Category Archives: Venture Capital

Solving Opacity in the Private Markets

Private markets are often described as opaque. They are.  The participants don’t necessarily want it this way, but because there is no central clearinghouse for information or data or insights, information ends up siloed – often in the heads of individuals in the market. With 4000+ clients ranging from investors to acquirers to bankers to lawyers to recruiters to biz dev people using CB Insights, we now have a community of folks who are incredibly knowledgeable about private companies, emerging trends and more.

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No Risk, All Reward – The Startup Career Path

The Indie.vc post on Hacker News had some interesting comments.  Here’s one that caught my eye as pasted below (bold emphasis is mine):

The model is a fairly quick development cycle, fast early adopter sales, quick conversion to cash flow positive. Well, that’s a lot of things that have to go right all in a row with only $100k to start…. It may be enough to start some kinds of businesses, but many will require significantly more in startu pcapital to brave even an accelerated road to break-even.

As to the model, the question is does it fully factor in the risk level? The idea is lower the goalpost and manage the cash burn more carefully, to ultimately obtain a faster break-even and then ride growth through reinvesting profits, to some point in the future when you can actually start making distributions. The premise, possibly flawed, is that by not shooting for the stars you should be less likely the fail. They don’t need to win as big each time, because they will win more often?

Businesses need capital to grow. It’s that simple. $100k is a bare minimum startup fund for a sole founder for less than 6 months. It’s not a serious amount of money. You can’t expect that $100k to buy enough revenue to sustain full-time employees and also be paying out a meaningful dividend.

If the idea is to really, truly, avoid VCs and institutional investors…. I think you need to be able to seed about $2m. For example, structured as a Line of Credit, drawn over 48 months, but with warrants to convert into common stock at some ratio. The conversion ratio in the warrants adjusts to provide anti-dilution as needed.

That would provide a real amount of money for a 2-3 person team to potentially solve a real problem. And that would give the investors a meaningful percentage of the company and choice between a cash payoff or taking shares. That would be a really appealing alternative to VC funding which some strong founding teams might take notice.

Here’s my diplomatic’ish answer on HN:

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Indie.vc – this is exciting

So 2015 is off to a good start. I’ve rambled about revenue-based financing and other alternative models to fund tech companies a couple of times on this blog. And today, I saw something called Indie.vc by Bryce Roberts and the OATV team which is an interesting first step.  An alternate model to fund tech companies:

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Why Your Startup Should Go After a Small Market Opportunity

One of the things I struggled with initially at CB Insights was how to talk about our market so that people would think it was big. I’m not sure why I gave a shit about this but I did. Maybe because I wanted investors to be super interested in us or to just sound good when talking about CB Insights with other founders who always seemed so polished and chasing some massive Google’esque opportunity.

It was 100% ego driven which is never a good reason to do something.

Then, I stumbled upon Chris Dixon’s post on the bowling pin strategy, and it changed my perspective on this.

Here’s how I think about market sizing today.

If you know your market is large (because of existing comparables for example), you are good to go. You can probably stop reading this.  As Hunter Walk points out talking about the “is this a billion dollar opportunity?” question:

…sometimes they are clearly going after a marketspace that’s already defined: CRM 2.0 replacing CRM 1.0 but there are other paths to riches. Billion dollar companies often create new markets by tapping into unmet demand. Billion dollar companies can start out looking like toys.

However, if you are not sure because the market is new or if the comps are tackling the market differently than you are envisioning, it is harder to see or justify that bigger market opportunity. In my view, if you have a loose idea that it could be a big market eventually, that’s enough.

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Is It Ok to Talk Shit about Startups?

There was a lot of commentary about Fab.com last week and it’s reported sale for $15 million to PCH. When a company goes from being worth $1.2 billion on paper to just a fraction of that in less than a year and a half, it gets some buzz. A lot of it was negative and sort of reveled in Fab’s failure.

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$1 Million for 51% of Equity? Hells No

I saw this question on Quora and had to respond.   Here’s my answer.

It fits nicely into the current obsession with giving away equity it seems.

The question was:

Is it reasonable to give a seed investor 51% equity for $1M?

If you want to be an employee working for your investor, you should take this deal.

Or said another way, hells no.

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The Perils of Faking Startup Traction

If you need to raise financing, one of the things I’m observing more startups doing is fake startup traction or what I previously called startup traction optimization. Today, I noticed a post by Jonathan Friedman, a partner at Lionbird, that highlighted that I”m not the only one seeing this type of behavior.

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Why VCs Don’t Talk Shit about Startups

At CB Insights, we do get calls from journalists from time-to-time who may be writing a critical piece about an industry or company and they tell us ”no VC will provide an on-the-record comment”.

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Wayfair – How To Build a Business

Until we started decorating our office, I have to admit I didn’t know much about Wayfair at all.  But I’m slowly falling for the company.  Not its home decor items but with how it was built.

This week, Box said they are delaying their IPO until 2015 because of “volatile market conditions”. Companies often seem to blame bad performance on headwinds or the always nebulous “market”.

Interestingly, Wayfair is seeing a different market. The eCommerce company went public yesterday and is doing well so far.

Greg Bettinelli of Upfront Ventures (CBI client #humblebrag) penned a monster post about the company which is worth a read.  It’s 3443 words btw.

Rob Go also penned a shorter post about Wayfair.  Parts that stuck out from each post:

  • From Greg’s post, the co-founders of Wayfair will have 56.6% of the voting power and 49.8% of the economic interest in Wayfair.  They were bootstrapped until $500 million in sales.
  • From Rob’s post, this passage was great “While others loudly beat their own drums about vanity metrics, lavish perks, or bold claims of grandeur, Wayfair has allowed their results and execution do the talking.”

Great stuff.

Bad SaaS Economics

I’ve been enjoying the recent burn rate angst. For SaaS companies (like CB Insights), Jason Cohen of WP Engine offers an often unstated but very valid counterpoint:

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