entrepreneurship
Auto Added by WPeMatico
5 questions about 2021’s startup market
Welcome to 2021, a year that could extend 2020’s startup market disruptions and excesses — or change patterns that previously performed well for early-stage tech companies and their investors.
The Exchange explores startups, markets and money. Read it every morning on Extra Crunch, or get The Exchange newsletter every Saturday.
As we turn the page, I have a number of questions worth raising as we muck into 2021.
Each relates to a 2020 change that is expected to persist, by either the general market or those bullish on startups. I want to know what would need to change to shake up what became the new normal last year. After all, it’s precisely when it feels like nothing could shake up a downturn (or a boom) that things often do.
Today, let’s discuss seed deals, venture investing cadence, the resulting valuation pressures from rapid-fire bets, current IPO expectations and what happens to software sales when remote work begins to fade.
1. How long can seed deal-making stay hot?
As 2020 came to a close, Natasha Mascarenhas and I reported on seed investing’s strong year and its especially strong second half. How long can that pace keep up?
Nearly all our questions today deal with the endurance of certain conditions, namely: how long the market can keep parts of startup land red-hot.
When it comes to seed deal-making, Q1 and Q2 2020 saw similar levels of investment in the United States. But Q3 proved explosive, with money invested into domestic seed deals rising from around $1.5 to $1.6 billion during the first two quarters to $2.2 billion in the July-September period.
Q4 numbers are yet to fully come in, but it’s clear that private investors were incredibly bullish on early-stage startups in the second half of 2020. How long can that keep up? I think the answer is for a while yet, as investors have shown scant enthusiasm for slowing down their dealmaking cadence.
While cadence remains hot generally, seed deals should stay heated as the number of investors who are willing to invest early has increased.
Which brings us to our second question:
2. How long can investors keep writing such quick checks?
A theme that cropped up in the second half of 2020 was the pace at which investors were conducting venture capital deals. This was for a few reasons. To start, venture capitalists have raised larger funds in recent years, meaning that they need larger returns to make the math work out. This led to many investors putting money to work in younger and younger companies, hoping to get in early on a big win. That setup led to more deal competition and faster deal-making.
How? Two things. Investors who were already on a startup’s cap table — already part-owners, in other words — led preemptive rounds, in part to get ahead of other investors who might want to poach the succeeding deal. Other investors, knowing this, seemed to do the same math and move even faster, and earlier, to get around the defense.
So how long can the trend keep up? Given that many big VC firms raised in 2020, many startups picked up some tailwinds from the COVID-19 economy and exits have been strong, forever? Until something stops things? Think of it as Newton’s First Law of startup investing.
What could be the sudden impact to shake up the current set of conditions boosting the pace at which seed and later deals occur? An asteroid strike is probably too extreme, but inertia is one hell of a drug and markets love to stay happy.
Moving along, all the competition to get money to work in hot startups now has had another effect than the mere speed of deal-making; it has also pushed prices higher.
Powered by WPeMatico
Extra Crunch’s top 10 stories of 2020
I edited hundreds of stories in 2020, so choosing my favorites would be an exercise in futility.
Instead, I’ve tried to gather a sample of Extra Crunch stories that taught me something new. (Which means this top 10 list betrays my ignorance, a humbling admission for a know-it-all like myself.)
While narrowing down the field of candidates, I realized that we’re covering each of the topics on this list in greater depth next year. We already have stories in the works about no-code software, the emergence of edtech, proptech and B2B marketplaces, to name just a few.
Some readers are skeptical about paywalls, but without being boastful, Extra Crunch is a premium product, just like Netflix or Disney+. I know: We’re not as entertaining as a historical drama about the reign of Queen Elizabeth II or a space western about a bounty hunter.
But, speaking as someone who’s worked at several startups, Extra Crunch stories contain actionable information you can use to build a company and/or look smart in meetings — and that’s worth something.
Thanks for reading, and I hope you have a very happy new year.
Full Extra Crunch articles are only available to members
Use discount code ECFriday to save 20% off a one- or two-year subscription
1. The VCs who founders love the most
Image Credits: Bryce Durbin/TechCrunch
Managing Editor Danny Crichton spearheaded the development of The TechCrunch List earlier this year to help seed-stage founders connect with VCs who write first checks.
The TechCrunch List has no paywall and contains details and recommendations about more than 400 investors across 22 verticals. Once it launched, Danny crunched the data to pick out 11 investors for which “founders were particularly effusive in their praise.”
2. API startups are so hot right now
Image Credits: Juana Mari Moya(opens in a new window)/Getty Images (Image has been modified)
Alex Wilhelm uses his weekday column The Exchange to keep a close eye on “private companies, public markets and the gray space in between,” but one effort stood out: An overview of six API-based startups that were “raising capital in rapid-fire fashion” when many companies were trying to find their COVID-19 footing.
For me, this was particularly interesting because it helped me better understand that an optimal pricing structure can be key to a SaaS company’s initial success.
3. ‘No code’ will define the next generation of software
4. Tracking the growth of low-code/no-code startups
Image Credits: Richard Drury(opens in a new window)/Getty Images
Two stories about the advent of no-code/low-code software that we ran in July take the third and fourth position on this list.
I have been a no-code user for some time: Using Zapier to send automated invitations via Slack for group lunches was a real time-saver in the pre-pandemic days.
“Enterprise expenditure on custom software is on track to double from $250 billion in 2015 to $500 billion in 2020,” so we’ll definitely be diving deeper into this topic in the coming months.
5. ‘Edtech is no longer optional’: Investors’ deep dive into the future of the market
Image Credits: PM Images(opens in a new window)/Getty Images
Natasha Mascarenhas picked up TechCrunch’s edtech beat when she joined us just before the pandemic. Twelve months later, she’s an expert on the topic.
In July, she surveyed six edtech investors to “get into the macro-impact of rapid change on edtech as a whole.”
- Ian Chiu, Owl Ventures
- Shauntel Garvey and Jennifer Carolan, Reach Capital
- Jan Lynn-Matern, Emerge Education
- David Eichler, TCV
- Jomayra Hererra, Cowboy Ventures
6. B2B marketplaces will be the next billion-dollar e-commerce startups
Image Credits: Kmatta(opens in a new window)/Getty Images
In 2018, B2B marketplaces saw an estimated $680 billion in sales, but that figure is expected to reach $3.6 trillion by 2024.
As companies shifted their purchasing online, these platforms are adding a range of complementary services like payment management, targeted advertising and logistics while also hardening their infrastructure.
7. Facebook’s former PR chief explains why no one is paying attention to your startup
Caryn Marooney, right, vice president of technology communications at Facebook, poses for a picture on the red carpet for the 6th annual 2018 Breakthrough Prizes at Moffett Federal Airfield, Hangar One in Mountain View, Calif., on Sunday, Dec. 3, 2017. Image Credits: Nhat V. Meyer/Bay Area News Group
Reporter Lucas Matney spoke to Caryn Marooney in August at TechCrunch Early Stage about how startup founders who hope to expand their reach need to do a better job of connecting with journalists.
“People just fundamentally aren’t walking around caring about this new startup,” she said. “Actually, nobody does.”
Speaking as someone who’s been on both sides of this equation, I most appreciated her advice about focusing on “simplicity and staying consistent” when it comes to messaging.
“Don’t let the complexity of your intellect cloud what needs to be simple,” she said.
8. You need a minimum viable company, not a minimum viable product
Image Credits: alvarez(opens in a new window)/Getty Images
In a guest post for Extra Crunch, seed-stage VC Ann Miura-Ko shared some of what she’s learned about “the magic of product-market fit,” which she termed “the defining quality of an early-stage startup.”
According to Miura-Ko, a co-founding partner at Floodgate, startups can only reach this stage when their business model, value propositions and ecosystem are in balance.
Using lessons learned from her portfolio companies like Lyft, Refinery29 and Twitch, this article should be required reading for every founder. As one commenter posted, “I read this thinking, ‘I need to add some slides to my deck!’”
9. 6 investment trends that could emerge from the COVID-19 pandemic
10 January 2020, Berlin: Doctor Olaf Göing, chief physician of the clinic for internal medicine at the Sana Klinikum Lichtenberg, tests mixed-reality 3D glasses for use in cardiology. They can thus access their patients’ medical data and visualize the finest structures for diagnostics and operation planning by hand and speech. The Sana Clinic is, according to its own statements, the first hospital in the world to use this novel technology in cardiology. Image Credits: Jens Kalaene/picture alliance via Getty Images
During “the early innings of this period of uncertainty,” an article we published offered several predictions about investor behavior in the U.S.
Although we posted this in April, each of these forecasts seem spot-on:
- Future of work: promoting intimacy and trust.
- Healthcare IT: telemedicine and remote patient monitoring.
- Robotics and supply chain.
- Cybersecurity.
- Education = knowledge transfer + social + signaling.
- Fintech.
10. Construction tech startups are poised to shake up a $1.3-trillion-dollar industry
Image Credits: Steve Proehl(opens in a new window)/Getty Images
I’ve always found the concept of total addressable market (TAM) hard to embrace fully — the arrival of a single disruptive company could change an industry’s TAM in a week.
However, several factors are combining to transform the construction industry: high fragmentation, poor communication, a skilled labor shortage and a lack of data transparency.
Startups that help builders manage aspects like pre-construction, workflow and site visualization are making huge strides, but because “construction firms spend less than 2% of annual sales volume on IT,” the size of this TAM is not at all speculative.
11. Don’t let VCs be the gatekeepers of your success
Image Credits: PM Images(opens in a new window)/Getty Images
As a bonus, I’m including a TechCrunch op-ed written by insurtech founder Kevin Henderson that describes the myriad challenges he has faced as a Black entrepreneur in Silicon Valley.
Some of the discussions about the lack of diversity in tech can feel abstract, but his post describes its concrete consequences. For starters: he’s never had an opportunity to pitch at a VC firm where there was another Black person in the room.
“Black founders have a better chance playing pro sports than they do landing venture investments,” says Henderson.
Powered by WPeMatico
4 keys to international expansion
During my five years with Global Founders Capital, Rocket Internet’s $1 billion VC arm, I saw more than a hundred of Rocket’s incubated companies attempt to internationalize. For background, Rocket Internet has helped launch some very successful businesses internationally, including HelloFresh ($12.9 billion market cap), Lazada ($1 billion exit to Alibaba), Jumia ($3.2 billion market cap), Zalando ($21.2 billion market cap) and many others. Rocket often followed the Blitzscaling model popularized by Reid Hoffman — earning them an appearance in his book of the same name.
After an initial success helping Groupon scale internationally via a merger with Rocket’s incubation firm CityDeal, Rocket’s team have aggressively scaled businesses from Algeria to Zimbabwe — sometimes in a matter of weeks. No surprise, Rocket also has a graveyard of failed companies that were victims of bad internationalization efforts.
Many companies make the costly mistake of launching abroad too soon.
My personal observations on Rocket’s successes and failures start with this crucial point: These learnings might not apply to your unique combination business model, market and timing. No matter how well you prepare and plan your internationalization, in the end you need to be agile, alert and smart as you dip your toes into your first foreign market.
Fail fast and cheaply
Internationalization can be a big driver of growth and consequently enterprise value, which is why investors always push for it. But going abroad can also destroy value just as quickly. As a founder, it’s your job to manage financial and operational risks. Finding the right balance between keeping costs in check and not underinvesting can mean doing things more slowly than your board would like. For example, you might launch new markets sequentially instead of rolling 10 out at the same time.
Adopt a “hire slow, fire fast” mentality for your expansion strategy. Don’t be afraid to pull the plug if things don’t work out.
Our team at Heartcore Capital use the following framework and learnings to guide internationalization strategies for our portfolio companies. A successful internationalization strategy needs to answer and address the “Four Ws”: When, Where, Which and With whom to internationalize. (Regarding the fifth W from journalism, you should not need to ask the “Why” question if you want to build a large business!)
1. When is the right time to start?
Many companies make the costly mistake of launching abroad too soon. They look at internationalization as a detached function, isolated from the rest of the business and then launch their second market prematurely. Follow this simple rule: Wait to internationalize until you hit product/market fit.
How do you know exactly when you’ve reached product/market fit? According to Marc Andreessen, “Product/market fit means being in a good market with a product that can satisfy that market.” He adds that experienced entrepreneurs can usually feel if they’ve reached this point.
Let’s take the man for his word and move on to the actual argument: Until you have product/market fit, you will not be able to distinguish between what you’ve learned from your business model and what you’ve learned from your in-country experience. Mistakes will compound. Complexities and costs will multiply. I contend that insufficient understanding of their business and operating model is the main reason why companies fail with their expansion strategies.
Founders should also consider the underlying costs of internationalizing before they decide to expand (more about this in the “What” section below). Some companies are global by default — think mobile gaming companies — or simply require language localization. Others need to build new warehouses, hire local teams or build entirely new products. The costs and respective risks of expanding prematurely depend heavily on the business model.
There are edge cases where companies need to move quickly to internationalize for strategic reasons — despite uncertainty about their market fit. For instance, companies like Groupon or those engaged in food delivery face winner-takes-most markets, where opportunities for product differentiation are limited. “Blitzscaling” makes sense in cases like these.
However, you should tread carefully if your only reason to start scaling abroad is a large fundraise or to match a competitor’s internationalization efforts. Scaling prematurely for the wrong reasons might just cost you your entire company.
When Rocket Internet announced it would launch the Homejoy model into European markets with Helpling, the American “original” company launched quickly in Germany in an effort to squash their new competitor. In the early days of “on-demand everything,” a managed marketplace for cleaning services sounded like the next unicorn in the making.
In 2013, Homejoy had a fresh $24 million Series A from Google Ventures and First Round — considered a huge round at a time when Instacart had just raised an $8 million Series A and Snapchat had done a $13 million Series A round. It must have seemed like a good idea to squash the German competition early.
As it turned out, Homejoy’s product was not yet ready to scale internationally. Just 13 months after launching in Germany, Homejoy had to cease operations globally, while Rocket’s Helpling is still alive and kicking. Helpling focused carefully on product, automation and making their unit economics work. A rush to crush an international competitor caused the demise of a would-be unicorn.
Homejoy expanded internationally in 2014 in a rush to squash a new German competitor Helpling. Their websites in 2020 show starkly different outcomes. Image Credits: Homejoy/Helpling
2. Where should you internationalize?
When deciding which new international market to tackle, it is vital to do your homework. Analyze the competitive environment, partner availability, infrastructure, culture, regulation and synergies with your home market.
In the early days of e-commerce, it was rather easy to analyze if a market was an expansion target. In the absence of professional competition, Rocket chose new countries based solely on GDP and internet penetration.
Powered by WPeMatico
Extra Crunch roundup: ‘Nightmare’ security breach, Poshmark’s IPO, crypto boom, more
The rest of the world may be slowing down as we prepare for Christmas and the new year, but we are not taking our foot off the gas.
Alex Wilhelm keeps a close watch on the public markets in his column The Exchange, but this week, he branched out to look at some of the metrics underpinning soaring cryptocurrency prices and turned his gaze on StockX, the consumer reseller marketplace that just raised $275 million in a Series E that values the company at approximately $2.8 billion.
“Selling a tenth of your company for north of a quarter-billion may be somewhat common among late-stage software startups with tremendous growth,” he says, but “don’t laugh — the round actually makes pretty OK sense.”
Our staff continues to file their end-of-year stories: We ran a post this morning by Manish Singh that studies India’s massive total addressable market for retail. The nation has more than 60 million mom-and-pop neighborhood stores, and companies like Walmart and Amazon are eager to offer help with payments, logistics and inventory management — as are hundreds of native and foreign startups.
In an interview with author and MIT professor Sinan Aral, Managing Editor Danny Crichton discussed some of the debates currently swirling around the desire in some quarters to regulate social media platforms. In “The Hype Machine,” Aral explores topics like neuroscience, economics and misinformation before offering potential solutions for resolving what he calls “a full-blown social media crisis.”
The stories that follow are an overview of Extra Crunch from the last five days. Complete articles are only available to members, but you can use discount code ECFriday to save 20% off a one or two-year subscription. Details here.
Thank you very much for reading Extra Crunch this week; I hope you have a safe, relaxing weekend!
Walter Thompson
Senior Editor, TechCrunch
@yourprotagonist
Unpacking Poshmark’s IPO filing
Image Credits: Nigel Sussman (opens in a new window)
How did fashion marketplace Poshmark go from posting regular losses in 2019 to generating net income in 2020?
After the company filed a public S-1 last night, Alex Wilhelm pondered the question this morning in The Exchange.
Like many e-commerce platforms, Poshmark saw a surge in activity during the COVID-19 pandemic, but it also slashed its marketing spend, which helped boost profits. As the cash-rich company prepares its road show, “Poshmark is valuable,” Alex concluded.
“How valuable the market will decide. But who will it enrich with its final pricing decision?”
Just how bad is that hack that hit US government agencies?
WASHINGTON, D.C. – APRIL 22, 2018: A statue of Albert Gallatin, a former U.S. Secretary of the Treasury, stands in front of The Treasury Building in Washington, D.C. The National Historic Landmark building is the headquarters of the United States Department of the Treasury. (Photo by Robert Alexander/Getty Images)
The breach of FireEye and SolarWinds by hackers working on behalf of Russian intelligence is “the nightmare scenario that has worried cybersecurity experts for years,” reports Zack Whittaker.
The intrusion began several months ago, but news of the breach wasn’t made public until this week.
“Given that potential victims include defense contractors, telecoms, banks, and tech companies, the implications for critical infrastructure and national security, although untold at this point, could be significant,” said Erin Kenneally, director of cyber risk analytics at Guidewire, an industry platform for insurance carriers.
In his analysis for Extra Crunch, Zack breaks down the rippling effects of supply-chain attacks that can compromise platforms like SolarWinds, which is used by more than 420 of the Fortune 500.
From startups to Starbucks: The embedded API opportunity
Image Credits: dowell (opens in a new window) / Getty Images
Embedded finance connects services like payment processing with everyday activities like grabbing a coffee before unlocking an e-scooter.
“The ability to be at the right place at the right time, supporting consumers and merchants alike, where they want it, how they want it and when they want it — cannot be understated,” says Simon Wu, an investment director with Cathay Innovation.
In a post that identifies embedded finance’s top providers and enablers, he offers advice for startups and established brands that are hoping to “earn and build customer loyalty while generating new revenue streams.”
Is rising usage driving crypto’s recent price boom?
Image Credits: Nigel Sussman (opens in a new window)
Bitcoin is at an all-time high.
CoinMarketCap reports that crypto market values have reached almost $659 billion; that figure was just $140 billion in March 2020.
“These gains have created a huge amount of wealth for crypto holders,” Alex Wilhelm wrote yesterday.
To get a better handle on why crypto values are sky-bound, he parsed some basic industry metrics, including the number of unique bitcoin addresses, fees paid and transactions per day.
“Do the price gains make sense in the short term? Who knows,” he wrote, “but they are not based on nothing.”
2020 was a disaster, but the pandemic put security in the spotlight
Stage Light on Black. Image Credits: Fotograzia / Getty Images
For his year-end Extra Crunch story, security reporter Zack Whittaker looked back at the myriad security challenges and vulnerabilities COVID-19 brought to the fore.
The hacks of Fire Eyes and SolarWinds were just one link in the chain: How well is your company prepared to deal with file-encrypting malware, hackers backed by nation-states or employees accessing secure systems from home?
“With 2020 wrapping up, much of the security headaches exposed by the pandemic will linger into the new year,” says Zack.
Inside Zoox’s six-year ride from prototype to product
Zoox Fully Autonomous, All-electric Robotaxi. Image Credits: Zoox
After six years of research and development, autonomous vehicle company Zoox this week unveiled an electric robotaxi that can carry four people at a maximum speed of 75 miles per hour.
Automotive writer Kirsten Korosec interviewed Zoox co-founder and CTO Jesse Levinson to learn more about the vehicle’s development and how the company overcame a series of technical and legal challenges.
“I would say that if you have a big idea and you’re confident that it makes sense, you should at least explore the idea, rather than giving up because the current regulations aren’t designed for it,” said Levinson.
Kirsten only had 15 minutes to interview Levinson, but this comprehensive interview covers topics like regulatory compliance, Zoox’s relationship with parent company Amazon and the highest (and lowest) moments he experienced along the way.
Pluralsight $3.5B deal signals a matured edtech market
Fairy dust flying in gold light rays. Computer-generated abstract raster illustration. Image Credits: gonin / Wikimedia Commons
In one of the largest enterprise acquisitions of 2020, Visa Equity Partners this week purchased Utah-based edtech startup Pluralsight for $3.5 billion.
According to the entrepreneurs and investors reporter Natasha Mascarenhas spoke to, this deal “shows the strength of edtech’s capital options as the pandemic continues.”
“What’s happening in edtech is that capital markets are liquidating,” a major change from “the old days where the options to exit were very narrow,” says Deborah Quazzo, a managing partner at GSV Advisors and seed investor in Pluralsight.
Dear Sophie: How did immigration change for startup founders in 2020?
Image Credits: Sophie Alcorn
Dear Sophie:
I’m on an F1 OPT and am about to incorporate a startup with my two American co-founders.
What were the biggest immigration changes in 2020 affecting us?
—Ambitious in Albany
How to pick an investor in good or bad times
High angle view of young man walking towards white doorways on blue background Image Credits: Klaus Vedfelt / Getty Images
Founders and the VCs who back them may not be friends, but they’re usually friendly.
Investors are on a first-name basis with entrepreneurs from their portfolio companies and frequently have candid conversations with them about life, work and the world in general. In the before times, they might even have shared a meal or attended a baseball game together.
But make no mistake, it is a top-down relationship — the investor will always have the upper hand. When an entrepreneur accepts a check, they are hiring their next boss.
In an Extra Crunch guest post, Quiq CEO and founder Mike Myer poses two questions for founders who are considering a new relationship with a VC:
- How can the investor help the business?
- What’s the risk that the investor will hurt the business?
From India’s richest man to Amazon and 100s of startups: The great rush to win neighborhood stores
NEW DELHI, INDIA – 2011/12/18: Rice is sold at a night market in Paharganj, the urban suburb opposite New Delhi Railway Station. (Photo by Frank Bienewald/LightRocket via Getty Images)
In India, about 90% of consumers buy their everyday goods from neighborhood-based kirana stores instead of supermarkets.
As a result, U.S. retail giants like Walmart and Amazon have adopted an “if you can’t beat them, join them” approach, offering the nation’s 60 million mom-and-pop shops software for inventory control, payments and e-commerce.
India’s retail market will be worth an estimated $1.3 trillion by 2025, but e-commerce represents just 3% of that activity today, reports Manish Singh.
For his final Extra Crunch story of 2020, he looked at the startups and major players who are hoping to carve out their niche in one of the world’s largest retail ecosystems.
ClickUp CEO talks hiring, raising and scaling in the white-hot productivity space
Image Credits: PM Images / Getty Images
Earlier this year, business productivity software startup ClickUp raised a $35 million Series A.
Now, just six months later, the company has closed a second round of $100 million that values the San Diego-based startup at $1 billion.
Lucas Matney interviewed CEO Zeb Evans this week to learn more about how the company was buoyed by pandemic-based behavior shifts that doubled its customer base and multiplied revenue by a factor of nine.
“I think that the biggest thing that we’ve always focused on is shipping a new version of ClickUp every week. That is our differentiation,” he said. “We’ve kind of created these iterative cycles called natural product-market fit and it’s been hard to keep up with that.”
2020’s top 10 enterprise M&A deals totaled a staggering $165B
Multi Colored Bling Bling Dollar Sign Shape Bokeh Backdrop on Dark Background, Finance Concept. Image Credits: MirageC / Getty Images.
In 2018, the total value of the year’s 10 top enterprise mergers and acquisitions reached $87 billion; last year, that figure fell to just $40 billion.
But in 2020, 10 M&A deals accounted for $165.2 billion.
“Last year’s biggest deal — Salesforce buying Tableau for $15.7 billion — would have only been good for fifth place on this year’s list,” notes enterprise reporter Ron Miller. “And last year’s fourth largest deal, where VMware bought Pivotal for $2.7 billion, wouldn’t have even made this year’s list at all.”
Powered by WPeMatico
How to pick an investor in good or bad times
In 20 years of working for startups, I’ve never seen as many plot twists and turns as I have in the last several months. Times are tough.
But, from the perspective of raising capital, 2020 has not been an awful time to be a startup founder. The world has changed, but the fundamentals of raising capital are the same. In the first half of the year, VCs invested $129 billion, and Q3 is up 9% year-over-year, reports Crunchbase.
After the screeching halt to business in April subsided, founders and investors, people who are generally comfortable with uncertainty, got back to work raising and investing.
Choosing the right VC is one of the most important decisions startup founders will make. In good times, the choice can make or break a startup. When times are bad, it’s even more likely that the wrong VC partner could be the catalyst that starts a downward spiral. With many funds still looking to make investments before the end of the year and startups jockeying for cash, founders need to know how to find the right investor.
With many funds still looking to make investments before the end of the year and startups jockeying for cash, founders need to know how to find the right investor.
It’s not about simply choosing an investor — you are hiring your next boss. The investor should be someone you feel comfortable working with and working for.
You don’t want an investor who is checked out, but too much focus isn’t good, either. And, you don’t want an investor who is completely agreeable since your best outcome will be driven by a constructively demanding advisor.
My company, Quiq, had several term sheets when the dust settled on our Series B pitch meetings. Since the financial terms were similar, selecting an investor was made on a more subjective basis and boiled down to two fundamental questions:
Powered by WPeMatico
General Catalyst’s Katherine Boyle and Peter Boyce are looking for ‘obsessive’ founders
General Catalyst has made early bets on some of the biggest companies in tech today, including Airbnb, Lemonade and Warby Parker.
We sat down with Katherine Boyle and Peter Boyce, who co-lead the firm’s seed-stage investments, to discuss what they look for in founders, which sectors they’re most excited about and how business has changed in the wake of the COVID-19 pandemic.
This conversation is part of our broader Extra Crunch Live series, where we sit down with VCs and founders to discuss startup core competencies and get advice. We’ve spoken to folks like Aileen Lee, Mark Cuban, Roelof Botha, Charles Hudson and many, others. You can browse the full library of episodes here.
Check out our full conversation with Boyce and Boyle in the YouTube video below, or skim the text for the highlights.
Which personality traits are most important in founders
Katherine Boyle: I look for what I would call this obsessive trait, where they are learning more about the regulatory complications, where they are constantly trying to figure out how to solve a problem.
I’d say that the common theme among the founders that I support are that they have this sort of obsessive gene or personality, where they will go deeper and deeper and deeper. When we invest in these companies, it becomes very clear that they often have sort of a contrarian view of the industry. Maybe they are not industry-native. They come at it from a different perspective of problem solving. They’ve had to defend that thesis for a very, very long time in front of a variety of different customers and different people. In some ways, that makes them much stronger in terms of the way they approach problems.
Peter Boyce: I think the first would be being magnetic for talent. It ends up influencing the speed of learning and development. Really incredible founding teams that can be magnetic for talent and learning just kind of spirals out of control in really good ways over time. I really look for the speed and the sources of learning. And can folks be really intentional? Can they get the right set of advisors and teammates around them?
The second would be the personal connection to the problem space. It’s like there’s this kind of deep-seated source of energy and fuel that actually isn’t going to run out. Catherine and I’ve been lucky to work across a number of different particular thematic areas, but the thing they have in common is just this personal connection to how and why their business needs to exist. Because I just think that that fuel doesn’t run out, you know what I mean? Like, that’s renewable.
On fundraising and building trust remotely
Boyle: If you’re someone who’s comfortable presenting on Zoom, making connections on Zoom, or using Signal and using Twitter and being very online, then I 100% think that you can make investments, build community and build connections through digital worlds and digital platforms. If you really like that in-person connectivity, then you might consider staying in a tech hub, or you might consider sort of these distanced walks until things go back to normal.
Powered by WPeMatico
What to expect while fundraising in 2021
At the end of 2019, no one would have predicted what an unpredictable and difficult year it has been for both startups and VCs in the fundraising world. Now we are staring down the end of 2020 and looking toward what we all hope is a better, safer 2021. What will this new year bring? With an end-of-year sprint to close deals, the anticipation of a new presidential administration and the hope of a COVID-19 vaccine on the horizon, startups and VCs know that change is on the horizon — but how much of that change will be positive?
As 2020 proved, no one can say for sure what 2021 will bring, but I’d like to put a few predictions on the table based on DocSend’s data and research, including the DocSend Startup Index, as well as some trends I’ve seen and my own experiences. These predictions center around how we’ll fundraise post-pandemic, how the funding divide may widen for some, what fundraising activity could look like into 2021, a few sectors we think will fare well and will incorporate some tips on how to succeed in the new year, no matter what comes our way.
We’ll interact through a mix of the old and the new
The pandemic forced all of us to drastically change how we work and interact with colleagues and clients. When the pandemic subsides and vaccines are widely available, in-person meetings and gathering back at the office will definitely resume, but it’s safe to say the old ways of networking and fundraising won’t shift back 100%. Founders and VCs alike have navigated the ups and downs of remote networking and fundraising interactions and will stick to what works and what doesn’t.
Is traveling to a conference the best way for a founder to have a chance at meeting the VC who is right to support their business? Will a VC want to drive an hour through Bay Area traffic for an in-person status update meeting on their latest investment? Zoom fatigue aside, video conference calls do have some benefits — efficiency, no travel time — although not all meetings are best conducted virtually.
No matter what 2021 has in store, founders can still take proactive steps to help them succeed in their fundraising efforts.
The extent to which businesses go in-person or stick to virtual meetings could depend directly on what round of fundraising they are working toward or have completed. Businesses in the pre-seed round might stick with more Zoom meetings in order to conserve resources.
Founders in the seed round will likely split between video and in-person meetings as they are under pressure to show traction in this round, as we found in our report on seed fundraising, yet will also need to conserve resources and time. For Series A, they might have to meet less in person because they have established relationships with their investors. Series B might see more in-person meetings as their business has reached a level of complexity that is difficult to communicate via a deck or video conference.
The funding divide may widen for those outside Silicon Valley
Powered by WPeMatico
TC Sessions: Space 2020 launches next week
TC Sessions: Space 2020, our first conference dedicated to galactic endeavors, launches in just one week (December 16-17). We can’t wait to host out-of-this-world experts, innovative agencies and the bold, boundary-breaking startups focused on building a future in space.
If you have not yet secured your seat on the space-race express, do so now while late-registration prices remain in play — prices go up December 15. You’ll also find discounts for groups, students and active military/government employees.
Ready to place your early-stage startup in orbit with industry movers and shakers — and pitch your startup to attendees during the event? Buy a Space Startup Exhibitor Pass. We even offer a super budget-friendly, expo-only pass for $25 (Note: This does not include networking, access to the main-stage programming or the free Extra Crunch membership).
Pro Tip: Not all virtual conferences are created equal. Michael McCarthy, the CEO of Repositax, found unexpected benefits:
The online experience was far more efficient than I anticipated, and the video on demand was a huge benefit. I could attend without disrupting my customer work by moving between the main stage and breakout presentations knowing I could catch anything I missed later.
The two-day event agenda practically vibrates with opportunity. Let’s look at just a few of the many sessions waiting for you:
- Fast Money Breakout Sessions: Learn about the different accelerators, incubators and grant programs available to help you fund and grow your startup. You’ll find six of these breakout sessions spanning the two days. Check the agenda for exact days and times and plan your schedule accordingly. Don’t miss out on this opportunity to find money, um, fast.
- Founders in Focus Series: TechCrunch editors will sit down and talk with four different founders poised to be the next big disruptors in the space industry. Don’t miss this four-part series with Araz Feyzi, co-founder of Kayhan Space; Will Edwards, CEO of Firehawk Aerospace; Pawan Chandana, co-founder of Skyroot; and Yotam Ariel, co-founder of Bluefield Technologies.
- Pitch Feedback Session: Join us for a pitch feedback session open to all startups exhibiting at TC Sessions: Space 2020 and moderated by TechCrunch staff.
This may be our first foray into space technology, but we’ve hosted many TC Sessions. Here’s what Karin Maake, senior director of communications at FlashParking, told us about her experience:
TC Sessions isn’t just an educational opportunity, it’s a real networking opportunity. Everyone was passionate and open to creating pilot programs or other partnerships. That was the most exciting part. And now — thanks to a conference connection — we’re talking with Goodyear’s Innovation Lab.
TC Sessions: Space 2020 runs from December 16-17. You have just one week left to buy your pass, join your global community of bold boundary breakers and move your space-based business forward.
Is your company interested in sponsoring TC Sessions: Space 2020? Click here to talk with us about available opportunities.
Powered by WPeMatico
Arthur.ai snags $15M Series A to grow machine learning monitoring tool
At a time when more companies are building machine learning models, Arthur.ai wants to help by ensuring the model accuracy doesn’t begin slipping over time, thereby losing its ability to precisely measure what it was supposed to. As demand for this type of tool has increased this year, in spite of the pandemic, the startup announced a $15 million Series A today.
The investment was led by Index Ventures with help from newcomers Acrew and Plexo Capital, along with previous investors Homebrew, AME Ventures and Work-Bench. The round comes almost exactly a year after its $3.3 million seed round.
As CEO and co-founder Adam Wenchel explains, data scientists build and test machine learning models in the lab under ideal conditions, but as these models are put into production, the performance can begin to deteriorate under real-world scrutiny. Arthur.ai is designed to root out when that happens.
Even as COVID has wreaked havoc throughout much of this year, the company has grown revenue 300% in the last six months smack dab in the middle of all that. “Over the course of 2020, we have begun to open up more and talk to [more] customers. And so we are starting to get some really nice initial customer traction, both in traditional enterprises as well as digital tech companies,” Wenchel told me. With 15 customers, the company is finding that the solution is resonating with companies.
It’s interesting to note that AWS announced a similar tool yesterday at re:Invent called SageMaker Clarify, but Wenchel sees this as more of a validation of what his startup has been trying to do, rather than an existential threat. “I think it helps create awareness, and because this is our 100% focus, our tools go well beyond what the major cloud providers provide,” he said.
Investor Mike Volpi from Index certainly sees the value proposition of this company. “One of the most critical aspects of the AI stack is in the area of performance monitoring and risk mitigation. Simply put, is the AI system behaving like it’s supposed to?” he wrote in a blog post announcing the funding.
When we spoke a year ago, the company had eight employees. Today it has 17 and it expects to double again by the end of next year. Wenchel says that as a company whose product looks for different types of bias, it’s especially important to have a diverse workforce. He says that starts with having a diverse investment team and board makeup, which he has been able to achieve, and goes from there.
“We’ve sponsored and work with groups that focus on both general sort of coding for different underrepresented groups as well as specifically AI, and that’s something that we’ll continue to do. And actually I think when we can get together for in-person events again, we will really go out there and support great organizations like AI for All and Black Girls Code,” he said. He believes that by working with these groups, it will give the startup a pipeline to underrepresented groups, which they can draw upon for hiring as the needs arise.
Wenchel says that when he can go back to the office, he wants to bring employees back, at least for part of the week for certain kinds of work that will benefit from being in the same space.
Powered by WPeMatico
Why does TechCrunch cover so many early-stage funding rounds?
Funding-round stories are TechCrunch’s bread and butter.
For early-stage companies, the fact that an investor has put thousands, millions (or billions) into an idea that will likely fail, and might never make money, is big news. That’s a story that we can tell every day.
From time to time, a debate pops up about the role of funding-round stories: Are financings the right metric to focus on? Should the trend be scratched and reinvented? After all, raising money is not indicative of making money. Let’s be real: news needs news to be published. There needs to be a tension, or a surprise, but most of all, a reason for the reader to keep reading.
It’s a healthy conversation, and one the Equity crew decided to discuss last Friday:
- Alex Wilhelm: Funding rounds are largely rose-tinted trade journalism, but they’re worth writing
- Danny Crichton: I hate funding announcements but write them anyway
- Natasha Mascarenhas: The stories are so much more than the dollar signs
Alex: Funding rounds are rose-tinted trade journalism, but they’re worth covering
It’s easy to mock funding-round coverage: There are far more rounds than hands to write them, so the coverage is inherently partial; they are a poor milestone to use as a benchmark for growth; and coverage of the startup in question nearly always has an overly positive tilt, given that the piece in question centers around something that is a win for the company.
Yet, I still think they are worth writing and try to get to a few each week.
There are good reasons for doing so that run counter to the obvious complaints. Sure, there are more rounds than we could ever cover, but in theory we’re filtering as best we can for the most interesting, the furthest outlying and the trend-elucidating rounds that we can use as a light to better illuminate how the broader startup and technology worlds are changing.
I think TechCrunch does a reasonable job of picking the right companies to cover and we spend a good amount of time aggregating discrete funding events into trends. It’s super-hard work, as covering a single round is time-consuming and ultimately not incredibly well-read.
And yes, funding rounds are not really milestones to celebrate. The startup isn’t suddenly destined to win. Capital just means that the venture class has increased its wager on the startup generating more wealth for themselves and their backers, whom are largely already rich.
But trying to lever any information from private companies is an exercise in sadistic dentistry, and startups tend to open up the most around funding rounds. So, if you want to chat with a CEO on the record for half an hour, the next time their startup raises is probably your best chance.
And there is signal in a venture round. Someone felt strongly enough about the company’s prospects to inject it with more capital, making a funding event a reasonable signal that something is going on at the company.
Then there’s the issue of positive bias. All publications have a bias. TechCrunch has many biases, the most important and salutary of which is that we think that startups are cool. We do! Quickly-growing, private companies are inherently interesting and I came back to this publication in part so that I could keep writing about them. I am never bored.
So, yes, funding-round coverage tends to be a bit more on the positive side of balanced than I would like, but I balance that by becoming increasingly orthodox as a startup scales. When a young company raises its first few million, the chat with the CEO is her telling me about her small team, first customers and fitful progress.
By the time she raises a $50 million Series C, we’re talking gross margin expansion, YoY ARR growth and diversity metrics. Before she takes her unicorn public, I’m asking pressing questions about GAAP results, the public markets and what sort of external offers are coming in for the whole concern.
Being slightly optimistic about startups when they’re young is, then, tempered by increasing scrutiny as the company grows. That seems like a fair balance for the company and our readers.
So I won’t stop covering funding rounds. Even if I didn’t have this job I probably still would for my personal blog. I always learn something from high-growth companies; they have a window into the market that is dynamic and far from ossified. And early-stage founders tend to not be overly media-trained, so they are still interesting.
And sometimes something you write winds up changing the direction of a startup. That’s always a very weird and disconcerting feeling. But as this impact is nearly always good for the company in question, you’ve only accidentally made the lives of others a bit better for a short while. It’s not so harsh a sentence.
Danny: I hate funding announcements but write them anyway
Covering startups is one of the hardest news beats out there (trust me, I’m unbiased — I cover startups for a living).
If you cover the Senate, you report regularly on 100 individuals, their staffs and interactions. If you cover banking, you watch a handful of banks since no one gives a flying rat’s tushy about the industry’s middle market. There’s generally a limited scope in political and general business reporting where you know the key players and the key newsmakers.
In startups, you cover … everything. There are a couple of hot sectors that everyone is talking about … and then there is every other sector that might be the next hot sector, but no one has ever heard of it. It’s probably not important. But it might just be. That startup you talked to this week sounds boring. Four years later, it sells for $20 billion. The startup world is constantly changing, and unless you blow up your whole worldview on a regular basis, you’ll never keep up.
Powered by WPeMatico