Serial entrepreneurs and investors discuss the ins and outs of taking your company to the next level. Avoid the mistakes most growth companies and entrepreneurs encounter in this no holds barred discussion.
Featured speakers on this roundtable include:
• Jed Carlson | CEO, AdWerx; Co-Founder ReverbNation
• Jake Colognesi | VP, Volition Capital
• Robert Glazer | Founder & Managing Director, Acceleration Partners
• Eric Koester, NextGen Angels
The roundtable with four venture capital managers focused on 2015 investment trends and outlook. Keeping a pulse on the current trends is always important for entrepreneurs because it is easier to go with the flow when it comes to fundraising; when certain industries and applications are trending, it’s much easier to get investment funds.
Growth Stage Companies are Getting the Most Venture Capital Funds in 2015
There is a perception that in a current investment environment that some companies are growing too quickly, overinflated valuations. Does this affect your fund and how?
Jed: Capital is abundant for the right type of company. It’s really hard to write $2-3M checks to an early stage company. Because of that, I recommend startup co-founders to be prepared for larger investment down the road and to grow bigger and faster than you originally thought. With that, early bootstrapping and skin in the game is essential. Eric: Capital is abundant, but VCs also have a lot of choices to pick from. Angel List is good tool for startups. Some can raise a ton of money via equity crowdfunding. Some raised $20M in 30 days, mostly debt, sounds insane, but some people did it. Bob: start with the end in mind, where do you want to go. Lifestyle business could be awesome $10M revenue type of business if you take $1-2M in angel money to get there. But if you take $5M from VC, things change. Is that where you want to go? Think carefully. We live in momentum world where VCs overfund some sectors, but that quickly changes. For example, e-Commerce was hot before, but now it’s nuclear winter for this sector. Be aware where you are in this trend cycles. If you are at the end of the boom cycle, it’s not good for you. For example, Snapchat, Square valuations came out less than expected.
Venture Capital Availability across Different Regions
Question: is geography a relevant factor when it comes to making an investment decision?
Jake: yes, different geographical locations have different flavors. For example, there’s a lot of seed opportunities in RTP, but not so much for Series A level because of the absence of large VC funds. So, what can an entrepreneur do? How to go from seed/angel level to Series A?
Eric: I chose to come to RTP as the next location for me to invest into because of Universities and strong tech background. I hope that money investors start brining to this region will make it blossom. Be aware that today’s Seed round was Series A 8 years ago in terms of money. The easiest capital to raise is not necessarily the best capital to raise. If you get $3M from early investors, do you know if this same group would be able to double down for the next round? If not, you could be in trouble. In San Francisco area it is easy to raise good money after bad, but not in RTP. In RTP entrepreneurs are healthy to begin with, which is precisely the reason why I am attracted to this region. I spent last few years in San Francisco working for KCP and other big names. Tech talent is hard to find and RTP has it because of Universities and big tech companies. So does Atlanta and Georgia Tech. We invest in verticals: rides, groceries, electronics., etc.
Investor’s Money is Not a Commodity
Jed: I bootstrapped my first business. I echo the sentiment to recognize that today’s Seed is yesterday Series A. Do entrepreneurs know what’s expected from them to get A? No; there’s a big disconnect. Are you getting scale money or exploration money? Why do you need money for the business? Be very specific for the sense of scale and who should be your investor, have detail conversation with your early investors about their expectations regarding growth, KPI. I was very lucky that I did spin out from previous company to bootstrap a new one.
Bob: If you take the money, hire five people, go to market, and then have no revenue, you have a big problem! Startups are not treating investors’ money as a scarce resource so they spend without planning. Unfortunately, startup founders haven’t been talking much about business model, profitability and capital efficiency since 2009! Will entrepreneurs have to think about this again, or just expect that VC money is abundant? Well, a good business model never goes out of fashion. With that, it is unfortunate that marketeers wait so long on monetization that they don’t understand who’s their customer yet, but they spend millions of dollars on FaceBook ads.
Quirky has raised tremendous amount of money trough crowdfunding. Certain level of narcissism is required to grow a business, but it can also destroy it. Quirky was a good example of that. It’s a fine line between genius and insanity. (The company raised quickly millions of dollars, but spent indiscriminately on frivolous things and didn’t have any plan to scale operations)
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Question: How do you allocate time between marketing for your business and OPs?
Eric: if you have raised Seed $1-2M range round and your target market size is $1B, then, you need to do everything you can to hit your market acquisition goal, and not go around only chasing VCs. Focus on customer acquisition the most important task for a startup team. For instance, Israel is tiny market, just like RTP, so they automatically have to think about distribution strategy needed to capture USA or other big markets. Because of that, they have different mentality that makes them sharper. Jed: business model matters for customer acquisition: is it a free-model; premium, what’s your pricing strategy? Figure it out from the beginning and execute. Jake: don’t miss your milestones! Don’t spend 6-9 months fundraising because that distracts you from customer acquisition.
Question: What in IoT excites you?
Eric: smart locks for apartments. Blue tooth next generation sensors for paper towel in bathrooms that make mesh networks. Even though it’s very popular, and acquired by Google for $3.2B, Nest is still tiny! Infrastructure play is interesting, but it has not emerged yet. Jake: connected home is interesting for wearables, but in the end, most gadgets will be for the house before the arrive to enterprise. Successful startups will most likely be acquired by Apple, Google and other big players. IoT security because security will continue to be more expensive across the board.
- Bootstrap, use angel investors, acquire market share, and then seek Series A venture capital round.
- Series A round, $5-10M fuels business growth, be prepared for it with a good business model and operational efficiencies
- RTP is great for seed stage startups because of tech talent