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Why optimism might be killing you as a founder

Vladimir Budejicky | Budejicky Management Consultancy


Founders are optimistic by nature. Nothing wrong with that. However, the same optimism is often the reason why founders seem to close their eyes for unfavourable performance indicators or good advice. A recent study shows that some very simple metrics can help to steer clear from disaster.

(Fake) Optimism

Chances are, when you ask a start-up founder how his business is doing, his or her response is going to be: “Great!” In fact, you’ll have a hard time finding one who says: “We’re being crushed on [some problem] and frankly, no, things are not great”.

A start-up is the culmination of the dreams and hopes of a founder. It is a baby that has to be nurtured and nursed to the dimensions envisioned by the founder. Founders are optimists, and to make matters worse, quite often they feel compelled to paint a nicer picture than what really is happening. Sugar-coating it. Because nobody wants to be the one founder in trouble. Well, trust me, you are not alone.

The thing is, there is always some minute, unimportant but apparently positive event to report. For example: (a) we have a new door mat, (b) we started ordering lunch from A instead of B, or (c) I stopped by a really cool place to look at new office space.

Next, we have the events that never actually took place, only in the imagination of the founder – or so one would hope. Here goes: (a) we are talking to investors, closing a huge loan, (b) I had a meeting with [important company] and they will implement our platform, (c) blablabla.

Then, of course there are those founders who “partner” a lot. Do yourself and me a favor and run away as fast as you can, even if it means jumping through windows. Simply put, “partnering” is useless 99% of the time. Don’t bet on the 1%. Give me a quick call to find out what really is important; we’ll be done in under a minute. I promise.

All these futilities lure founders in to thinking they are making progress of some sort. As an extra malus, it prohibits you to obtain useful feed-back or advice.

Revenue

All right, all kidding aside now. We already knew that a successful start-up is a rarity. Most of them fail pretty quickly, despite the positive words of the founders.

A recent cohort analysis among SaaS start-ups revealed that the average MRR (Monthly Recurring Revenue) is USD 19000. It would be easy to be disrespectful of this number. One never knows what the actual situation in the company is. For a founder working alone and part-time, while in a second job, this may be simply great.

Here is the problem: the same cohort analysis also showed that the average team size for the same SaaS start-ups was 12. Nineteen thousand dollar and a head count of 12.

A short word of caution though. Without really knowing the populations that were studied in the analysis, it is still a little tricky what the numbers exactly mean. However, this should hardly be any relief: if you assume you are one of those founders, by statistics, the odds are pretty good that that’s the situation you are in.

Since many start-ups are some kind of SaaS or “something else as a service”, it is safe to say these numbers can be extrapolated to the whole start-up family.

Churn

As a bonus, another statistic emerged from the SaaS start-up analysis: the AUC (Average User Churn) per month is 7.7%.

And, again, taken at face value, the percentage actually looks just fine (low). But if you look a little bit better, it means no more and no less than that at the end of the year, you lost all your paying customers.

So, to report some growth to your investors (assuming you have investors) you’ll have to re-acquire ALL of your customers, AND then the ones you will call growth.

Something is really, terribly wrong if those numbers don’t change for the long term. The market is simply not large enough to sustain such churn percentages. In that case, you should take this as proof that you have not reached product-market-fit.

Unfortunately, both phenomena (low revenue/head ratio and high churn) are omnipresent among start-ups.

Back to square #1. Back to product-market-fit. Moreover, stop faking success, start taking advice in to consideration.

The May 2017 NYC Venture Capital and Early Stage Funding Report

Reza Chowdhury | AlleyWatch


Today, Reza takes a look at the state of venture capital and angel funding during the month of May, both in New York and nationally.

Analyzing some publicly available data from our friends at CrunchBase, we break down the national aggregate statistics for all funding deals by stage of funding (Angel/Seed, Series A, Series B, and Series C+).

To focus on tech-enabled startups, biotechnology companies were excluded from the data set.

One Minute Takeaway

Funding was extremely strong for NYC startups during the month of May, posting a 67% increase in funding from April levels as total funding for the month exceeded $916M.

Late stage funding drove the increase with impressive rounds for Peloton, Kobalt, Spring among others. As a result NYC accounted for over 25% of late stage funding nationally.

Nationally, funding was up close to 8% overall with increases across all stages with the exception of the late stage where funding was down slightly.

Series A rounds nationally surged as a result of the unusually large financing for Outcome Health.

Continue reading …


Source: The May 2017 NYC Venture Capital and Early Stage Funding Report

Tech’s Backyard: The Most Well-Funded Bay Area Tech Startups By City In One Map

William Altman | CBInsights


The Bay Area, a collection of cities stretching from the area around San Rafael, in the North, to Los Gatos, down South, is home to the world’s most valuable private companies.

Startups like Uber, in San Francisco, and Palantir Technologies, in Palo Alto, are in fact the most valuable and the fifth most valuable private companies in the world, respectively.

However, at least 49 other cities in the Bay Area, are home to a number of well-funded VC-backed tech startups.

On the high end of the funding spectrum, startups such as the cybersecurity company Tanium, in Emeryville, and big data firm MarkLogic, in San Carlos, have raised over $100M in equity funding and are each valued at over $1B.

In fact, of the Bay Area cities included in our analysis below, seven are home to unicorn companies valued at $1B+, all tracked on CB Insights’ real time unicorn tracker.

Unicorns featured in our map include the aforementioned four companies, as well as: autotech startup Zoox, located in Menlo Park, online career information portal Glassdoor, in Mill Valley, and the quote-to-cash software company Apttus, in San Mateo.

Continue reading …


Source: Tech’s Backyard: The Most Well-Funded Bay Area Tech Startups By City In One Map

 

#NYCtech Week in Review

AlleyWatch | AlleyWatch


Another busy week in NYC tech with a number of fundings and an IPO filing. Find out what you missed.

With so much going on in the city’s thriving ecosystem, it is easy to miss some of the happenings in the space.

We keep you abreast of a few of things that you may have missed in NYC Tech News this week including the fundings, exits, and events.

Continue reading …


Source: #NYCtech Week in Review

Steve Case: 47 states have to fight for 25 percent of venture capital dollars

Tess Townsend | Recode


There’s a reason some feel left behind.

Venture capital funding doesn’t stretch very far — geographically, that is.

California, Massachusetts and New York drew 75 percent of venture capital last year, Revolution CEO Steve Case told Walt Mossberg Thursday at the Code Conference in Rancho Palos Verdes, California.

That left 47 states to fight over the remaining quarter of funds, he said. And the division was similar if you looked at how VC funding was split between states that went for Hillary Clinton versus Donald Trump in the 2016 election.

“So this feeling people have of being left out and left behind, it’s because they have been left out and left behind,” said Case, who before heading up Revolution was co-founder and CEO of AOL.

Where that funding goes matters because startups are a core driver of economic growth, according to Case, who now heads up investment firm Revolution.

While gains in the small-business sector and among Fortune 500 companies tend to be offset by losses in those areas, startups have a net positive impact on job growth, he said.

The AOL founder also said he’s seeing a reversal of a brain drain to cities on the coasts, as smart people who left states like Arizona, Tennessee and Pennsylvania return to build up the economies they grew up in.

Here’s an excerpt:

“Right now most of the venture capital, 75 percent last year, goes to three states: California, New York, Massachusetts. So 47 states fight over 25 percent.

If you look at this last election, and part of the reason Donald Trump is president, [there] is a sense out there that a lot of people feel left out and left behind.

If you look at the states that he won versus Hillary Clinton won — the states that she won, 85 percent of venture capital went to. The states he won, 30 states in aggregate, 15 percent of venture capital went to.

So this feeling people have of being left out and left behind, it’s because they have been left out and left behind.”

Continue reading …


Source: Steve Case: 47 states have to fight for 25 percent of venture capital dollars – Recode

The United States Of Venture Capital: The Most Active VC In Each State

Ben Waxman | CBInsights


Our map shows the top VC into each US state, determined by number of tech companies they’ve funded there. The VCs on the map include Andreessen Horowitz, Foundry Group, and Bessemer Venture Partners.

Although startups based in California, New York, and Massachusetts have traditionally accounted for the majority of VC tech investment activity in the United States, VCs are spurring other hotbeds of innovation across the country.

With this in mind, we used CB Insights data to analyze the most active venture capital firm, by the number of investments into tech startups, in each US state from 2012 to 2017 year-to-date (through 5/17/17).

We based our selection on investments into unique tech companies in each state (not counting multiple rounds to the same company). We excluded debt deals, and only considered venture capital, corporate venture capital, super angel, and growth equity firms.

When there was a tie across multiple VCs in one state, we used recency of deals, overall deal activity, and investor quality to select the most active tech startup investor for that state.

Continue reading …


Source: The United States Of Venture Capital: The Most Active VC In Each State

This new sentiment index aims to help founders time their fundraising

Connie Loizos


A new index aims to help consumer-oriented startup founders understand the health of the venture capital fundraising environment; specifically, when is a good time to seek funding — and when isn’t.

How does it work?

Created by the early-stage venture firm Goodwater Capital, the index starts by analyzing a trove of publicly available information, from the aggregate dollars raised by U.S.-based consumer tech startups during the current month, to related monthly M&A activity, to the amount of money VCs have raised in the previous year, to the amount of money they’ve invested in startups over the previous quarter.

It also factors in the median price-to-earnings ratio of top public U.S. consumer tech companies during the current month.

Not each is weighted equally, says the firm’s lead data scientist, Jimmy Li. Instead, the firm factored in historical sentiment over the last 20 years, creating a regression analysis using those five buckets to understand which variables matter the most over time.

“It’s no one thing,”

says Li.

“In fact, the thing that most people see — deal volume — is a lagging indicator, not a leading indicator.”

Continue reading …


Source: This new sentiment index aims to help founders time their fundraising | TechCrunch