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- 02/11/16--07:22: _Meet the company th...
- 02/11/16--08:27: _2 Harvard students ...
- 02/11/16--11:30: _The 25 hot LA start...
- 02/11/16--17:43: _This tech 'reset' w...
- 02/13/16--08:39: _'The Great Reset': ...
- 02/14/16--11:42: _What most people do...
- 02/16/16--11:08: _An investor who liv...
- 02/16/16--18:00: _Vive, the startup t...
- 02/18/16--08:43: _The 25 hottest San ...
- 02/21/16--06:52: _The absolute beginn...
- 02/21/16--16:36: _Here's where the mo...
- 02/22/16--10:28: _There's a new way t...
- 02/23/16--04:30: _Kevin Spacey will t...
- 02/24/16--02:41: _Canary Wharf Group ...
- 02/24/16--05:17: _The vast majority o...
- 02/24/16--06:26: _A top psychologist ...
- 02/24/16--10:30: _5 pieces of advice ...
- 02/24/16--15:19: _There's one decisio...
- 02/25/16--06:03: _2 years ago these f...
- 02/25/16--14:07: _This startup has a ...
- 02/11/16--11:30: The 25 hot LA startups you need to watch
- There wasn't a single IPO in January for the first time since September 2011.
- As the public market has slashed the value of tech companies like LinkedIn and Tableau almost in half, their private counterparts look oversize.
- The industry is facing death (or at least pain) by a thousand cuts: Startups everywhere are laying off people, jettisoning businesses, and firing CEOs. Some of its biggest innovators have admitted breaking the rules, and suddenly things aren't looking too rosy.
- The ones that are still growing with strong numbers and can find investors. (Airbnb and Uber were cited in this camp.)
- Struggling unicorns that might need to go public to look for cash or face a down round — that is, a fundraising round that values the company at less than the previous round. A down round isn't necessarily the kiss of death— it's better than not raising money and going out of business — but it means founders and early shareholders probably aren't going to make as much money as they thought they would (and sometimes none at all), and it can be demoralizing for the entire company. It can also forestall later investments.
- Never going to exit. These failures will likely be few and far between, investors think, but there will be at least a couple from the group that can't even manage to sell for pennies.
- 02/14/16--11:42: What most people don’t understand about how startups are valued
- The increase in entrepreneurs often brings in many people not in the system to “innovate” but rather to make a quick buck
- The increase in companies spreads out great engineering and product talent into many more companies (many not likely to succeed) versus consolidating resources fewer, more transformational companies
- Huge funding increases lead to massive wage inflation, rent inflation and thus higher burn rates
- Markets set valuations for startups and no single investor or groups of investors “talking down the market” can force the market prices lower. There’s enough historical data to refute this claim
- People like me who speak up aren’t wishing for a massive reckoning. For any future potential gain in more rational prices we have a lot more short-term pain helping our portfolio companies through the tough market
- Private markets have been over-valued for years. Just as with the late 90s there is no new “business model” that defies the laws of gravity. Companies are valued based on the expectation of future profits. A reversion to the mean should be expected
- If you believe the outlook will make funding more difficult (in time and price) you owe it to yourself to keep your burn rate in check so you can last longer until you need money and either “grow into your valuation” or at least get through a period of time where raising capital is more difficult
- 02/18/16--08:43: The 25 hottest San Francisco startups to watch in 2016
- 02/22/16--10:28: There's a new way to track startups that are in serious trouble
- 02/23/16--04:30: Kevin Spacey will teach you acting — with the help of this startup
- 02/24/16--05:17: The vast majority of UK tech startups want to remain in the EU
- Access to a large single market, with harmonised regulations
- Free movement of labour, giving access to a talented workforce
- Having a "seat at the table"
- Stability and security
- Over-regulation and red tape
Making time to do the things we love can be a challenge for anyone. But when we do, we're able to clear our minds and be more productive and efficient at work – allowing us to have more free time to do the things we love. It's a virtuous cycle.
That's why Liza Nurik, Eleanor Mooney, and Carrie Brightman launched ThinkingVine — a company that gives employees a fun outlet to clear their minds with enjoyable activities like painting, embossing, wiring, and mosaics.
"So many people move to places like New York City because of all of the opportunities — events, culture, art, music, food, yoga classes, and meeting people," Nurik says. "But most people end up with only a few hours each week to enjoy the city because of all the pressures of work."
In just three months since launching their company in New York, ThinkingVine has already put on events for companies like Google, Etsy, GrubHub, Foursquare, Seamless, and WeWork.
"There's a really big demand for it," Nurik says.
To learn more about ThinkingVine and why it's blowing up in the New York tech and startup scene, keep scrolling.
Nurik got the an idea for ThinkingVine while teaching art classes in Brooklyn.
Nurik, who has a background in art education, was teaching art classes to about 40 students of all ages at her studio in Brooklyn while working part-time at a school last winter.
She hosted activities like "paint and wine night" and some of her students, who were in the workforce, said, "I wish we did this at work!"
A student who worked at Google suggested she host corporate team-building art classes.
Nurik met her partners at a networking event.
Nurik was motivated to bring art to the workplace so she went to a New York Entrepreneurs & Startup Network event that was advertised on meetup.com to start looking for partners. Not only did she find the whole event "incredibly exciting and energizing," but she also found her two business partners.
"That was my first networking event and it kind of hit the nail on the head because I met these girls," she says.
Mooney and Brightman, who come from an operations background in hospitality and retail, were initially hired to help with marketing but were so organized and hardworking that Nurik offered them partnerships, which they gladly accepted.
They landed their first client with a cold email.
When they launched in November, ThinkingVine had zero clients so Nurik decided to reach out to GrubHub just to feel out how big the demand was for creative outlets at work.
She sent out a cold email to the general email address that she found on the GrubHub website to ask about piloting an event with them. She said all they would need is "a group of brave volunteers to get together in a room and make art with us." GrubHub readily accepted the proposal.
"It was just a stab in the dark, but they were so gung-ho about it," she says.
See the rest of the story at Business Insider
While they attended Harvard Business School, Marcela Sapone and Jessica Beck inadvertently came up with a startup idea thanks to their messy apartments.
The two women hired someone off of Craigslist to come do their laundry and buy their groceries weekly, and then they split the cost.
The woman they hired, Jenny, came to their apartments to take care of errands that would otherwise pile up. This would eventually evolve to become their company, Alfred.
Today, it's a startup that hires employees — Alfred Client Managers, or just "Alfreds"— to run weekly errands: buying groceries, sorting mail, dropping off packages, and taking care of laundry for you.
You pay $32 a week for the service, plus the cost of things like your groceries. Alfred has raised $12.5 million from investors, including Spark Capital, New Enterprise Associates, Sherpa Capital, and CrunchFund.
There are plenty of "last mile" startups — companies obsessed with logistics and delivery and getting your groceries or packages to your doorstep. But Alfred wants to be a "last meter" startup, operating inside your home.
"We are looking at Amazon as our inspiration," Sapone, the company's CEO, says. "Alfred as the trusted relationship that brokers every conceivable service past the front door."
Since launch, Sapone and Beck have been focused on building and maintaining a sustainable and profitable business.
Sapone told Business Insider:
When we moved to New York, we made this decision that we barely got past our investors. They finally agreed with us that, yes, we wouldn't start a customer unless we had a profitable run that the Alfred would go on. So every atom of the business was sustainable.
Alfred's founders have deliberately throttled the company's growth. Alfred has seen 30% month-over-month growth. Sign-ups for the service are four times as much, but Sapone and Beck are focused on "making sure each of the unit economics in each of these atoms of the business — essentially the book of clients that Alfred has — are sustainable, break even, or better," Sapone says.
The company isn't yet net profitable, but it is operating profitable, according to its founders.
Alfred, which launched in 2014, is active in Manhattan, Brooklyn, and Boston and is rolling out in beta in Los Angeles and San Francisco. There are "hundreds" of Alfreds who have handled "just under 100,000" requests from thousands of users, Sapone says.
The average Alfred customer spends $415 per month, or $4,980 a year. In comparison, Amazon Prime subscribers spend about $1,500 a year. In its first year, Alfred achieved $1.5 million in revenue. The company has 26 corporate employees in its New York headquarters.
The company isn't just consumer-facing — Sapone says Alfred works directly with building companies, which include San Francisco group JS Sullivan and micro-apartment company Stage 3.
When Beck and Sapone were still in Boston, they weren't sure Alfred was a company that even needed venture-capital funding.
Sapone told Business Insider:
We really thought about it as a smaller business. We created a bunch of postcards with different prices and different bundles of services, and we put them under the doors in all these different neighborhoods in Boston, and we got our first 10 customers that way.
Alfred compiles data about you and your preferences to provide a better experience. For example, your Alfred would remember that you are gluten-free, use non-toxic cleaning materials, and travel frequently. This recall ability makes customers trust their Alfreds with requests like "Buy me $20 of organic vegetables." Your Alfred will also restock products for you automatically.
The company's specialty early on — and what made it different from delivery services and other courier systems — is that it optimizes for standard routes.
It's kind of like a milkman run where you have one person who's going to do the errands for everyone at the same time and go on these standard routes, just like a milkman would visit a neighborhood and would pick up and take away the milk bottles from every door.
While locals hate the name "Silicon Beach," the LA tech scene is becoming a real rival to Silicon Valley.
We've compiled a list of the 25 hottest startups that investors, founders, and networkers in the Los Angeles tech scene are buzzing about. To limit our list, we excluded those older than five years, which eliminated some popular picks, like Headspace.
Here they are:
SEE ALSO: The 21 most innovative startups in tech
Jessica Alba's Honest Co. has created a commerce empire selling nontoxic versions of bath and baby products.
What it is: What started as a line of baby diapers has turned into one of LA's hottest startups. Jessica Alba's Honest Co. makes nontoxic and eco-friendly products, ranging from baby supplies to cleaning products. In September, it also launched a new beauty line, Honest Beauty, to make more natural make-up. The company has secretly filed for an IPO, according to reports, so it may be the last year the startup qualifies as such.
Founded: 2011 by Jessica Alba, Brian Lee, Sean Kane, and Christopher Gavigan.
Funding: $230 million from investors, including Fidelity Investments, IVP, General Catalyst, and Lightspeed Venture Partners.
Ring makes a doorbell that lets you see who's at the door.
What it is: In September 2013, Jamie Siminoff went on "Shark Tank" and totally failed. The judges all rejected him except one, who made a terrible offer. Yet customers — and eventually Richard Branson — saw something the judges missed. Everyone wanted a doorbell that could show you who is at the door.
Ring is simple: When someone presses on the doorbell, it "rings" your smartphone with a video feed. You can reject the video call or accept it and start talking to whoever is at the door. Ring's customers use it to do everything from telling a delivery man to leave a package at the door to telling a neighbor to come around to the back door.
Founded: 2012 by Jamie Siminoff as DoorBot. Siminoff rebranded the company as Ring in 2014.
Funding: $38.81 million from Richard Branson, True Ventures, Shea Ventures, American Family Insurance, Upfront Ventures, and others.
Scopely is the mobile-game creator Zynga should have been.
What is it: Described by one investor as the "company Zynga was supposed to be," Scopely has spent the last four years creating success after success. The mobile-gaming company was founded four years ago and soon launched its first game, "Dice with Buddies." Since then, it's released more hits like "Yahtzee with Buddies" and "The Walking Dead: Road to Survival," which broke into the top-25 highest-grossing apps in the Apple app store.
Founded: Walter Driver, Eytan Elbaz, Ankur Bulsura, and Eric Futoran.
Funding: $43.5 million from Lerer Ventures, Greycroft Partners, Anthem Venture Partners, and Evolution Media Partners, among others.
See the rest of the story at Business Insider
The sentiment in Silicon Valley has officially shifted: the tech boom is over, and we're entering a down cycle.
That became clearer than ever last week when a couple of public companies, Tableau and LinkedIn, lost almost half their value in a single day.
But at least one VC says that it won't be as bad this time as it was after the Great Recession or the dot-com bust.
Rich Wong is a partner at Accel, one of Silicon Valley's quiet giants, and the first firm to invest in Facebook back in 2005.
He told USA Today:
Yes, when you step back and look at 2009, after the Global Financial Crisis, and we can all remember 2001, after the Nasdaq peaked. I think there were dramatic resets, to the point a lot of companies went out of business. I personally don't think [the] environment is anywhere close to as difficult as 2008-2009, 2001.
Why does he think it's different? He didn't give much reason, except to point out that Facebook turned out to be a real business and a lot of investors are kicking themselves for missing it.
He did note that a lot of this boom's companies are enterprise companies with "real businesses, they have real revenue, they have real clarity about which customers they're selling to." He's a little more skeptical about the consumer market, particularly the wave of on-demand startups who haven't proven they can be profitable on a unit basis.
Wong has some firsthand knowledge here. He sits on the board of Atlassian — one of the few tech companies in the current boom that's consistently profitable despite spending no money on sales and marketing. (Atlassian was also the last big IPO before the current market malaise, as it went public in December; it's now trading slightly below its IPO price of $21, which is actually better than most of the other IPOs from the class of 2015.)
Still, this is a variation of "it's different this time," which is a dangerous sentiment in a downturn.
One point to note about enterprise SaaS companies: one of the high fliers of last year, Zenefits, reportedly counted as its biggest customer another startup called Jet. That company has taken more than half a billion in venture funding in its quixotic attempt to unseat Amazon, and has already had to change its business plan once.
So today's crop of enterprise startups indeed may have "real customers." But if those real customers are the consumer startups that are first to vaporize in the current bust, that's still trouble.
SEE ALSO: The correction is here
If the terrible headlines and stock prices are to be read like tea leaves, then the tech industry is about to face a major reality check.
Investors have already labeled this period "The Great Reset." Why?
At the Upfront Summit in Los Angeles last week, the shift was palpable. There was still plenty of cheerleading for companies, but there were also plenty of nervous conversations between sessions and even on stage.
No longer is it growth at all costs. "If you haven't built a real company, you're dead," one investor bluntly put it.
Here's what I learned from a week in Los Angeles talking not only to Silicon Valley investors, but also those doing deals across the US:
Out with the 'unicorns,' in with the 'cockroaches'
For the startups that are currently valued at more than $1 billion — the so-called unicorns — there's no doubt from investors that the public market will be painful.
Given their name, these companies are supposed to be rare, bordering on mythical. Yet in 2015 a whole herd of unicorns showed up. Fortune Magazine lists 174 on its site. Venture capital database CB Insights counts 152.
There's no way they're all going to go public and meet their valuations.
"You would have to be blind to not see the disconnect between public and private multiples," said one early-stage VC.
Some investors are starting to split the unicorn camp into three buckets:
As a result, the once cherished unicorn title is being replaced by a new one: "the cockroach"— companies building sustainable businesses that can survive anything. Especially among the Los Angeles startups, revenue is talked about more openly (at least five local companies are hitting nine-figure revenues, according to Science Inc.'s Mike Jones) and investors, like Accel's Rich Wong, have admitted that they're asking different questions of the companies they meet.
"That fear of missing out on that next Facebook rocket ship is starting to be replaced by actual fear of losing money," Wong said in an interview this week with USA Today. "If I'm doing a deliver-vodka-to-the-office company, it's probably a different conversation to raise money than I was having two years ago."
Dragged to the IPO altar
For non-unicorns, going public might be the "cleanest" way to raise capital, said one investor. That's because so many late-stage investors are throwing in protections, like ratchets, in the face of sour public markets. If there's a sustainable business built, then going public is better than raising from growth funds like Fidelity that could mark startups down publicly too (a favorite topic of conversation among the early-stage investors).
In fact, the struggling unicorns might find their only option is going public, according to investors. CB Insights founder Anand Sanwal predicted several companies, like Dropbox, Cloudera, and Jawbone, will have to be dragged across the finish line to avoid having to raise a down round — a round that's at lower value — or to find funding at all.
A lot of investors are complaining that companies are staying private too long.
Fred Wilson gave an impassioned speech on why Uber should go public, while Benchmark's Bill Gurley said "staying private longer" is the worst advice he's ever heard.
"We need to go back to looking at the IPO as the objective," Gurley said in October 2015. "Until you get liquid, you really haven’t accomplished anything."
Get ready for more second-market sales
Which brings us to liquidity. Second markets are springing up for shares, and companies are trying to find a way to provide some liquidity to both their investors and their employees.
The most recent example is Andreessen Horowitz and Founders Fund. The two venture capital firms sold some of their shares of ride-hailing company Lyft for a small profit. Saudi Arabia's Prince al-Waleed bin Talal wanted more shares as part of Lyft's December Series D round, and wasn't able to get them from the company itself, according to a source familiar with the situation.
This was the first time Andreessen Horowitz decided to sell a small number of shares and take some money off the table. Some took it as a lack of confidence in Lyft, but as Fortune's Dan Primack also pointed out, these VCs do have a fiduciary duty to return some money. It's sometimes a smart business move to take some money off the table when you can, as other firms have done in the past.
Investors aren't feeling the pressure of returning funds to their investors, the limited partners, yet — most funds have a 10-year cycle — but secondary-market sales are something that will continue to increase anxiety unless M&A activity picks up, some investors cautioned.
Managing momentum versus cutting costs
So where does that leave the startups going into 2016?
From here on, the stronger should get stronger, and the weak will start to show.
There's been a slew of layoffs as companies begin to trim the fat. Billion-dollar messaging app Tango cut 20% of its staff on Friday. Earlier this week, data storage and analytics company DataGravity "preemptively" dismissed staff to cut costs. Even widely considered IPO candidate Practice Fusion, an electronic health-records provider, has cut back.
While cutting costs is advised for startups in desperate need to buy themselves time, GGV partner Glenn Solomon recommended that founders really look at their metrics and not be influenced by outside trends as much. If they have the numbers and valuation to keep on only building, that should be their focus — not pulling back out of fear.
"CEOs have among their most important jobs is managing momentum," said Solomon.
That's momentum across every metric: hiring, growth of the business, morale, investor sentiment, and valuations.
Once startups start cutting costs, momentum is reversed. Morale sinks as headcount shrinks. At that point, it's time to reset your sights on what the endgame is and adjust, Solomon said.
In a later blog post, Solomon summed it up neatly:
At the conference I heard a bunch of people talk about the need to cut burn rates. Obviously, companies should never waste money. But, its VERY rare to see a company turn it around and create a huge outcome once it finds itself in a position where it must drastically cut burn to extend runway. Particularly for founders who’ve raised high priced, large financing rounds on the premise of rapid, yet expensive growth, in a down market, these folks are faced with a Gordian knot that will be very challenging to untangle. On the other hand, for founders of high growth, highly valued startups who’ve smartly raised plenty of cash, I’d argue that NOW is the time to accelerate smartly. While the competition cuts burn to prolong runway, the strongest companies have a chance to gain ground, becoming the dominant player in their respective spaces.
Always look on the bright side ...
While there is a lot of doom and gloom, many see a bright side in all this.
For one, some expect round sizes to come down. Or as Joanne Wilson put it, "more egos in check."
That's what USV saw with Foursquare when it pivoted (or just realized) that its strength was as a data company and it should be valued as such. It's better for them to have a down round and get leaner and more focused than to raise too much money and squander it away working on an ill-defined or unrealistic goal.
Meanwhile, the limited partners who fund the VCs are still optimistic: Their funding of venture capital firms is back to prerecession levels, and, as Mark Suster from Upfront Ventures points out, it's expected to increase.
That means there will still be capital to fund the startups the deserve it. If anything, a more hostile market will reduce the noise of startups that are just going for fast cash versus those building sustainable businesses. For those startups raising, their next round might not quadruple their valuation, but only double it — or not raise it all.
While there may be a "great reset" in terms of the valuations of companies funded and the rates at which they grow, the tech correction is likely not going to be as bad 2001 or even 2009. The tech industry is just hitting refresh.
"We can't be too paranoid. Bad markets bring opportunity," Suster says.
There is much discussion online and also in small, private groups, about why the price of technology companies – public and private – are falling. Valuing any company can be difficult because it requires a degree of forecasting future growth & competition and ultimately the profits of the organization.
And two big changes have happened that are widely known – in the past quarter the value of some very high profile companies such as LinkedIn and Twitter have fallen substantially plus Fidelity (usually a public market investor) has written down the value of many of it’s later-stage private-company investments and made the downward valuations known.
Most venture capitalists who have been in this business for a long time foresaw this correction and have been talking about it privately for the better part of the last year or two. I’d like to explain as best I can my opinion on what is going on because most of what I hear from entrepreneurs is not only wrong but is reminiscent of what I heard in 1997-2000.
What is the True Sentiment of VCs?
I recently survey more than 150 VC friends from all stages and geographies what they thought about the market by asking “Which of the following statements best describes your mood heading into 2016?” and you can see that the balance of caution vs. optimism is 82% to 18%.
I want to emphasize that this is “blind” data (I do not know which person or firm said what making this confidential and less biased) and nobody responding had any motive other than just telling us how they were feeling.
There is reason for despondency. Most are sitting on large portfolios of private companies that are raising money now or will need to do so in the future and they know that they’re up against some headwinds. 61% of the VCs survey said that prices in Q4 last year had started to drop and 91% said they expected them to continue to drop in the first 6 months of this year (with 30% expecting serious drops).
The Motive for Speaking Up
I have been talking about my concerns about valuations for the past couple of years because, well, they’ve been rising very rapidly the past two years!
It pains me to see the typical (and predictable) responses on Twitter, “VCs want prices to drop!” “This will be great for VCs and bad for entrepreneurs.” “Mark has a vested interest in talking down valuations of startups.” “Sure, prices are dropping. That’s just because the VCs are constantly saying so and making this a fulfilling prophecy.
All of these are false.
When I started blogging it was because I was inspired by Brad Feld. When I was an entrepreneur there was no public information about how term sheets worked or how investors thought. Brad was openly writing about this and it felt like he was giving the VC playbook away for free! I always wanted to work with Brad for this reason so I started blogging because I figured if transparency worked for Brad I would try the same approach.
Nearly EVERY smart VC I know has been talking privately for the past two years about how ridiculous valuations in private markets have gotten and how a reckoning was coming. Most prefer not to say this publicly for two reasons: 1) they have an entire portfolio of startups, many of whom are raising capital and 2) they prefer not to be attacked publicly or seem “anti entrepreneur.”
But I promise you they’ve been saying it privately. So my talking up over the years is more trying to shine transparency on what we’re already saying in private rooms.
But let me be even more clear. I do 2-3 deals per year and our firm does maybe 10-15 maximum. We write about $40 million of first-checks into new deals / year and about $40 million of follow-on investments. In 2015 in the US there were $77 billion written into startup tech companies. I’ll spare you the math and point out that this means we funded 0.104% of the market.
I am highly unlikely to fund your company strictly based on math and my only motive for publicly telling you what is going on privately is to help prepare you if in fact I’m right about the funding environment. If I’m wrong – at least you’ll have more data to decide how you raise & spend your company’s money. If I’m right my only hope is that more companies actually get funded and more companies reduce burn and survive.
That’s the entirety of my motivation.
Do Investors WANT Valuations to Drop?
Mostly, no. For good reasons – not the ones you think – yes.
Let me give you a non tech & thus non politically charged example. Let’s say you own a bunch of real estate property and you’ll likely buy more. You own 10 properties and you’ll probably buy 1-2 more per year for the next 10 years. When some properties have appreciated you like to sell them to get some liquidity and sometimes you sell the bad properties to get your money back and move on.
So prices start dropping. Are you thinking to yourself, “Awesome! Now I can buy more properties cheaply!” Of course life is more complicated. You’re really thinking that you had wanted to sell 2 of the properties that you thought has been over-valued and you were hoping to unload some poor performers. No you’re kind of fucked because nobody wants to buy any at all and your bank is calling you concerned that you may need to slow down your pace of new purchases for a bit.
This is how VCs feel. Many experienced partners are funds have 7-10 boards and most of these will need more capital. So when prices go down their first reaction is, “Shit. I better roll up my sleeves and help my companies get funded.” And while it was much nicer to call their LPs and tell them how great every company was going now they’ve got some explaining to do.
Yes, long-term they know that paying more grounded prices for future companies will likely produce better returns. But I promise you nobody I know is actively enjoying the correction in the way that some entrepreneurs seem to think VCs are. Right now it’s more pain than gain.
Can Investors Spook the Market into Falling?
In short – no. This is the biggest red herring of them all.
“10 angel investors walk into a bar …” Do you remember AngelGate at Bin38? Back then Michael Arrington accused some of Silicon Valley’s top seed funds of “colluding” by meeting secretly to talk down the valuation of startups. What hogwash. Of course a group of 10 seed funds can’t fix the prices of a market. For the past 7 years prices have risen steadily.
Individuals simply can’t spook a market into behaving how it wants because it is, well, a market! I’m sure the head of the Federal Reserve Bank could spook the market or the heads of state of the US, China or Iran could. But not a VC or Bill Gurley or myself would have spooked it 2 years ago. For every bear there’s somebody else thinking they have an opportunity. That’s the beauty of markets and of capitalism.
Remember the RIP Good Times by Sequoia? That was written in September 2008. How’d that do at spooking the markets? And to this day I know people who think Sequoia did this knowing that the markets were going to go back up and they simply wanted to “head fake” other VCs and entrepreneurs. Puh-lease. They had no such motive and no such power. Even Sequoia.
Why Valuations in Recent Years Were Irrational
If you want the real story, here it is.
1. Social networking finally came of age connected the planet and leading to enormous wealth creation for Facebook employees and investors
2. Smart phones finally took off leading to enormous wealth creation for Apple employees and investors but also helped propel Google, Facebook, Twitter, Instagram, Snapchat, WhatsApp and others.
3. The US Fed has in essence held interest rates at zero for years and has undertaken quantitative easing to stimulate the economy. The billions of dollars managed by mutual funds, hedge funds, insurance companies, university endowments, pensions, foundations, sovereign wealth funds and the like need to find returns for their money. “Safe” investments have no yield so they have allocated more money to private markets including the tech markets chasing returns.
As you can see below, investments have skyrocketed – up 300% since 2009.
The vast majority of this recent boom in prices is not being driven by VCs but rather by hedge funds, mutual funds, corporate investors and other sources of non-traditional venture funding. In the chart below you can see that a decade ago for every dollar a VC raised from LPs a dollar went into a startup. Now for every dollar a VC raises $2.50 goes into a startup.
The Laws of Supply & Demand
I know that there are some corners where people believe that understanding how markets work isn’t really a requirement for being a great investor but the truth is the market dynamics play a huge role in determining which companies are valuable and which are not.
Let me start with the simplest explanation for anybody who didn’t take economics in university (for my sins I took it for 7 years at UCSD and then University of Chicago). The most basic chart of microeconomics is a supply & demand curve. Demand represents a buyer and supply a seller. In the case of startups the “buyer” is the VC looking to part cash for “purchasing” equity in your startup.
The principle of microeconomics is that at a market-clearing price for any product the right amount of sellers and buyers will emerge and a price will be set. Some products are “inelastic” meaning when prices go up demand doesn’t fall much (think cigarettes, alcohol or even illicit drugs). Other products “elastic” meaning demand falls off quickly when prices go up.
But for the most part you have an “equilibrium” of supply & demand and this quantities supplied and price.
What changes this equilibrium? Usually only an “exogenous event” that causes a shift in the amount of supply or demand. In the case of venture funding that shift was massive amounts of non-VC capital in search of higher returns and emulating the successes of Facebook, LinkedIn, Twitter plus the expectation of huge returns at Uber, Airbnb, Dropbox, etc.
In economics we call this a “demand curve shift” as outlined below
In short hand, the $50 billion of extra capital that came suddenly into the market shot prices up dramatically: A classic demand shift curve.
The result? Median valuations went up 3x in just 2 years, followed by a precipitous drop in Q4 of 2015.
The Case for Reduced Funding Levels
When you look at the demand shock above you’ll notice that there are both higher prices and higher “quantities” of companies and I know many entrepreneurs think this is good. Most smart VCs (again, privately) think it is not.
But mostly if you raise $15-20 million and so do 4-5 of your competitors there is that much more incentive for “bad behavior,” which is where the “winner-take-all” mentality forces growth over margins.
When funding levels lower, many would-be entrepreneurs prefer the nice salary and stability of McKinsey or Google and thus the market has more hard-core entrepreneurs. Smart investors and smart entrepreneurs prefer this phase of the market.
Reversion to the Mean
Another way of looking at this from an economics point-of-view is what we call a “reversion to the mean,” which simply means that when you have outlying data points where performance is better than usual for a period the data comes back down to a historical average.
As I’ve pointed out previously, this is perfectly captured by Joe Floyd here tracking SaaS multiples over time. You’ll see here that in 2007 people were willing to pay 7.7x forward revenue for SaaS businesses when in the years before it had been less than 5x. This corrected only to go back up to 13.4x in 2013 and then reverted back to 4x – a little bit below the historical mean.
Why do markets adjust so quickly? If you really want to understand investment psychology & economics you really need to read the seminal book The Black Swanby Nassim Taleb. It is one of the two most influential books on my thinking about investments. In short, a Black Swan is an unexpected event (positive or negative) that was deemed unlikely and once it occurs investor sentiment can shift dramatically and immediately.
In September 2008 this was the bankruptcy of Lehman Brothers and the rippling effect was massive.
I wonder whether LinkedIn’s stock market plunge in January 2016 might have a similar effect (to a lesser magnitude because the underlying company is still great). But it was a shock to the system to see such a beloved tech stock get so ravaged on valuation in a single day. Time will tell but I suspect history will show that this shifted sentiment.
In short – late-stage investors (growth funds, PE funds, hedge funds, mutual funds) set price in their private rounds on the expectation of making a return when a company goes public. They are more sophisticated in their pricing models than, say, seed funds who are investing in products & teams more than financials. So the multiples paid by publics matter and when they drop, the late-stage markets drop, too. Must more slowly because there is less frequent pricing.
If you’re a B-round investor used to paying $50-100 million pre-money and you had a few years of later-stage investors paying $200 million+ 18 months after you invested you suddenly become less price sensitive. But when you see some of your deals not getting done (as happened in Q4 2015 and is continuing) then when you look at new deals you suddenly get more price sensitive.
As I’ve said, the balance has shifted from FOMO (fear of missing out, or “greed” as market analysts call it) to a pragmatic “I can take it or leave it” mentality otherwise known as “fear.”
And if you’re an A-round investor who usually paid $15-20 million pre but through competition started paying $40 million pre, the problems trickle down to you.
Even seed. In 2009 many deals got done at $4-5 million pre and in the past few years some of these deals have gotten done at $10-12 million pre (or higher). But if you’re a seed investor and you’re worried that the A-round won’t get done if your post-money is too high you suddenly start paying less.
And so it goes.
Why Financing in Falling Markets is So Damn Difficult
Back to my non-VC example. If you’re thinking about buying a house – you’ve always wanted to own! – but prices are dropping, you’re much more likely to wait a month or two (or five) before buying. Why buy today if you think it will be less valuable in 6 months and there are always more houses available in the future!
In investor terms it’s called “catching a falling knife” and psychologically investors hate it. So deals get delayed as investors feel out prices and also spend time worrying about their own portfolios. Here’s a graphic I’ve published before that shows that investors expect funding to take longer going forward.
If you want to understand why investors struggle so much to reset valuations of their existing companies – the must read economics book of the past 5 years isThinking, Fast and Slow by the pioneer of Behavioral Economics – Daniel Kahneman.
Why Inside Rounds are Difficult?
Many founders don’t understand why inside rounds are so difficult. “If you liked my company last year so much why don’t you just give me more money to get through “Winter?”
For starters there is inter-investor politics. One investor might be willing to do his or her $3 million prorata but with 3 other investors around the table she doesn’t want to fund unless everybody his doing her share. “Why should I bail out you if you’re not willing to do your part?”
Plus, there’s “triage” meaning that if a VC firm has 10 investments all needing money at the same time and all struggling to raise money then the VC needs to figure out which companies deserve the cash and which don’t.
And imagine this … if you’re doing triage on your own portfolio and spending hours negotiating with other VCs and with entrepreneurs who don’t want to cut costs … then how likely are you to want to look at other people’s deals?
So inside rounds get delayed and when there are non-participants you often find “recaps” or “structure” or “pay-to-play” provisions. Call it high-stakes chicken.
Those with money don’t want to bail out those who don’t have it.
And I haven’t even mentioned internal partner dynamics where a firm feels 1-2 partners have more shitty deals than others and therefore each partner might be jockeying to get his or her deals saved and with scarce resources some will get what they want and some won’t. Some firms are more collegiate, some less so. But to pretend these dynamics don’t exist is to stick one’s head in the ground.
Why Down Rounds are Harder Than You May Think
Down rounds are hard. A slight down round is achievable but massive “hair cuts” are very hard to do. For starters most new investors don’t want to piss off existing investors by forcing a lower price because they know they’ll have to work together again in the future. It’s easier to pass and just look at your next deal.
Also, new investors will be worried that the down round will cause founders or senior management to depart and no VC wants to replace management.
Plus, down rounds trigger anti-dilution provisions. And down rounds might favor later-stage investors over earlier-stage investors who get wiped out. Or down rounds might favor earlier-stage investors because the liquidation preferences of later stage investors get reduced.
In short, there are complicated negotiations that go on that make it difficult to get alignment. This is why VCs mostly only like to invest with people they know and trust. Because we know in tough times we have to count on our co-investors to be good actors. Either fund your share or accept the consequences to your previous investment. But many inexperienced investors would rather hold the company hostage than accept the new realities.
Note that this is a first draft, written in one sitting and entirely unedited. I wanted to hit publish to get it out there. Feel free to provide me any errors, questions or typos in the comments section. I’ll do my best to revise this post in the next 48 hours.
There are storm clouds gathering over Silicon Valley – and it’s more than just El Nino.
As a venture capitalist, I see a lot of data points within the private company marketplace. Every Monday, I sit in a room with my partners and we discuss dozens of companies, both portfolio companies as well as those we are considering for investment. When a market turns, we tend to see the signs earlier than the entrepreneurs working on the front lines.
This market? I’d say it has turned.
It is going to be hard (or impossible) for many of today’s startups to raise funds. And I think it will get worse before it gets better. But, hey, my entrepreneurial friend, who ever said it was going to be easy? One of my favorite expressions is: “that which does not kill us makes us stronger.”
So which is it going to be for you? Tougher? Or dead.
Fortunately, (unfortunately?) I’ve been to this movie before, during the dot-com “nuclear winter” – anyone remember that? I’d like to think I’ve learned some things from that painful experience.
I’ve seen companies live, and I’ve seen them die. And I’ve concluded that certain behaviors separate the two.
Which behaviors, you ask? Here are a few from my downturn playbook for how to stay alive.
Stop clinging to your (or anyone else’s) valuation: You know what somebody else’s fundraise metrics are to you? Irrelevant. You know what your own last round post was? Irrelevant. Yes, I know, not legally, because of those pesky rights and preferences. But emotionally, trust me, it is irrelevant now. We even have a name for this – valuation nostalgia. Yes, it was great when companies could raise those amounts, at those prices, blah, blah, blah, but the cheap-money-for-no-dilution thing is largely over now. The sooner you get on with dealing with that, and not clinging to the past, the better off you will be. As my DFJ partner Josh Stein says, “flat is the new up.”
Redefine what success looks like: I had lunch last week with a friend of mine who broke her leg in three places four months ago. “I used to think a successful weekend was 10+ miles of running,” she said. “For now, success is going to have to mean making it to the mailbox and back without my crutches.” When a market like this turns, in order to survive, it is critical to redefine what success is going to look like for you – and your employees, and your investors, and your other stakeholders. Holding on to ‘old’ ideas about IPO dates, large exits and massive new up rounds can ultimately be demotivating to your team. If you can make it through the downturn, you will have those opportunities again. But for now, reset your goals.
Get to cash-flow positive on the capital you already have (AKA, survive): My DFJ partner Emily Melton said this in our last partner meeting: “Must be present to win.” I used to say it at T/Maker (the company for which I was CEO) in a slightly different way: “In order to have a bright long-term future, we need to have a series of survivable short term futures.” You need to survive in order to ultimately win.
You know what kind of companies generally survive? Companies that make more money than they spend. I know, duh, right? If you make more than you spend, you get to stay alive for a long time. If you don’t, you have to get money from someone else to keep going. And, as I just said, that’s going to be way harder now. I’m embarrassed writing this because it is so flipping simple, yet it is amazing to me how many entrepreneurs are still talking about their plans to the next round. What if there is no next round? Don’t you still want to survive?
Yes, some companies are ‘moon shots’ (DFJ has a fair number of those in our portfolio) where this is simply not possible. But for the vast majority of startups, this should be possible.
So, for those of you in the latter group, I want you to sharpen your spreadsheet, right now, and see if, by any hugely painful series of actions, you could actually be a company that makes money. ASAP. Or at least before you run out of money. Because that’s the only way I know to control your own destiny. You don’t have to act on it (although I would), but at least you will know if you have a choice.
And if you absolutely, positively, cannot get there without more capital? Then you need to…
Understand whether your current investors are going to get you there: Guess who else cares about whether you live or die? Yep, your current investors. Another duh. That’s why they are your best source of ‘get me to cash flow positive’ financing. And yet, even though we all know this, why is it we don’t actually (1) create the plan that gets us to cash flow positive ASAP, and then (2) go to our backers and get their commitment that they will see us through (or know that they won’t, because if they won’t, the sooner we know that, the sooner we can go out and do something about this.) I know many VCs hate to be put on the spot about this, but I think entrepreneurs have the right to ask, and to know.
Stop worrying about morale: Yes, you heard me right. I can’t tell you how many board meetings I’ve been in where the CEO is anguished over the impacts on morale that cost cutting or layoffs will bring about.
You know what hurts morale even more than cost- cutting and layoffs? Going out of business.
I was at a conference once where someone asked Billy Beane how he created great morale at the A’s. His answer? “I win. When we win, morale is good. When we lose, morale is bad.”
Your employees are smart. They know we are in uncertain times. They see the stress on your face. They worry about their jobs. What do they want to see most? A decisive plan for survival, that’s what – even if some of them have to go. Trust me, a clear plan is a real morale turn-on.
Cut more than you think is needed: Yes, this is simple, but not easy. It is so easy to justify why you want to lay off fewer people. However, when you do, by and large, you’ll be laying even more off later. Why we humans seem to prefer death by a thousand cuts is a mystery to me. Don’t. It’s easier on everyone if you cut deeper and then give people clarity about the stability of the remaining bunch.
Scrub your revenues: Last week an entrepreneur pitched us, and his ‘current customers’ slide was alight with bright, trendy logos of bright, trendy venture-backed companies. You know what I saw? A slide full of bright, trendy, money-losing, may-not-survive companies. (Luckily, in this case, the entrepreneur referenced these customers because he thought VCs would like to see that their smart startups use his stuff, but he actually had a lot of mainstream customers too. He has a new slide now.) This, I think, was one of the biggest surprises from the last dot-com bust – we all knew we had to cut our expenses, but no one thought about what our customers might be doing. And guess what? They were all cutting costs too – including those costs which comprised our revenues. Or worse, they were going out of business. If you are in Silicon Valley and your customers are mostly well-paid consumers with no free time, or other venture-backed startups, well, I’d be worried. And yes, it sucks, but it is better to be worried than surprised.
Focus maniacally on your metrics: I know a few CEOs who delegate the understanding of their financials and their business metrics to the CFO, and then stop worrying about all that ‘numbers stuff’. Don’t do that. You have to know your numbers inside and out – they are your life blood. You also have to know which metrics drive the business, and focus on them like your survival depends on it – because it does. Figure out your canary (or canaries) in the coal mine (by that I mean the leading indicators that tell where your business is headed and whether it is healthy) and watch them weekly, or daily, or in real time, whatever is possible. And, have a plan in advance about what you will do if/when the metrics go south. Many of the best companies to have survived the last downturn became super data-driven, and were constantly course-correcting to make small but continuous improvements in their operations with what they learned.
Hunker down: These markets generally take a long time to recover. Longer than you think. And, it might get worse. So don’t plan for the sun to start shining tomorrow. Or next month. Or next quarter. Or maybe even next year. Sorry.
Having just thoroughly depressed you, let me say that I’ve seen amazing transformations by companies who adapt early to the new reality. Severe budgets give clarity. Smaller teams often find greater purpose in their work. Gaining control (by becoming profitable) feels really, really good. Watching your competition (who didn’t read this) die, feels – can I say it? – well let’s just say that when your competition goes out of business, you often gain their customers…and that’s a very, very good thing.
Some of the greatest companies were forged in the worst of times. May you be one of them.
Vive, a beauty startup known for unlimited blowouts, is changing its business model.
So far, women have loved paying for access to as many blowouts — that means wash and dry, no haircuts or coloring — as they can schedule for $99 a month. Given that the average blowout is around $60, it was a big savings.
Yet a year and 34,000 bookings later, its CEO, Alanna Gregory, would describe it less like a ClassPass for beauty and more like a Hotel Tonight. (ClassPass is a gym; Hotel Tonight is a travel app.)
The company confirmed to Business Insider that it is ditching its subscriber model and opting for the à la carte option.
Rather than booking days in advance, many subscribers would look for a last-minute blowout to squeeze into their schedules, Gregory said. Forty-four percent of women booked on the same day and 26% booked the day before, according to the company.
"That's when we realized we had hit on something that fit on a clear need for women," Gregory said.
The company has been experimenting with pricing to try and find the best fit for customers. In October, Vive introduced new pricing and raised the unlimited subscription to $175. It also started offering a cheaper monthly subscription for two or four visits a month.
Three months later, Vive is removing the subscription model entirely.
"When we did focus groups, we realized how much important last-minute booking was," Gregory said.
The new Vive features à la carte packages that will run $35 for one blowout, $99 for three, and $150 for five. The one-blowout package expires in 30 days, but the larger ones run for a year.
The unlimited-blowout package it launched with has been discontinued for the time being. Existing members can continue their membership, but the business won't be accepting new sign-ups, Gregory confirmed.
She claims that the business never had negative gross margins, but the price increases are a change to match its customer habits and make Vive a sustainable business for the long term.
To her it's not a pivot in the business but matching Vive's services to how women were already using it.
"We moved from a core one-size-fits-all model to one that really fit and improved women's lifestyles," Gregory said.
Investors also agree with the change of course. The company announced today that it has closed a new $2.3 million seed-funding round led by Deep Fork Capital with participation from Y Combinator, CrunchFund, Ludlow Ventures, Vayner RSE, Maveron, Expansion Venture Capital, T5 Capital, Kosinski Ventures, and Haystack Fund and angel investors Pascal Levy-Garboua, Paul Buchheit, and Scooter Braun’s SB Projects.
Amid discussions about blood in the water and the impending doom and gloom of the startup ecosystem, there's plenty of great startups out there still poised to change the world.
Business Insider talked to industry insiders, venture capitalists, and startup founders and looked at some fundraising data from PitchBook and CB Insights to derive this list of startups to watch in 2016.
To limit the list, we looked at companies founded in the last five years and narrowed it down to companies with a San Francisco headquarters — that excluded Palo Alto-, Mountain View-, and San Jose-based ventures.
It's guaranteed to be an interesting year ahead, so here's the hottest startups in San Francisco to keep your eye on:
SEE ALSO: The 25 hot LA startups you need to watch
Honor wants to reinvent how you take care of your elderly parents.
What it is: While many other "on-demand care for seniors startups" rely on independent contractors, Honor flips the system on its head. The company launched in April 2015 as another startup that aims to match seniors with professionals who can take care of them in their homes while giving concerned family members a way to keep track of everything.
Unlike on-demand services like Uber and Lyft that let people accept jobs right away, Honor wants its home-care professionals, who start at $15 an hour, to foster long-lasting relationships with seniors. In January 2016, the startup changed its caretakers from contractors to employees, even offering stock options and benefits. Its model of taking care of not only the elderly, but also its caretakers, made Honor stand out among the new startups in San Francisco. Earlier this month, it was named Best New Startup at the Crunchies, the Oscars of startups.
Founded: 2014 by Sandy Jen, Cameron Ring, Monica Lo, and Seth Sternberg
Funding: $20 million from Andreessen Horowitz, Homebrew, and Kapor Capital.
Checkr may be the big winner of the "gig economy."
What it is: More companies are providing on-demand services carried out by independent contractors, who drop off your deliveries and drive you from place to place, and many of these have gone through Checkr. The company is poised to take advantage of the growing freelancer market by offering the same background checks offered by traditional firms, but quicker. Its background checks have become staples for companies like Uber, Handy, Instacart, and GrubHub.
Checkr's background reports can be ready anywhere between a few hours and a couple of days, though most are ready within 24 hours. Its background checks include address history, sex-offender searches, and Social Security-number verification, in addition to checking applicants' names against terrorist watch lists and crime databases.
Founded: 2014 by Jonathan Perichon and Daniel Yanisse
Funding: $39 million from Y Combinator, Accel Partners, Khosla Ventures, and Google Ventures among others.
Gusto solves the payroll and benefits problems for small businesses.
What it is: Formerly known as ZenPayroll, Gusto tries to help the headaches small businesses face by handling their insurance, payroll, and other human-resources tasks for them. Up until a few weeks ago, Gusto was known as the competitor to Zenefits, but in the past few weeks, Zenefits has faced a meltdown as its CEO resigned and regulatory issues were brought to light. That leaves a major opportunity open for Gusto, which has so far touted its industry compliance rather than skirted it.
Founded: 2011 by Joshua Reeves, Edward Kim, and Tomer London
Funding: $136.7 million from Google Capital, General Catalyst, Obvious Ventures, and Kleiner Perkins Caufield & Byers.
See the rest of the story at Business Insider
Original story here.
Cities have long sought to bolster their innovative and entrepreneurial capacities.
In an effort to spur startup activity, many U.S. urban areas have developed tech centers and innovation districts, lured venture capital funds, and launched incubator programs and facilities.
The latest trend in the tech startup economy is the creation of so-called “accelerators,” which act like a Shark Tank school for startups, providing access to mentors and peers along with space and venture funding.
Perhaps the best-known accelerator is Y Combinator—established by Paul Graham in 2005 and based in the Silicon Valley—which has launched some 940 companies including Airbnb, Dropbox, and Reddit. Yet another popular example is Techstars—founded in 2006 in Boulder, Colorado—which now sponsors 21 accelerators across the world.
A new report by Ian Hathaway from the Brookings Institution Metropolitan Policy Program takes a close look at the spread of startup accelerators across U.S. cities and metros. Hathaway distinguishes accelerators from incubators and co-working programs, defining them as “cohort-based,” “mentor-driven,” “fixed term,” meaning they end with a graduation day when the startups go out on their own (see the chart above). Based on this definition, the study identifies 172 accelerators across the U.S. using data from the high-tech venture capital databases Pitchbook, Seed-DB, Global Accelerator Network, and Accelerate.
Accelerators have grown rapidly in recent years, increasing more than tenfold from just 16 programs in 2008 to 170 programs in 2014. The 172 accelerators tracked in the study raised a total of $19.5 billion in funding, which they invested in roughly 5,000-plus startups for an average investment of $3.7 million per startup. According to the report, small investments made by startup accelerators can help “to raise substantial amounts of capital later on.”
Hathaway finds that companies that had recently completed or were in the midst of completing accelerator programs had a median valuation of $5.1 million and an average valuation of $7.1 million. Companies that went on to raise even more venture capital, however, had a median valuation of $15.6 million and an average valuation of $90 million. In 2015 alone, these figures were valued at $30 million and $196 million, respectively.
But, like venture capital and startup activity more broadly, startup accelerators vary widely across the country. As the map below shows, the majority of startup accelerators are located in the San Francisco Bay Area and along the Bos-Wash corridor.
The table below shows the metros with five or more accelerators, which are also the nation’s leading centers for venture capital investment. San Francisco tops the list with 34 accelerators, followed by New York and San Jose with 13, and Boston with nine. Chicago has seven, while L.A., Seattle, and Washington, D.C. have five each. All together, the Bay Area, New York, and Boston account for 40 percent of startup accelerators in the U.S. and two-thirds of accelerator-funded deals from 2005-2015.
Close behind is St. Louis with four startup accelerators. Another 11 metros have 3 accelerators each, and include established tech hubs like Austin, Boulder, and Durham-Chapel Hill in the North Carolina Research Triangle as well as Nashville, Pittsburgh, Kansas City, and Cincinnati. Yet another six metros—including Houston, Phoenix, Memphis, and Louisville—have two accelerators each.
Ultimately, the report suggests that accelerators are helping to expand startup activity beyond the nation’s leading tech hubs, noting that these programs “have been shown to attract more investors and focus energy on the nascent startup communities that have been spreading throughout the United States.” The report also includes useful advice from Brad Feld, the co-founder of the Techstars accelerator program and a leading venture capitalist, who highlights the importance of making accelerators part of a larger startup ecosystem and using them to catalyze a broader culture of innovation and entrepreneurship.
But while cutting-edge accelerators like Techstars and Y Combinator have proven quite effective at identifying and developing successful startups, their success may not be widely replicable. For one, the nation’s leading tech hubs have far and away the majority of accelerators. The Bay Area is the leading center of high tech startups and venture capital investment in the nation, and Boulder led the nation in venture capital investment on a per capita basis back in 2013. While accelerators have spurred lots of startups in these places, they are themselves a product of their well-established entrepreneurial ecosystems.
This raises the question of whether governments can or should be involved in forming or subsidizing accelerators. The wide body of evidence suggests that the answer is no. Study after study has found that publicly supported venture capital funds and government-funded incubators are ineffective at spurring actual startups or generating durable startup ecosystems. While privately financed accelerators can help to jump-start entrepreneurial activity, it makes little sense to use scarce government funds to support private startup activity, which, in the very best case, makes entrepreneurs extremely wealthy.
In the last quarter, Silicon Valley has swung from greed to fear.
Unicorn companies, or those valued at more than $1 billion, have been closely tracked by everyone from the Wall Street Journal to Fortune to any venture capital data firm during the past couple of years.
Now that the startup ecosystem has entered a perceived downturn — or at least unicorn creation has slowed down — VC data firm CB Insights is launching a new way to follow what's happening: the downround tracker.
Downrounds are when a company raises money at a lower price than where it was valued last time. They're often considered a sign of trouble that the company has failed to live up to hype or deliver its metrics.
The new CB Insights tracker is hardly the first site dedicated to chronicling the doom and gloom at startups during times of trouble.
In 2000, F---edcompany.com launched as a way to track the dot-com bust. As startups died left and right, employees could post anonymous comments about which companies were starting layoffs and who was losing money. In 2007, right before the next crash, the site shut down.
CB Insights' new Downround Tracker will now pick up some of the slack on chronicling the bad parts of the startup ecosystem, just without the snark, says its CEO and founder Anand Sanwal.
Sanwal hopes the downround tracker won't be seen as a negative or kicking a startup while it's down. Instead, by only relying on data and presenting the facts, it can be valuable resource for companies looking to poach talent and keep informed on what's happening (both good AND bad) in the market.
"Sometimes the data helps shine a light on things that appear to be going well (see our unicorn tracker as an example) and sometimes it doesn't, but objectively tracking the ebbs and flows of the market is important for VCs who are investing, corporations that are acquiring and even startups that are negotiating their latest term sheet," Sanwal told Business Insider in an email.
Most online classes are taught by professors who are taking an offline curriculum and bringing it online so it's more accessible.
"What’s happening in most online classes is you’re taking a physical class and putting a webcam in the back of the room," said MasterClass cofounder David Rogier.
Rogier and his cofounder Aaron Rasmussen decided to build the opposite: classes taught by masters of a profession, designed for online first.
On its roster of teachers are names like tennis star Serena Williams, actor Dustin Hoffman, and writer James Patterson.
Starting Tuesday, MasterClass is adding classes from actor Kevin Spacey and singer Christina Aguilera to its course offerings.
"If you've done well in business, it's your obligation to send the elevator back down," Spacey says in a trailer for the course.
In James Patterson's writing course, students edit the first draft of one of his novels and compare it to the final one. In Serena William's course, students can upload photos of their swings and have other students give them feedback.
For Christina Aguilera's course, the company built a range finder that works by tapping into a computer's microphone and measuring an artist's vocal range. Aguilera dedicates a whole chapter on improving it, so students can keep using the tool as they go, Rasmussen said.
The courses are designed to not feel like a classroom lecture, but more like a workshop that you would normally pay to attend from a star anyways.
Rasmussen and Rogier reject the workshop comparison a little bit, since it's not a one-time deal. Compared to a workshop that might last a few hours or days, the MasterClass materials are yours to re-watch, re-work, and continue learning from even after you finish, the founders say.
Each class costs $90, so it's pricier than many of the free classes offered online. The startup also makes no pretenses that the celebrities it works with are the ones who are editing assignments or watching the acting videos. Instead, Rasmussen and Rogier have seen MasterClass students latch onto the peer review process — a Dustin Hoffman's MasterClass acting fan club has already sprung up in LA for instance.
The company does split the revenue with the master instructing the class, but it's largely a labor of love and a passion to teach what they've learned that motivates its lecturers, Rogier says. Since each class takes weeks, if not months, to produce, the company has raised more money to help accelerate its pipeline and bring more masters on board.
MasterClass plans to announce Tuesday a new $15 million round of funding led by New Enterprise Associates (NEA). The new cash brings the total raisedfor the online learning company to $21.4 million in less than a year.
Canary Wharf Group announced on Wednesday that former marine Ben Brabyn has been appointed as the new boss of London startup space Level39.
Brabyn replaces Eric Van der Kleij, who is well-known in the London tech community for getting the Tech City initiative off the ground.
Level39, owned and operated by property developer Canary Wharf Group, specialises in fintech, retail, and future cities. It currently occupies the 24th, 39th and 42nd floors of One Canada Square, the UK’s second tallest skyscraper.
Through Level39, Canary Wharf Group aims to provide a "point of convergence" for startups, large technology companies and their client base in the banking, financial and professional services sectors.
Canary Wharf Group said Brabyn — a former captain in the Royal Marines, and JP Morgan analyst — will oversee the next phase of growth within the Level39 community, which currently includes 200 members, including fast-growing cyber security company Digital Shadows and big data company Datasift.
Brabyn will also be tasked with advising the Canary Wharf Group on how to strengthen Canary Wharf’s reputation as a tech hub.
Canary Wharf Group said Brabyn, who also worked as chief operating officer for the government's UK Trade & Investment department, has an understanding of national policy and practical experience of entrepreneurship, which he gained through founding two digital businesses and mentoring via Microsoft Ventures.
The Group, which is in the midst of building the "New Phase" of Canary Wharf — a 4.9 million sq ft mixed-use waterside community to the east of the existing site, wants to diversify the tenant base at Canary Wharf.
The business district is home to the world or European headquarters of numerous major banks, professional services firms and media organisations including Barclays, Citigroup, Clifford Chance, Credit Suisse, Infosys, HSBC, J.P. Morgan, KPMG, MetLife, Moody's, Morgan Stanley, and Thomson Reuters.
But for all the big names in finance, there aren't many in tech. Google, Facebook, Apple, and Amazon all have their offices in other parts of the city. Canary Wharf Group hopes to change that.
Sir George Iacobescu, chairman and CEO of Canary Wharf Group, said in a statement: "Ben will play an important role in helping shape the next phase of Canary Wharf Group’s evolution as a diversified developer and landlord, helping us to create next-generation business locations, fused with technology and an attractive lifestyle to match."
Brabyn said: "The technology sector is growing at a phenomenal pace and as a leading global centre for fintech and smart cities innovation, Level39 has an important role to play.
"I look forward to drawing on my international expertise to lead Level39 in this exciting new chapter, by growing existing members, welcoming new ones and broadening the ecosystem in the smart cities space."
An overwhelming majority of the UK's digital startups want to remain in the European Union, according to a survey published Wednesday by startup advocacy organisation, Coadec (The Coalition for a Digital Economy).
Coadec asked startup founders, employees, and investors whether they think the UK should remain in the EU.
The survey, published just four days after Prime Minister David Cameron announced an EU referendum will be held June 23, was answered by 175 people, which is a relatively small sample size but enough to give an indication of startup opinion.
Of the respondents, 81% said that the UK should remain in the EU, while 19% said it should leave.
Those wanting to stay in the European Union said the key reasons were:
For those who said the UK should leave, the key issues were:
Guy Levin, executive director of Coadec, said in a statement: "The UK's digital startups are clear that they want us to stay in the EU, in order to have access to a single market of 500 million consumers, a talented labour market, and a seat at the table setting the rules.
"They don't think the EU is perfect, but have clearly said that the UK is better off remaining inside the European Union, than out on our own. The UK is the best place in Europe to launch and grow a digital startup, we should not put that at risk."
Duke University behavioral economist Dan Ariely thinks that if you sought out a system designed to bring the worst out of people, it would look a lot like modern day insurance.
The whole relationship between client and company is "adversarial," he tells Tech Insider. Clients feel like they're going to be screwed over, and companies assume clients are going to cheat, leading to higher rates. Plus, there are conflicts of interest.
"In conventional insurance, you give someone money every month, and when you submit a claim, they have some process to get it back, but it’s their money," says Ariely, author of "Predictably Irrational" and "The Honest Truth About Dishonesty: How We Lie to Everyone — Especially Ourselves."
"If they give you more money, the people who work at these insurance companies’ bonuses are going to be lower," he adds.
That's why he's joining the insurance startup Lemonade as the Chief Behavioral Officer. The insurance startup has brought in $13 million in initial funding, including from heavyweight Silicon Valley venture capital firm Sequoia Capital.
Lemonade aims to be the world's first peer-to-peer insurance carrier, meaning that funds contributed by members are shared communally. A Lemonade spokesperson told us that "there will always be enough money to pay claims" because the startup has lots of reinsurers, including Lloyd's of London.
"Lemonade is saying, this is not our money," Ariely says. "It’s really your money. We are the custodians of this money. We will not make a penny more if we deny claims. at the end of the day, the pool belongs to everybody. And if it gets poorer, it gets poorer for everybody."
Ariely is no stranger to startups. He was an advisor for the early search engine tool Simpli, which sold to NetZero in 2000, and on the founding team of the productivity app Timeful, which sold to Google in 2015.
Want to know the number-one way to attract unsolicited advice? Tell people you're launching a business.
It's not that all the advice is bad, but often times because of the sheer volume of the advice you get as an entrepreneur, much of it is useless. Worse, some advice is bad and can hurt as you're trying to launch and grow a business.
Don't get me wrong. Without a lot of sage advice along the way, I could not have built Infusionsoft into the company it is today. But a huge amount of advice that any entrepreneur receives should be taken with a grain of salt.
Below are the five worst pieces of advice I ever received as an entrepreneur:
1. Don't get emotionally attached to employees.
I'm not talking about romantic relationships here. In essence, the advice I was given was to not develop strong friendships with people I work with, and to keep a safe distance. There is some wisdom in this, but it didn't sit well with me.
In my view, one of the most rewarding things about starting and growing a business is that you develop relationships with amazing people. Work is much more enjoyable and meaningful when you spend your days with people you like to be around. Don't rob yourself of the rich personal relationships you could develop by thinking you have to be "all business" with the people around you.
2. Move away from your target market.
Infusionsoft is solely focused on serving the small business market, but there was a time a few years ago when pressure was mounting to expand the scope of our offerings to larger businesses.
The advice I was given was to move away from the target market and serve bigger customers. My reaction to that was that we couldn't change who we are at our core. We have people here with a passion for serving small business, and I didn't want to dilute that.
I put my foot down on this issue, and eventually won others over. I had to go with my gut, and I'm glad I did.
3. Automate customer service.
In the tech industry, the prevailing advice is to take as much human touch as you can out of the customer experience, so you can grow quickly without the complexity of a large customer service department. While this may work for companies serving larger businesses, our small business customers need our help and are willing to pay for it.
Be careful. You can easily overdo it when it comes to automating customer service — and the result will be unhappy customers.
See the rest of the story at Business Insider
Startup founders put a lot of time and thought into who their cofounders will be, but they neglect to do the same when it comes to choosing their investors, argues renowned venture capitalist Vinod Khosla.
"I find [that] this question entrepreneurs give less heart to, and [it] may be one of the most important early decisions people make," Khosla said onstage at the Startup Grind conference in Redwood City, California.
Founders are never just taking cash from an investor, he said.
An investor might interact with you once a month, but they're also going to try to exercise what they think is a lot of influence. If they're on your board, that means that they could be voting on the direction your company takes as well.
"I seldom go on boards because all the VCs want to work on that. I believe a board in a small startup company should never vote on anything," Khosla argues.
In 30 years of being on boards, he asserts that he's never once voted against a founder, except in the case of hiring or firing a CEO. His approach as a board member is to be the one to challenge companies on different viewpoints, even if he doesn't believe in them himself.
The other area he devotes his time to is recruiting — everyone from engineers to C-suite executives, a company's most important senior execs. His impact comes from working with the company, not just casting a vote in a meeting, he argues.
"Nobody who comes in once every six weeks while you're working 80 or 90 hours a week is qualified to make a decision," Khosla said.
Thrive Market cofounders Gunnar Lovelace and Nick Green were rejected by more than 20 venture-capital firms when they first tried to raise money for their health startup.
The pitch was this: The pair wanted to launch an online organic-food and natural-products marketplace, which would use a membership fee of $60 per year (think Costco) to slash prices 25% to 50%.
“[The venture capitalists] all wanted to just wait and see,” Green tells Business Insider. No one wanted to invest.
But now they do.
After 15 months in business, Thrive has hit an annualized run rate of $100 million, and has raised $58 million from the likes of Greycroft Partners and celebrities like John Legend and Demi Moore.
The company says it has over 180,000 paying users, and signed up 600,000 new users in January alone. (There is a 30-day free-trial period.)
On Thursday, Thrive Market launched its first app for iPhone.
The founders say their luck changed when they began to think about Thrive as selling a "lifestyle" instead of just a collection of products. After the string of rejections they endured in Silicon Valley, they went back to the drawing board. They wanted to find investors who understood health the same way.
They built a network of over 200 health and wellness "influencers" to invest in and support Thrive, including Deepak Chopra, Tony Robbins, and Jillian Michaels.
“They were not typical celebrities,” Green says. “They were bloggers and YouTube stars” — people that the community trusted. Thrive got its first $10 million in funding from this group, who also helped promote the business.
The company’s growth after launch was explosive. They outgrew a 40,000-square-foot warehouse in three months, upgrading to over 400,000 square feet of space.
The venture capitalists followed, along with more influencers ("strategic partners"). Now the startup has over 300 of these partners.
How did it grow?
“Silicon Valley isn’t really in touch with the middle class,” Green says. The venture capitalists Thrive pitched to didn’t understand why someone would want to go online to order these types of products instead of just dropping by Whole Foods. But the answer was simple: For many of Thrive's customers, there's no Whole Foods nearby.
“Geographically, we are incredibly diverse,” Green says. 70% of Thrive’s users don’t live within driving distance of stores that stock its products, and 85% are moms buying for their families.
Silicon Valley’s lack of focus on the “mom” demographic isn't new.
It's something Jessica Alba ran into when trying to drum up interest for her startup, The Honest Company, now valued at $1.7 billion and looking to go public. The Honest Company sells eco-friendly household products like premium diapers and toothpaste.
Alba was rejected by a series of venture capitalists, and couldn't gain a foothold until LegalZoom cofounder Brian Lee had a kid of his own and revisited the pitch he’d rejected 18 months earlier. Lee, incidentally, is also an investor in Thrive.
But even though the venture capitalists didn’t see it, Green and Lovelace knew there was a market. Lovelace, in particular, says he remembers his single mother’s struggle to find affordable healthy products.
Since its launch, Thrive has had about 60% of its traffic come from mobile, but has only now launched an app for iPhone. The new app is easy to navigate, and lets you sort by things like “values" (gluten-free, paleo, raw, vegan, and so on).
SEE ALSO: REPORT: Jessica Alba is going public
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Getting freelance help for business projects often feels more like dating than time-saving.
Businesses have to post an attractive task, pick a freelancer to do it (based on little information) and then hope it's a good match and that the work comes back at a decent quality.
If it's bad, they move onto the next one.
If they find the "one" who is a good fit, they will generally take the freelancer off the market to help work exclusively.
After all, that's how Konsus is building its own business to help workers save time by using freelancers. They've been posting job listings, and then poaching the ones who do the best.
"This work of going around of platforms saying 'I'm John from Russia and I'm great at PowerPoint, so please hire me' isn't a nice thing. And then people are not nice to you. You're going to get fired daily," said cofounder and CEO Fredrik Thomassen.
Instead, Konsus flips the model on its head. Businesses send a chat message or an email to ask for help on a project, and a project manager immediately delivers a quote and splits up the tasks among freelancers. No begging, dating, or firing on either side. And starting Thursday, the company is also launching an integration with Slack, so requesting a spiced up PowerPoint will be as easy as chatting with a coworker.
A problem with no solution for many workers
Thomassen learned the value of outsourcing some easy tasks from his days as a consultant. At McKinsey, they had a staff of freelancers that could help them take care of some of the essential but non-core tasks of doing their jobs overnight. A PowerPoint presentation could be sent off at the end of the day and a formatted version would be back in his inbox in the morning.
Leaving to build his own company, Thomassen soon realized that his days spent building a company meant nights handling excel spreadsheets and creating investor presentations.
"At 10 p.m., you can't really send a task to your employees because they're going to be super pissed," Thomassen said.
After messing around trying to hire folks on other platforms, he built his own network of freelancers, and soon realized his friends were looking for an affordable solution to cut down on office work too.
The problem is the freelancer market has been so broken, Thomassen said.
Meeting with his college friend Sondre Rasch for lunch in the parliament of Norway, where Rasch was working as a policy advisor, the pair realized that there was a larger need for quick and easy but quality work that benefited both the freelancer and business.
There were plenty of companies to get freelance labor, like Task Rabbit, or longer engineering work, like Gigster. But their idea for Konsus was to create a solution that any business can tap into and have round the clock support. Negotiating a contract for data entry shouldn't take longer than the time it would take to just enter it.
The company launched in Norway in August 2015 and has already signed up customers ranging from major enterprise clients like Telenord to small 10 person businesses looking for some extra help. The pair joined the prestigious Y Combinator accelerator in January 2016 to introduce Konsus to the US after seeing 10% week-over-week growth after its launch. And unlike most startups that are eight months old, the pair claim it's already profitable.
"The problem we're solving is not just finding the freelancer, but also getting it done," Rasch said.
How Konsus works
To save businesses time, Konsus pre-screens and vets the freelancers to work on its platform, making it easy to find help immediately and not go through the back-and-forth hiring phase. For freelancers, it's a big boost to have a constant stream of tasks without having to invest time into responding and competing for job postings.
The company narrows down its freelance help to 10 core competencies, ranging from website and logo design to data entry. After spending hours scanning freelancer forums all over the web, these tasks accounted for 60% of contract volume, Thomassen said.
When a business chats Konsus a request, a project manager quotes the company a price and puts it into a pool of available tasks. The project manager will be someone from your country, but the task could be sent to freelancers around the world based on their skill set and availability.
"The language barrier can be high when working with freelancers globally. Communication difficulties do arise and we bridge that gap by having that project manager who you do have a common language with and who you can hold responsible, " Rasch said.
"What we find is that very few real tasks when you think about it in the business world revolves around one very well-specified single task," Thomasssen said. "I think we've almost never seen a task which is simply one siloed specialized task that we can just complete directly."
Businesses can buy a package of 100 hours at a rate of $19/hour. For one-off tasks, it's bumped to $29/hour. The company doesn't vary pricing based on the freelancer or time of day or turnaround time. It's designed to be transparent and equal.
For the founders, making Konsus affordable comes at a peak time when e-labor or freelance work is on the rise, but there hasn't been any disruption to the traditional marketplace of posting job listings.
Previously contract work meant you were a beggar for work.
"Previously contract work meant you were a beggar for work. Maybe sometimes people would be nice to you and give you some task. But now the power relationship is totally changing around, and if you're talented, you can tap into a service like Konsus and get work whenever you want," Thomassen said.
By cutting down on the time freelancers spend having to search, they can do work that's fitted to their skill set around the clock and increase profits just based on volume alone.
"Whether you're a single mom in the Philippines or a failed writer in Scandinavia living in the mountains, you can just open up your computer at any moment to start working on what you're good at and get paid the value of that product," Rasch said. "We think that kind of flexibility for those that want is better, and that's the future of work."