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. 

Bootstrapped Unicorns

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

In the fall of 2007, I met Sridhar Vembu, CEO of Zoho, for the first time. At that time, no one had heard of him. He was flying under the radar of Silicon Valley. Sridhar had a small network management tools business that basically functioned as a highly profitable cash cow. It was not an earth shattering idea. But it gave him cash to play with.

And play he did. He decided to go after Salesforce.com with a Software-as-a-Service Customer Relationship Management product at a price-point that was one sixth of what Salesforce.com, the market leader, charged. He offered the product to small businesses, and customers lapped it up.
>>>

Featured Videos

Why 70k+ Angel Financings Is A Problem

Much as we would like to see more entrepreneurs successfully raise seed money from angel investors, the current level of investment is structurally worrisome.

In 2013, 70,713 ventures received angel financing (Source: Center for Venture Research, UNH).

However, the number of companies that get venture financing has remained more or less steady over the years at about 1000.

Presumably, a vast majority of the 70k entrepreneurs and their investors aspire to substantial exits down the line.

However, the market cannot sustain that many exits.
>>>

My Themes for 2015. Yours?

Yet another new year has begun. As I write this, I am looking out on a glorious, sunny day. There has been rain these past few weeks, after many years of draught. This morning, the sunlight shines beautifully on orange and yellow leaves – the last few on the pear tree in our garden. There is a sense of well being in nature.

Is there a sense of well being in the world at large?

The question doesn’t meet with an unambiguous yes. War. Destruction. Terrorism. Children being killed. Rising inequality. Looming water crisis.

In our personal lives and choices, it is important to remember:

“It matters not how strait the gate,
How charged with punishments the scroll,
I am the master of my fate,
I am the captain of my soul.”

As I think about our sphere of work – the industry, technology, entrepreneurship, business – I carry much the same feeling with me.

And with that sentiment, here is a reflection on some of the themes I am pondering for 2015.

>>>

What Can You Do When You Fail To Raise Series A After “Graduating” From An Accelerator

I don’t believe in the concept of “graduating” from an accelerator, but since most incubators and accelerators use this as a framework, let’s discuss what entrepreneurs ought to do when they ‘graduate’ without funding.

This, btw, is the plight of MOST startups around the world.

MOST incubators and accelerators promise to get them funded.

MOST fail to keep their promise.

Why?

Because most businesses are not fundable.

Let’s recap some basics from Entrepreneurship Does NOT Equal Financing:
>>>

Why Accelerators Are ‘Graduating’ Entrepreneurs Who Fail To Get Funding

There is a notion of ‘graduation’ in incubators and accelerators that I find amusing.

Entrepreneurs are often expected to ‘graduate’ after 3-months.

Let’s explore what this means …

Out of the over 7,500 incubators and accelerators around the world, most consider ‘funding’ as the key success metric.

As I pointed out in my Harvard Business Review article, The Problem With Incubators and How To Solve Them:

Most incubators use funding as a success metric, which is a somewhat flawed criterion. Over 99% of companies should operate as organically grown, self-sustaining businesses — bootstrapped, without external financing. For them the goal is to achieve customer validation, not financing. Yet if the incubator uses financing as its success metric, it will try to force inexperienced entrepreneurs into an unnecessary financing round. And more often than not, they will fail.

>>>

Artificial Intelligence, Over Engineering, Zombie-Filled Planet

The last few days have been full of pundits predicting the future of technology, especially Artificial Intelligence.

Listen to Stephen Hawking cautioning that AI could spell the end of the human race:

>>>

Big Idea: Will Capital Kill Capitalism?

2014 has been awash with capital. Showering money on young startups, VCs have become giddy, entrepreneurs dizzy, and sane industry observers aghast.

Right before Thanksgiving, however, Quartz published a story on the failing Fab, How Fab.com went from a $1 billion valuation to a $15 million fire sale:

Flash sales site and retailer Fab’s rise was as meteoric as anybody’s in Silicon Valley: it went from scratch to $250 million in sales in just two years. A little more than a year ago, it raised $150 million at a $1 billion valuation, bringing it to a total of $310 million in venture capital funding.

Now it’s set to be sold to Irish manufacturing company PCH in a deal that could be worth as little as $15 million, according to TechCrunch.

There is a reason why fundamentals are called fundamentals. They are, er, fundamental.
>>>

How To Get Seed Funding From An Accelerator

A number of accelerators offer a good chunk of seed funding these days.

YCombinator, the best known of the lot, invests $120k in fewer than 100 startups, twice a year. For those ~100 slots, they get over 3000 applications. Companies are required to move to Silicon Valley for three months and YC takes 7% equity.

TechStars also offers about $120k in seed funding and takes 7-10% equity, and has offices in multiple cities.

Numerous accelerators offer $15-25k in funding around the world. That is the average at the lower end of the scale.
>>>

Five Entrepreneurs Who Bootstrapped Their Startups With A Paycheck

Bootstrapping your startup while holding onto a full-time job is plenty viable. We have numerous examples of very successful companies that were built in this mode.

Here are five entrepreneurs whose stories will give you lots of inspiration:

1. Girish Navani, CEO of eClinicalWorks: Girish has since built one of the leaders in cloud-based healthcare IT solutions including practice management, EMR, etc. The company forecasts over $300 million in revenue in 2014. Read my February 2010 Entrepreneur Journeys interview with him here. Also, a recent follow-up interview is here.
>>>

Do You Agree With Peter Thiel?

I don’t. On a number of issues. Most of all: Don’t play little ball—swing for home runs.

Over 99% of the businesses that seek financing get rejected. Asking every entrepreneur to swing for the fences is dumb advice, in my opinion.

Acc. to Peter, a small idea = bad idea.

I couldn’t disagree more.

I just published Bootstrapping With A Paycheck, where we have case study after case study of businesses that have been successful by starting small, taking small amounts of risk, and developing very nice businesses.

Sorry Peter, I don’t get why every entrepreneur needs to swing for the fences.

Your thoughts?