns” being a substantive number of them. Today’s dollars are a third of what was around at the height of the boom, making it less likely for unicorns to get acquired. Even a little antidotal comedy, like Unicorns are often albatrosses and bottom line focused zingers quoted from the likes Bill Campbell were offered; “all that matters is that we achieve operational excellence.”

The conference identified markets that comprised major opportunities, such as 

  • the online ad market which is at half a trillion dollars. Likewise;
  • US Healthcare which is bigger than all but some three economies;
  • Public Education;
  • Transportation; and
  • rounding out with batteries (projected to be three time’s better than they are today)

as additional significant opportunity sectors. Overall market perspective was given: downturns are good things because more attention is given to the outstanding startups.

Operational consultation ideas were shared by many veteran experts including Christine Herron of Intel. Ideas such as, don’t over-capitalize, think long term, and have guts or that venture capital is not the end, it’s a means to an end. When looking for funding, don’t worry about the financing market, focus on the business. Don’t worry about unicorns. Consider “Optionality” i.e. keeping options open, looking for those with large upside and little downside. Rounds are taking longer to close. Be patient.

Concerning founders, a big key is learning.

  • Anticipate pre-launch, scaling issues.
  • Focus on process and measuring.
  • Know that rigorous hiring is extremely difficult and that the best talent usually needs to be lured away from other opportunities.
  • Long term, keep in mind that people who started with small companies don’t necessarily want to be there when they’re bigger.
  • Four major cities: SF, NY, LA, Boston are the most sought after locals. There’s a significant importance to understanding and adapting to local markets.

Focus on what is needed to prove key initiatives. Questions and actions such as,

  • How much did you raise?
  • How much accomplished?
  • How long is the runway?
  • Know exactly what the other side means.
  • Avoid grey areas.
  • Create your deck around the most effective metric, which is traction!

Keep in mind that investors roughly don’t invest 95% of the time because 40-60% of investments in startups are complete fails but have confidence nonetheless.

Traction = Execution. As soon as you raise equity round, get VC. Never letting company run out of money is the #1 job. Pressure your investors to use their network. “ABR” – always be raising. Don’t be concerned about dilution just raise as much as possible.

Vinod Kholsa generously shared some particularly brilliant insight, imparting the functional dynamic that value equals perception and the perspective to ask what’s valuable about the company. He went on to emphasis that the core business is much more important than valuation which is peripheral to long term success. In addition, to keep in mind, what kind of assets are you adding for long term success? How you approach people – extremely important. Be humble. Where are you today? Is most important. What risks do you need to eliminate or reduce in the next 12 months?

The analogy was made of having a good base camp, meaning a stable business with decent returns. Think big, act small. Think about Everest but plan to get to base camp first. The single biggest help a VC can give is to figure out who you need on your team. A company becomes the people it hires.

Understand the risks you’re taking. Sequencing which risks you prioritize is very important. You want people who will push you to ask the hard, not easy, questions. Talk to as many VC’s as you can. Find out what they think of your risks! Have a plan to eliminate risks one by one.

Wrapping up it was discussed that seed stage investing is both harder and easier than ten years ago because entrepreneurs are more sophisticated, but there are also more VC’s. It also speculated on what the future holds noting the impact of machine learning, which will replace most jobs.

The recognition that there is abundance and income disparity increasing at the same time was also made and that income inequality will have to be addressed. It was speculated that more than 50% of jobs will disappear.

Entrepreneurs have the opportunity to create technology. However, emotional elements can’t be replaced, which is exceptionally valuable knowledge.

The fact that the human element can’t be replaced leads to this article’s concluding point, i.e., why conferences like Post Seed are so valuable!

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