The Startup Velocity Question: What Hinders Acceleration in VC Funded Companies?

I have been running 1Mby1M since 2010. I find myself saying to entrepreneurs ad nauseam that VCs want to invest in startups that can go from zero to $100 million in revenue in 5 to 7 years.

Startups that do not have what it takes to achieve velocity should not be venture funded.

Experienced VCs, over time, have developed heuristics to gauge what constitutes a high growth venture investment thesis. 

My Blogging Strategy Was Supposedly All Wrong

In the spring of 2005, I started blogging.

During those days, blogs were not as commonplace as they are today. Om Malik, at the time a close friend, and a pioneer in the tech blogging scene, introduced me to the concept. “You are so opinionated, you must blog!” Om declared. Then, he went on to have his own web guy set up my blog.

I started writing.

I wasn’t a journalist, so my writings were largely opinion and analysis pieces. People seemed to like to read them, so I found it encouraging, and started taking it seriously.
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The Commoditization of Venture Capital

The venture capital market is getting more and more irrational every day. VentureBeat just reported this week that VCs are ‘collecting logos’ of unicorn companies.

According to Pitchbook, more than 60 percent of all VC-invested capital went to rounds of more than $25 million in 2014, the highest percentage since the dotcom boom. There were 414 rounds of $25+ million last year, 50 percent more than the 276 rounds in 2013. VC capital invested jumped $20 billion from 2013 to 2014, while the number of financings fell by 16 percent.

Historically, private company valuations have largely been tied to valuations in the public market. But there is now growing concern that VC valuations have exceeded reasonable public valuations — a dangerous sign. Facebook’s $22 billion acquisition of WhatsApp has inflated valuation expectations. Meanwhile, potential tech buyers such as Google, Yahoo, Alibaba, Apple, and Microsoft have tens of billions of dollars in cash holdings. Series D+ valuations saw a 50 percent jump from 2013 to 2014. Valuations now exceed some of the closely watched historical exit parameters. We’ve also seen a significant increase in median Series B valuations. Capital invested in late-stage rounds was up to $11.5 billion in Q2 and $10.6 billion in Q4, representing the only two $10+ billion quarters since the dotcom boom. Seed rounds declined to 221 in Q4 versus 564 in Q1 2013.

I discussed the danger of overvalued private unicorns in Why Not All Private Unicorns Will Become Public Unicorns earlier.

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Valuation Without Revenue, Revenue Without Valuation

A tale of two tech companies.

One has an outrageous valuation, venture capital pouring into every pore, no revenue.

The other, quietly, has turned $11 million of capital into an annual revenue run rate of over $100 million, went public, and has a lousy valuation.

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When to Quit While Bootstrapping with a Paycheck

My recent book “Bootstrapping With A Paycheck” offers a close look at a mode of entrepreneurship that has become a major trend. Entrepreneurs are starting companies in droves while still holding onto their full-time jobs.

Two interviewers, Amina Elahi from The Chicago Tribune and Katherine Harvey from Union Tribune San Diego, asked me the same question: If you are bootstrapping a startup with a paycheck, when is the right time to quit?

Here is what I told them:

Q: How can an entrepreneur know when it’s time to make the leap to full-time self-employment?

A: This is a personal choice that depends on your life circumstances, but at the minimum, you should definitely validate your business idea and determine whether it’s going to generate money. Talk to customers and make sure they’re buying. And keep in mind that most venture capitalists will not fund you until you’re running your business full-time. Before you go out to raise money, you’re going to need to quit your day job.

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The First Key Lesson From Ellen Pao vs. Kleiner Perkins

Like many, I have been following the Ellen Pao vs. Kleiner Perkins saga.

Last week, New York Times had a report on it that has a brief mention of the key issue, in my opinion, that no one else seems to be highlighting:

Kleiner has had about 24 junior partners in its history, Mr. Doerr testified. Most of them were male. Most of them did not make it to the inner circle.

“What’s unusual, what is truly unusual, is for a partner to be promoted,” he said. “It’s happened only five times in the 30-year history of the firm.” The others, he said, were asked “to move on.”

And this is the crux of the matter: in the Venture Capital industry, General Partners seldom get promoted from the ranks of analysts, principals, and junior partners. A long time ago, it used to happen from time to time. Nowadays, almost not at all.
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The Second Key Lesson From Ellen Pao vs. Kleiner Perkins

While my first key lesson from Ellen Pao vs. Kleiner Perkins is for both men and women, this one is specifically for women.

Yes, we’re watching this trial bring to focus gender discrimination as a core issue in the technology industry. That discussion needs to happen. I am glad it is happening.

Meanwhile, for young, talented, ambitious women out there, I have a few words of wisdom.

Please do me a favor, and do not go have affairs with married colleagues.
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Teaching Employees To Be Entrepreneurs Will Become Standard Fare

Teaching employees to be Entrepreneurs will become standard fare in corporate America.

I wrote an earlier piece on this topic Why Corporations Should Train More Intrapreneurs, back in October.

In today’s post, I want to discuss some trends we’re seeing in our work with various corporate partners who are either already implementing or considering internal programs for teaching employees entrepreneurship.

First, consider what an entrepreneur does.
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Valuation Without Revenue Unicorns

Excerpt from my new Entrepreneur Journeys book, Billion Dollar Unicorns:

Recently, Unicorns with multi-billion dollar valuations without the revenue to justify them have returned with a vengeance. The frenzy started with Facebook acquiring Instagram for $1 Billion, and climaxed with the same company acquiring WhatsApp for $19 billion.

If there were any analysts that had doubts about Facebook’s mobile dominance plans, they have been put to rest. Facebook’s monetization plans vis-à-vis these apps, however, are less clear. The same applies to Yahoo!’s $1.1 billion acquisition of Tumblr.

I would like to look at WhatsApp more closely just because of the historic nature of the deal.
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Future Unicorns

Excerpt from my new Entrepreneur Journeys book, Billion Dollar Unicorns:  

As I think about where future unicorns are likely to be, what trends present the characteristics of opportunities that can scale to that extent, I have a few observations.

I have had the opportunity to discuss these observations with a number of thoughtful industry leaders, and this chapter synthesizes some of those conversations in brief.

If you review the types of companies in this book, they span a few specific industry sectors: Cloud / SaaS (Marketo, ServiceNow, Concur, Zoho, eClinicalWorks, RightNow, SuccessFactors), Big Data (Tableau), E-commerce (Eventbrite, MercadoLibre, Flipkart), Vertical Search (Kayak, Trulia), Healthcare IT (AthenaHealth, eClinicalWorks), etc.
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Why Not All Private Unicorns Will Become Public Unicorns

We’re in yet another tech bubble led by Silicon Valley’s marvelous froth machine. However, this time, the bubble is constrained to two parts of the market, and thankfully, both are private.

One, late stage, over-valued, over-hyped venture-funded still private startups. The ones among these that are valued at over $1 Billion are anointed Unicorns. This stems from an article by Aileen Lee with Cowboy Ventures, Welcome To The Unicorn Club: Learning From Billion-Dollar Startups.

Two, over investment at the seed stage in private fledgling startups. For more on this, please read: Why 70k In Angel Investments Is A Problem.

Thankfully, the public market is NOT in a bubble, hence when this one bursts, not much harm will be caused, except a lot of rich people will lose a lot of money.
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