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For tech firms, the risk of not preparing for leadership changes is huge
Every week over the past three and a half years, an average of three CEOs have exited tech companies in the U.S. That tally is higher — in good times and bad — than in any of the other 26 for-profit sectors tracked by executive search firm Challenger, Gray & Christmas. You’d think tech companies should be the paradigm of how to prep for leadership transitions, since they operate in such a constant state of flux.
They’re far from it.
A change of command is one of the most delicate moments in the life cycle of any organization. If mishandled, the transition from one CEO to the next can result in a loss of market valuation, momentum and focus, as well as key personnel, customers and partners. It may even become that turning point when an organization begins to slide toward irrelevance.
With so much at stake, 84% of tech execs agree that succession planning is more important than ever because of today’s fast-changing business environment, according to our new survey of corporate America’s leaders. Seven out of 10 survey respondents agreed that tech companies face more scrutiny than other multinationals during a transition.
84% of tech execs agree that succession planning is more important than ever because of today’s fast-changing business environment.
Yet we found that tech execs appear just as unprepared for C-suite transitions as their peers in other sectors. Three out of five respondents said their companies don’t have a documented plan to handle a leadership change, even though, by that same ratio, they acknowledge that a documented plan is the biggest determinant in seamless transitions.
The findings may not be troubling if these respondents were millennial startup founders, years from leaving their companies. The executives we polled, however, hail from 160 companies that have been in business for a minimum of 15 years — 35 are tech companies, the largest industry cohort in the survey.
The smallest companies have at least 1,500 employees and $500 million in annual revenue, while the largest have head counts of over 500,000 and revenue upward of $100 billion. They have been around long enough to understand — and put into place — risk management and crisis planning, including what happens should their leaders fall victim to the proverbial milk truck.
Tech execs should be more rigorous about succession planning for one important reason: institutional memory. Tech firms generally are younger than other companies of a similar size, which partly explains why the median age of S&P 500 companies plunged to 33 years in 2018 from 85 years in 2000, according to McKinsey & Co.
These enterprises clearly have accomplished a lot in their short lives, but in their haste, most have not captured their history, unlike their longer-lived peers in other sectors. Less than half of these tech firms, in fact, have formally recorded their leader’s story for posterity. That puts them at a disadvantage when, inevitably, they will be required to onboard newcomers to their C-suites.
It’s best to record this history well before the intense swirl of a leadership transition begins. Crucially, it will help the incoming and future generations of leadership understand critical aspects of its track record, the lessons learned, culture and identity. It also explains why the organization has evolved as it has, what binds people together and what may trigger resistance based on previous experience. It’s as much about moving forward as looking back.
Most execs in our poll get it, with 85% saying a company’s history can be a playbook for new executives to learn and prepare for upcoming challenges and opportunities. “History is the mother of innovation for any type of company,” one respondent said. “History,” writes another, “includes the roadmap to failures as well as successes.”
But this documented history cannot be a hagiography of the departing CEO. Too often, outgoing execs spend their last years in office constructing their own trophy cases. Even as they conceded their own flat-footedness on transition planning, the majority of execs said they have already taken steps to create and reinforce their personal legacies — two-thirds said they have already completed their own formal legacy planning, many with the blessing of their boards.
It’s ironic, then, that three out of five also said that the legacy of a CEO or founder often overshadows the skill set and experience a successor brings. Two-thirds of tech execs believed that the longer a leader has been in office, the more it complicates a transition.
Tech leaders can do this right and have done so. Asked which five big-name CEO transitions was most successful, respondents’ No. 1 was Apple’s handoff from Steve Jobs to Tim Cook (38%), followed by Microsoft’s page-turn from Steve Ballmer to Satya Nadella (28%). The others, at General Electric, General Motors and Goldman Sachs, each netted no more than 13% of votes.
Apple’s apparent predominance in this survey might contradict the advice to play down the aggrandizement of an exiting CEO and highlight the compilation and transfer of an organization’s history to the next chief executive. Jobs, after all, painstakingly managed his legacy until the end. But even as he continued to take center-stage, he also made sure to pass along Apple’s institutional knowledge and ethos to Cook over the 13 years they shared space on Apple’s executive floor.
Sooner or later, everyone in the C-suite today — including startup founders — will depart. For the sake of everyone they’ll leave behind, they should begin prepping for that day now.
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Extra Crunch roundup: Livestream e-commerce, growth marketing interviews, CEO for a day
This year, livestream viewers in China are projected to spend more than $60 billion on digital shopping experiences that let them interact with influencers in real time.
Promoting everything from cosmetics to food, social media stars use Taobao, TikTok and other platforms to livestream products and take questions from the audience.
On Taobao’s Singles Day in 2020, livestreams racked up $6 billion in sales, twice as much revenue as the year prior.
Sensing a trend, Western startups are getting in on the action, with companies like Whatnot and PopShop.Live raising rounds to build out their infrastructure. Looking forward, Alanna Gregory, senior global director at Afterpay, says she foresees four major trends:
- Networks
- SaaS streaming tools
- Host discovery and outreach tools
- Host marketplaces and agencies
“For brands, SaaS streaming tools will be the most impactful way to take advantage of livestream commerce trends,” Gregory writes in an Extra Crunch guest post. “All of this will be incredibly transformative.”
To help entrepreneurs take on the most fundamental challenge facing early-stage startups, our team is speaking to growth marketers to learn more about the advice they’re offering clients these days.
This week, Miranda Halpern and Anna Heim interviewed experts on growth marketing:
- The MKT1 interview: Growth marketing in 2021, hiring versus outsourcing and more
- Unmuted founder Max van den Ingh on success beyond the metrics
- Draft.dev CEO Karl Hughes on the importance of using experts in developer marketing
Growth is an existential issue, so these stories are free to read and share. If you’ve worked with an individual or an agency who helped your startup find and keep new users, please let us know.
Thanks very much for reading Extra Crunch this week; have a great weekend.
Walter Thompson
Senior Editor, TechCrunch
Why Latin American venture capital is breaking records this year
Image Credits: Nigel Sussman (opens in a new window)
Alex Wilhelm and Anna Heim’s global exploration of Q2 venture capital data wrapped up this week with an in-depth look at Latin America.
One investor told them that today’s LatAm startup market “is a story about talent, not about capital.”
“The union of talent and money is what startup markets need to thrive,” they write. “But there are other reasons why Latin American startups are so frequently in the news today, including structural factors, such as strong digital penetration and quick e-commerce growth.”
Dear Sophie: Should we sponsor international hires for H-1B transfers and green cards?
Image Credits: Bryce Durbin/TechCrunch
Dear Sophie,
My startup is desperately recruiting, and we see a lot of engineering candidates on H-1Bs.
They’re looking for H-1B transfers and green cards. What should we do?
— Baffled in the Bay Area
Why I make everyone in my company be the CEO for a day
Image Credits: Blake Little (opens in a new window) / Getty Images
In the reality TV series “Undercover Boss,” high-powered executives disguise themselves so they can work alongside everyday employees, ostensibly to learn from them.
Flipping that script, software company Vincit USA has a “CEO of the Day” program where staffers move into a metaphorical corner office for 24 hours and receive a very real unlimited budget. There’s just one requirement.
“The CEO must make one lasting decision that will help improve the working experience of Vincit employees,” said Ville Houttu, Vincit’s founder and CEO.
Since instituting the program, Vincit USA has received multiple awards for its workplace culture and sees reduced staff turnover.
“Though it may seem crazy, the initiative has paid off tenfold,” said Houttu.
What I’ve learned after 5 years of buying common stock in startups
Image Credits: Tim Robberts (opens in a new window) / Getty Images
Instead of giving founders standard term sheets, Boston-based seed-stage venture capital firm Pillar VC offers to buy common stock.
“There are many terms and conditions in a preferred term sheet that can misalign investors and founders,” says founding partner Jamie Goldstein.
“As with any experiment, we have learned a few things that have surprised us and faced challenges we’ve had to overcome.”
China’s regulatory crackdown is good news for startups aligned with CCP goals
Image Credits: Nigel Sussman (opens in a new window)
Alex Wilhelm takes stock of the wall of news out of China over the past week to see if there’s a silver lining for startups in the country as the Chinese Communist Party cracks down on everything from edtech companies to streaming platforms.
His take?
“The result may be concentrated effort and capital in sectors that Beijing favors and reduced capital and focus from entrepreneurs in sectors that have been deemed fit for strict control,” he writes. “Simply: Central planning is going to tilt business more toward centrally planned goals.”
Duolingo’s IPO pricing is great news for edtech startups
Image Credits: Nigel Sussman (opens in a new window)
The Pittsburgh-based language-learning unicorn initially aimed for an $85 to $95 per share IPO price range, then bumped that up to $95 to $100 before it began to trade. It ultimately entered the public markets at $102 per share.
Alex Wilhelm notes that based on Duolingo’s expected Q2 revenues, the company has a run-rate multiple of nearly 16x. Compare that to the median multiple for public SaaS companies of 14x.
“Duolingo, a consumer edtech company, is now more valuable per revenue dollar than the median public enterprise SaaS business,” Alex writes.
Financial firms should leverage machine learning to make anomaly detection easier
Image Credits: GOCMEN (opens in a new window) / Getty Images
“Anomaly detection is one of the more difficult and underserved operational areas in the asset-servicing sector of financial institutions,” EZOPS CEO Bikram Singh writes in a guest column.
But it’s critical to detect these anomalies amid a sea of data. That’s where unsupervised learning can offer a solution.
”With all eyes on data, it’s crucial that financial institutions find solutions to detect anomalies upfront, thereby preventing bad data from infecting downstream processes,” Singh writes.
“Machine learning can be applied to detect the data anomalies as well as identify the reasons for them, effectively reducing the time spent researching and rectifying executions.”
African startups join global funding boom as fintech shines
Image Credits: Nigel Sussman (opens in a new window)
Alex Wilhelm and Anna Heim continued their global tour of Q2 2021 venture capital data, this week focusing on Africa.
“Early data indicates that Africa is set to trounce historical records in terms of venture capital raised in the year and that the first half of 2021 saw roughly twice the funds raised by African startups as was recorded in the first half of 2020,” they write.
“Startups across Africa have never had more access to capital than they do right now.”
True ‘shift left and extend right’ security requires empowered developers
Image Credits: kuritafsheen (opens in a new window) / Getty Images
The intention of DevSecOps is to wedge security and compliance into DevOps. But that’s easier said than done, says Apiiro founder and CEO Idan Plotnik.
“Shifting left and extending right doesn’t mean that a scanning tool or security architect should detect a security risk earlier in the process — it means that a developer should have all the context to prevent the vulnerability before it even happens,” he writes.
4 key areas SaaS startups must address to scale infrastructure for the enterprise
Image Credits: Stewart Sutton (opens in a new window) / Getty Images
Asana’s head of engineering, Prashant Pandey, rounds up four tips for SaaS startups looking to build up their infrastructure to meet customers’ growing needs.
“Startups and SMBs are usually the first to adopt many SaaS products. But as these customers grow in size and complexity — and as you rope in larger organizations — scaling your infrastructure for the enterprise becomes critical for success,” he writes.
He offers four areas to focus on:
- Address your customers’ security and reliability needs
- Give IT admins control over product usage
- Build data isolation into your architecture
- Support customers by interconnecting their data across applications
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Introducing the Open Cap Table Coalition
On Tuesday, the Open Cap Table Coalition announced its launch through an inaugural Medium post. The goal of this project is to standardize startup capitalization table data as well as make it far more accessible, transparent and portable.
For those unfamiliar with a cap table, it’s a list of who owns your company’s securities, which includes your company shares, options and more. A clear and simple cap table should quickly indicate who owns what and how much of it they own. For a variety of reasons (sometimes inexperience or bad advice) too many equity holders often find companies’ capitalization information to be opaque and not easily accessible.
This is particularly important for the small percentage of startups that survive in the long term, as growth makes for far more complicated cap tables.
A critical part of good startup hygiene is to always have a clean and updated cap table. Since there is no set format and cap tables are generally not out in the open, they are often siloed rather than collaborative.
Cap tables are near and dear to me as someone who has advised hundreds of startups over the past two decades as the founder of an accelerator, a venture partner and a senior adviser at a government-funded startup launchpad. I have been on the shareholder side of the equation as well and can assure you that pretty much nothing destroys trust between shareholders and startups quicker than poor communication, especially around issues such as the current status of the cap table.
A critical part of good startup hygiene is to always have a clean and updated cap table.
I really like the idea of a cap table being an open corporate record, because the value proposition to the companies is clear. From the time a startup creates a cap table, it’s prone to inaccuracy, friction and mistakes. What this means in practice is that startups may spend money on cap-table-related issues that they should be spending on other things. From a legal process perspective, the law firm that is brought in to help with these issues has to deal with tedious back-end work, so the legal time isn’t high value for either the startup or the law firm.
The value proposition for equity holders is equally clear. All equity holders have a general and legal interest in a company’s capitalization information. They have the right to this information, which they may need for a variety of reasons (including, if things ever get really bad, an aggrieved shareholder action). So making this information clear and easily accessible is a service to equity holders and can also encourage more investment, especially from less experienced investors.
When I imagine what this project could become in the next couple of years, I think back to late 2013, when Y Combinator announced the SAFE (simple agreement for future equity). I think the SAFE is a good analogy here, as no one knew what it was and people wondered if this was a nice-to-have rather than a must-have for startups. But the end result was a dramatic improvement in the early-stage capital-raising process.
While the coalition’s founders include Morgan Stanley’s Shareworks, LTSE Software and Carta, it’s also heavy on Big Law, with Cooley, Goodwin Procter, Wilson Sonsini Goodrich & Rosati, Orrick, Gunderson Dettmer, Latham & Watkins, and Fenwick & West rounding out the group of 10 founding members.
So what’s the real motivation of seven law firms, which together saw revenue of over $10 billion in 2020 to collaborate on an open cap table product for startups? Deal flow.
Big Law has been trying for a couple of decades to build relationships with startups at the stage where it makes no sense for a startup to be dealing with a massive and expensive law firm. Their efforts to build startup programs have often fallen short and received mixed reviews. They have also been far too heavy on the self-serve and too light on the “we’re going to give you our regular Big Law level of services at a small fraction of the costs just in case you make it big and can one day pay our regular fees.” So these firms are trying to separate themselves from the rest of the Big Law pack by building this entrepreneur-friendly tech.
The coalition has already produced its initial version of the open cap table. The real question is whether this is going to be a big deal, as the SAFE was, or whether it’s going to be a vanity solution in search of a real problem. My best guess is that if this coalition gets all the relationships right, doesn’t get greedy and understands that there is a social good component at play here, this could be, reasonably quickly, as impactful as the SAFE was.
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Why I make everyone in my company be the CEO for a day
Leaders become great not because of their power, but because of their ability to empower others.
It’s no secret that most tech companies tout their culture as “unique” or “open,” but when you take a closer look, it’s often merely surface level. Yes, you may be dog-friendly or offer unlimited beer on tap, but how are you helping your employees become the best versions of themselves? We’re at our best when our employees are at their best, so we do everything in our power to make that a reality.
We’re at our best when our employees are at their best, so we do everything in our power to make that a reality.
After successfully running Vincit in Finland and Switzerland, in 2016 we made the jump to the United States, setting up an office in California. Although we had moved over 5,000 miles to a new country, it was important that our two main KPIs remain the same: Employee happiness and customer satisfaction. We believe that happy employees make clients happy, and happy clients refer you to others. Therefore, it was essential that this positive and prosperous workplace environment followed us to the United States.
So beyond traditional benefits, like full medical coverage, 401k matching and standard office amenities, we tapped into our Finnish roots to build and provide our employees with an uninhibited, supportive workplace. We keep our company culture as transparent as possible and fully believe in the power of empowering our employees. We have no managers and no real role hierarchy. Employees do not have to go through an approval process on anything they are working on.
We encourage our employees to make a trip to Finland to visit our headquarters. Instead of “Lunch & Learn” meetings, we host “Fail & Learn” meetings where employees get to share something that didn’t work and what they learned from it. And once a month, we let an employee become the CEO for a day.
Unsurprisingly, the “CEO of the Day” program is one of our most popular initiatives. The program gives our employee the reins for 24 hours with an unlimited budget. The only requirement? The CEO must make one lasting decision that will help improve the working experience of Vincit employees. Whatever the CEO of the Day decides, the company sticks with. They can purchase something for the company, change a policy, update a tool we use … Really, anything that they come up with can be done.
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Extra Crunch roundup: Finding GTM, China’s edtech clampdown and how to define growth
Early-stage startups tend to claim that their go-to-market strategy is fully operational. In reality, GTM is a stark numbers game, and even with a solid plan in place, it can be easily foiled by common problems like turf battles and poor communication.
Finding GTM fit is a milestone for any startup that includes everything from expanding the engineering team to launching your first media buy. But how do you know when you’ve reached that magic moment?
“You have to consider three metrics: gross churn rate, the magic number and gross margin,” says Tae Hea Nahm, co-founder and managing director of Storm Ventures.
High churn means customers aren’t delighted, low gross margins mean poor unit economics, and that so-called magic number?
“You can calculate it by taking new ARR divided by your marketing and sales spending,” Nahm writes. “But keep in mind that the magic number is a lagging indicator, and it may take you a few quarters to see a positive result.”
Full Extra Crunch articles are only available to members.
Use discount code ECFriday to save 20% off a one- or two-year subscription.
If you are methodical in your approach to building a larger customer base, it is not difficult to foster steady growth.
Marketers who shift with whichever way the wind is blowing — or blindly follow someone else’s idea of best practices — are less likely to be successful.
“The not-so-secret secret here is that the key to great retention is really simple,” said growth expert Susan Su recently at TechCrunch Early Stage: Marketing and Fundraising. “It is building a product that solves a real and especially persistent problem for people.”
In conversation with Managing Editor Eric Eldon, Su delved into several issues, including tips on how founders should discuss growth with investors, and her methods for developing a sample qualitative growth model.
“I firmly believe that every founder should try their hand at growth,” said Su.
Thanks very much for reading Extra Crunch this week!
Walter Thompson
Senior Editor, TechCrunch
@yourprotagonist
How we built an AI unicorn in 6 years
Image Credits: Lucas Knappe/EyeEm (opens in a new window)/ Getty Images
Few startups go to market with the exact product their founders first envisioned.
Today, Tractable is known for developing tech that allows drivers to upload photos of their vehicles after a collision so its AI can assess the damage. Its first paying customer, however, used Tractable to inspect plastic pipe welds.
And as fate would have it, that customer also fired them just as the founders were raising their first round.
“We struck gold with car insurance,” says co-founder Alex Dalyac, as it was “a huge and inefficient market in desperate need of modernization.”
In an Extra Crunch guest post, he shares several takeaways from the last six years spent scaling a unicorn that have value for founders of all stripes. Step one?
“Search for complementary co-founders who will become your best friends,” advises Dalyac.
The European VC market is so hot it may skip its summer holiday
Image Credits: Nigel Sussman (opens in a new window)
Alex Wilhelm and Anna Heim continued their exploration of the scorching global VC market, this time taking a look at Europe.
For perspective, they analyzed data from Dealroom and spoke to four VCs about the continent’s investment climate:
- Diana Koziarska, SMOK Ventures
- Vinoth Jayakumar, Draper Esprit
- Simon Schmincke, Creandum
- Javier Santiso, Mundi Ventures
“There’s little indication that what we’ve seen thus far from Europe in 2021 will slow in Q3 or Q4,” Alex and Anna write.
“Even though Europe has a reputation for lengthy summer vacations, investors don’t expect much — if any — slowdown to come in Europe during this sun-drenched quarter.”
Startups and investors are turning to micromobility subscriptions
Image Credits: Bryce Durbin
“Amid the chaos of the COVID-19 pandemic and the murky path to profitability for shared electric micromobility, an increasing number of companies have turned to subscriptions,” Rebecca Bellan writes in a roundup about the future of micromobility.
“It’s a business model that some founders and investors argue hits the profit center sweet spot — an approach that appeals to customers who are wary of sharing as well as paying upfront to own a scooter or e-bike, all while minimizing overhead costs and depreciation of assets.”
What Robinhood’s warnings about crypto trading say about Coinbase’s near-term future
Image Credits: Nigel Sussman (opens in a new window)
After noting that Robinhood anticipates a decline in revenue in the third quarter as a result of slowing crypto trading, Alex Wilhelm got to thinking about what that forecast means for Coinbase.
“The now-public unicorn has lived through crypto ups and crypto downs,” he writes. “A decline in consumer interest in the next few months or quarters is not a huge deal, assuming one keeps a long enough perspective and the crypto-infused future that its fans expect comes to pass.”
But will it?
Dear Sophie: Should we look to Canada to retain international talent?
Image Credits: Bryce Durbin/TechCrunch
Dear Sophie,
I handle people ops as a consultant at several different tech startups. Many have employees on OPT or STEM OPT who didn’t get selected in this year’s H-1B lottery.
The companies want to retain these individuals, but they’re running out of options. Some companies will try again in next year’s H-1B lottery, even though they face long odds, particularly if the H-1B lottery becomes a wage-based selection process next year.
Others are looking into O-1A visas, but find that many employees don’t yet have the experience to meet the qualifications. Should we look at Canada?
— Specialist in Silicon Valley
Silicon Valley comms expert Caryn Marooney shares how to nail the narrative
Image Credits: MediaNews Group/Bay Area News via Getty Images (opens in a new window)/ Getty Images (Image has been modified)
Caryn Marooney, a Silicon Valley communications professional turned venture capitalist, spoke extensively on storytelling at TechCrunch Early Stage: Marketing and Fundraising.
Throughout her time in Silicon Valley, she helped companies like Salesforce, Amazon, Facebook and more launch products and sharpen their messaging. In 2019, she left Facebook, where she was VP of technology communication, and joined Coatue Management as a general partner.
Marooney uses the acronym RIBS to describe her basic strategy for startup messaging: Relevance, Inevitability, Believability and keeping it Simple.
Canada’s startup market booms alongside hot global VC investment
Image Credits: Nigel Sussman (opens in a new window)
For The Exchange, Alex Wilhelm and Anna Heim looked at Canada’s VC market in the first half of 2021, and if you’ve been reading their work, you know what’s coming.
Canada, like the rest of the globe, was absolutely scorching in the first half.
“Canada’s venture capital results now rival those of the entire Latin American region, with exits and mega-deals coming in roughly on par in the second quarter, and a similar number of total venture capital rounds in the period,” they write.
“That caught our attention.”
Greylock’s Mike Duboe explains how to define growth and build your team
With more venture funding flowing into the startup ecosystem than ever before, there’s never been a better time to be a growth expert.
At TechCrunch Early Stage: Marketing and Fundraising earlier this month, Greylock Partners’ Mike Duboe dug into a number of lessons and pieces of wisdom he’s picked up leading growth at a number of high-growth startups, including StitchFix. His advice spanned hiring, structure and analysis, with plenty of recommendations for where growth teams should be focusing their attention and resources.
Last-mile delivery in Latin America is ready to take off
Image Credits: Erlon Silva/TRI Digital (opens in a new window) / Getty Images
Thanks to sprawling fulfillment centers, seamless logistics networks and ubiquitous internet access, consumers in many regions can now order groceries and a new set of cookware during breakfast and reasonably expect everything to arrive in time for dinner.
In Latin America, a lack of technology infrastructure makes delivery operations complex, and these supply chains are often managed with spreadsheets, paper and pen.
Algorithms that manage delivery routes or automatically dispatch drivers “are almost unheard of in the Latin America retail logistics sector,” says Bob Ma, an investor at WIND Ventures.
But thanks to growing consumer demand and expanding investment in last-mile delivery startups, Ma says the region is at a turning point.
Since Latin America’s middle class has grown 50% in the last decade and e-commerce constitutes just 6% of all retail, several unicorns have emerged in recent years, with more waiting in the wings.
China’s expected edtech clampdown may chill a key startup sector
Image Credits: Nigel Sussman (opens in a new window)
China’s edtech industry is estimated to be worth $100 billion, but its leaders are reportedly considering a plan that would require these firms to operate as non-profits.
“When it comes to control, the Chinese government doesn’t mind wiping out a few dozen billion dollars in market cap here and there,” writes Alex Wilhelm in this morning’s edition of The Exchange.
“That’s not a great system.”
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SOSV partners explain how deep tech startups can fundraise successfully
Startups developing so-called deep tech often find it challenging to raise capital for various reasons. At TechCrunch Early Stage: Marketing and Fundraising, two experienced investors spoke on the subject and advised startups facing a challenging fundraising path.
Pae Wu and Garrett Winther are both partners at SOSV and run the fund’s programs around biotech and hardware. SOSV doesn’t shy away from startups building complex technology, and because of this, Wu and Winther are well placed to advise on fundraising. They presented three key points targeting startups fundraising for deep tech applications, but the points are applicable to startups of any variety.
Before giving advice, the two acknowledged the nuances across the deep tech ecosystem and each industry. Their presentation is focused on general guidance applicable to nearly every startup.
Finding the right investor
The first point on Wu and Winther’s presentation sounds a bit self-serving but is based on solid advice. When building a deep tech startup, find the right investor, they said. This is general advice for startups, but according to these two, it’s even more important when building a company that might take longer for the investor to see a return.
In deep tech, it’s essential to think about founder-investor fit. And what we mean by this is understanding why an investor is even in VC in the first place. And what it is that’s driving you, the founder, to do what you do.
And so we look at this fit as a Venn diagram between founders who have a near maniacal devotion to wanting to solve a core systemic problem and investors that thrive on the unique risk profile that comes in deep tech. Because with deep tech, we’re talking about both technical risk, where maybe that insight that is core to the company merely proves that we’re no longer having to break any laws of physics to do whatever it is you’re trying to do. So there’s a big technical risk. (Timestamp: 6:09)
We, as investors, love to see methodical founders who can see the first step that will converge at the right moment of technical and business milestones.
Set obtainable goals
Breakthrough technology hardly came from sudden breakthroughs. As explained in this presentation, it’s critical to set obtainable goals that lead to the desired outcome.
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Cowboy Ventures’ Ted Wang: CEO coaching is ‘about having a second set of eyes’
Earlier this month, Cowboy Ventures’ Ted Wang joined us at TechCrunch Early Stage: Marketing and Fundraising, where he spoke about executive coaching and why he encourages founders in his portfolio to have a CEO coach. Wang, who has an executive coach himself, sees coaching as a key way to drive sustained personal growth, a factor that he believes separates the middling CEOs from the best ones.
Why CEOs need coaching
Just like professional athletes at the top of their game still need coaching, executives can need external validation and comment on where they are and aren’t delivering, Wang says. These insights can be tough for executives to catch on their own and might require a level of honesty that can be challenging for a CEO to expect from anyone involved with their company.
Roger Federer — the famous tennis player who has won 20 Grand Slam events — he has a coach, but he doesn’t just have a coach, he has a coach for tennis. I’m pretty sure Roger knows the rules of the game and all the different strokes he needs to hit, so why would he have a coach? The answer is really that it’s about having a second set of eyes; when you’re in the moment … it’s hard to be able to see yourself and assess yourself. (Timestamp: 4:52)
Coaches can help entrepreneurs reflect and reframe the things being communicated with them.
A good example — you might be at a board meeting and one of your board members is being critical of your VP of marketing, and one way to think of that is “Oh, OK, here are some things we need to solve for this person,” but another point of view that a coach might open your eyes to, is actually maybe this person thinks you’re not hiring the right people. (Timestamp: 8:59)
While advisers can help startups navigate tactical situations, therapists may be more focused on helping clients navigate emotional states and improve themselves. Coaching exists in a very nebulous gray area between startup advisers and licensed therapists, Wang says, but coaching is more focused on improving yourself as a business leader rather than solving a particularly vexing startup issue.
When you’re in the moment … it’s hard to be able to see yourself and assess yourself.
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Founders: How well do you really understand seed-stage financing?
I’ve fundraised a lot. Tactically, fundraising is a skill like any other. You get better the more you do it. But practicing gets you nowhere if you don’t have a strong foundation in understanding a fundraising round’s core components.
As a founder, you will understand less than investors when it comes to fundraising. For investors, negotiating with founders is their full-time job. For founders, fundraising is just a small part of building a business. Understanding the basics of venture financing can help founders raise on better terms.
We’ll cover:
- How financing works: SAFEs versus equity rounds.
- How much to raise.
- How to arrive at your valuation.
How financing works: SAFEs versus equity rounds
As a founder, you will understand less than investors when it comes to fundraising.
Venture financing takes place in rounds. The first stage is the pre-seed or seed round, then a Series A, then a Series B, then a Series C and so on. You can continue to raise funding until the company is profitable, gets acquired or goes public.
We will focus here on seed-stage funding — your very first funding round.
SAFEs
Post-money SAFEs are the most common way to raise funding. These documents are used by Y Combinator, angel investors and most early-stage funds. You should raise on post-money SAFEs using standard documents created by YC. Standard documents have consistent terms that have been drafted to be fair to both investors and founders.
By using the standard post-money SAFE, your negotiation can focus on the two terms that matter:
- Principal: The amount you want to raise per investor.
- Valuation cap: The value of your business.
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In an increasingly hot biotech market, protecting IP is key
After a record year for biotech investment in 2020 — during which the industry saw $28.5 billion invested across 1,073 deals — the market for new innovations remains strong. What’s more, these innovations are increasingly coming to market by way of early-stage startups and/or their scientific founders from academia.
In 2018, for instance, U.S. campuses conducted $79 billion worth of sponsored research, much of it thanks to the federal government. That number spiked amid the pandemic and could increase even more if President Biden’s infrastructure plan, which includes $180 billion to enhance R&D efforts, passes.
Since 1996, 14,000 startups have licensed technology out of those universities, and 67% of licenses were taken by startups or small companies. Meanwhile, the median step-up from seed to Series A is now 2x — higher than all other stages, suggesting that biotech startups are continuing to attract investment at earlier stages.
When it comes to protecting IP, early and consistent communication with investors, tech transfer offices and advisers can make all the difference.
For biotech startups and their founders, these headwinds signal immense promise. But initial funding is only one part of a long journey that (ideally) ends with bringing a product to market. Along the way, founders will need to procure additional investments, develop strategic partnerships and stave off competition. All of which starts by protecting the fundamental asset of any biotech company: its intellectual property.
Here are three key considerations for startups and founders as they get started.
Start with an option agreement
Most early-stage biotechnology starts in a university lab. Then, a disclosure is made with the university’s tech transfer office and a patent is filed with the hopes that the product can be taken out into the market (by, for instance, a new startup). More often than not, the vehicle to do this is a licensing agreement.
A licensing agreement is important because it shows investors the company has exclusive access to the technology in question. This in turn allows them to attract the investments required to truly grow the company: hire a team, build strategic partnerships and conduct additional studies.
But that doesn’t mean jumping right to a full-blown licensing agreement is the best way to start. An option agreement is often the better move.
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Extra Crunch roundup: Think like a VC, CockroachDB EC-1, handle your stock options
Ants and camels are famously resilient, but when it was time to select a name for a startup that offers open-source, cloud-based distributed database architecture, you can imagine why “Cockroach Labs” was the final candidate.
Database technology is fundamental infrastructure, which partially explains why it’s so resistant to innovation: Oracle Database was released in 1979, and MySQL didn’t reach the market until 1995.
Since hitting the market six years ago, CockroachDB has become “a next-generation, $2-billion-valued database contender,” writes enterprise reporter Bob Reselman, who interviewed the company’s founders to write a four-part series:
Part 1: Origin story: From the creation of the popular open-source image editor GIMP to some of Google’s most well-known infrastructure products.
Part 2: Technical design: Analyzes the key differentiation that CockroachDB offers, particularly its focus on geography and data storage.
Part 3: Developer relations and business: How CockroachDB engages with developers while pivoting to the cloud at a key inflection point.
Part 4: Competitive landscape and future: A look at the fierce competition, and what possible exit routes might look like.
Full Extra Crunch articles are only available to members.
Use discount code ECFriday to save 20% off a one- or two-year subscription.
Our ongoing search for the best startup growth marketers is yielding results: reporter Anna Heim interviewed SaaS and early-stage startup marketing consultant Lucy Heskins to learn more about the mistakes her clients are most likely to make before they seek her help.
“The first is hiring a marketer too soon,” said Heskins. “I’ve come into startups thinking I was coming in to set up their in-house function. However, very quickly you realize that they’ve jumped the gun and think they’ve got product-market fit when they are nowhere near it.”
Heskins shared a few pages from her early-stage marketing playbook, in which she recommends aligning content marketing with the customer experience — as opposed to just putting pages up that score well in search results.
Because their conversation contains a lot of strategic advice for startups that haven’t yet made a marketing hire, we made it available on TechCrunch.
If you know of a skilled growth marketer, please share your recommendation in this quick survey.
Thanks very much for reading!
Walter Thompson
Senior Editor, TechCrunch
@yourprotagonist
Here are 3 things you should do with your stock options
Image Credits: z_wei (opens in a new window) / Getty Images
Congratulations: You’ve joined a startup and received an Incentive stock option grant! You now own a percentage of the company, and there’s no telling how much it could be worth one day.
A few questions: Do you know your 409A valuation? What’s your strike price? Surely, you know the preferred share price and which type of options you were granted?
No?
It’s complicated stuff, and for most ISO recipients, this may be the first time they start thinking seriously about how federal tax laws impact them personally.
To break things down, Vieje Piauwasdy, Secfi’s director of equity strategy, recently shared a post with Extra Crunch.
“If you’ve ever been confused about your equity, or haven’t thought much about it, you’re not alone.”
Where is suptech heading?
Image Credits: Peter Dazeley (opens in a new window) / Getty Images
First of all, what is suptech?
“The emergence of purpose-built technologies to facilitate regulator oversight has, over the past few years, garnered its own moniker of supervisory technology, or suptech,” Marc Gilman, the general counsel and VP of compliance at Theta Lake, writes in a guest column.
Gilman notes that “nearly every financial services regulator is engaged in some type of suptech activity.”
But as a primer, he focused on three areas: regulatory reporting, machine-readable regulation, and market and conduct oversight.
Superhuman’s Rahul Vohra explains how to optimize your startup’s products for lasting growth
Image Credits: Superhuman
Superhuman co-founder and CEO Rahul Vohra joined us last week at TechCrunch Early Stage to provide an in-depth look at how he and his company worked to optimize and refine their product early to create a version of “growth hacking” that would not only help Superhuman attract users, but serve them best and retain them, too.
Vohra articulated a system that other entrepreneurs should be able to apply to their own businesses, regardless of area or focus.
Dear Sophie: Tell me more about the EB-1A extraordinary ability green card
Image Credits: Bryce Durbin/TechCrunch
Dear Sophie,
I’m a postdoc engineer who started STEM OPT in June after failing to get selected in the H-1B lottery.
A colleague suggested that I apply for an EB-1A for extraordinary ability green card, but I have not won any major awards, much less a Nobel Prize. Would you tell me more about the EB-1A?
Thanks!
— Bashful in Berkeley
India poised for record VC year as unicorns head for decisive IPOs
Image Credits: Nigel Sussman (opens in a new window)
Alex Wilhelm and Anna Heim dialed in on India for today’s Exchange, noting that the country is a good example of the global trend of booming venture capital dollars invested.
“The country’s venture capital haul thus far in 2021 has nearly matched its 2020 total and is on pace for a record year,” they write. “But as the third quarter gets underway, something perhaps even more important is going on: public-market liquidity.”
They looked at recent venture capital results and considered what Zomato’s flotation means for the country’s IPO pipeline. Don’t miss this analysis of an explosive startup market.
How to navigate an acquisition without alienating your current employees
Image Credits: Peter Cade (opens in a new window) / Getty Images
Now that COVID-19 vaccines are encouraging the world to reopen, two trends are underway:
In the first half of 2021, mergers and acquisitions increased by more than 150% YOY to $2.4 trillion; in several surveys, an overwhelming majority of workers said they intend to seek employment elsewhere.
If your startup is angling toward an exit, the promise of a big payday may not be enough to retain employees who feel burned out or dissatisfied.
Many founders don’t have prior management experience, and, frankly, the uncertainty associated with an exit makes it a poor time for on-the-job learning. With that in mind, here are several communication strategies that can help you keep your winning team intact.
Emergence Capital’s Doug Landis explains how to identify (and tell) your startup story
Image Credits: TechCrunch/Emergence Capital
How do you go beyond the names and numbers with your startup pitch deck? For Doug Landis, the answer is one simple compound gerund: storytelling. It’s a word that gets thrown around a lot of late in Silicon Valley, but it’s one that could legitimately help your startup stand out from the pack amid the pile of pitches.
Landis joined the TechCrunch Early Stage: Marketing and Fundraising event to offer a presentation about the value of storytelling for startups, whittling down the standard two-hour conversation to a 30-minute version.
Though he still managed to rewind things pretty far, opening with, “400,000 years ago, men and women used to sit around the fire pit and tell stories about their day, about their hunt, about the one that got away.”
Khosla’s Adina Tecklu breaks down how to nail your pitch
Image Credits: Khosla Ventures
We kicked off our TechCrunch Early Stage 2021: Marketing and Fundraising event with a deep dive on all the tips and tricks required to get the most out of pitching and slide decks. On hand was Adina Tecklu, a principal at Khosla Ventures, and who formerly built out Canaan Beta, the consumer seed practice at Canaan Partners.
We talked about the importance of knowing your customer (aka your potential investor), focusing on story, typical slides in a deck, the appendix slides, formatting, and then alternative formats and which to avoid in a pitch deck.
What impact will Apple’s buy now, pay later push have on startups?
Image Credits: Nigel Sussman (opens in a new window)
News that Apple plans to get into the buy now, pay later game had Alex Wilhelm wondering about the impact on startups in the space.
Shares of public competitors Affirm and Afterpay dropped on the news, but it doesn’t mean a death knell for those looking to jump into the BNPL game, Alex notes.
“Provided that Apple’s BNPL solution is rolled out over time to the same markets where Apple Pay is present, the … company could consume market shares — and therefore oxygen — from generalized rival BNPL services,” he writes.
“Those startups building more niche or targeted solutions will likely enjoy some shelter from the competitive storms.”
How to make the math work for today’s sky-high startup valuations
Image Credits: Nigel Sussman (opens in a new window)
So how does the math work out for all these startups with minimal revenue, tons of cash and sky-high valuations?
Alex Wilhelm ran through the numbers, explaining why the current state of the venture capital market makes sense for startups and investors alike.
“Today we can make super-expensive startup math work out, provided that growth rates stay generally strong and public-market multiples stay rich,” he writes in The Exchange. “If the latter dips, the former has to improve, and vice versa.”
Norwest’s Lisa Wu explains how to think like a VC when fundraising
Image Credits: Getty Images / Rawpixel
At the TechCrunch Early Stage: Marketing and Fundraising event last week, Norwest Venture Partners‘ Lisa Wu took the stage to discuss how founders can think like venture capitalists in all facets of their business.
The overlapping in job roles is uncanny: The best investors and founders have to find focus through the noise, understand the weight of due diligence and pitch others with conviction.
Wu used anecdotes and exercises — such as the eyebrow test — in the tactical, engaging chat.
Revolut’s 2020 financial performance explains its big new $33B valuation
Image Credits: Nigel Sussman (opens in a new window)
Alex Wilhelm weeds through Revolut’s 2020 financial results again to determine if the U.K.-based consumer fintech player’s $33 billion valuation makes sense.
“The picture that emerges is one of a company with a rapidly improving financial image, albeit with some blank spaces regarding recent customer growth,” he writes.
How we got 75% more e-commerce orders in a single A/B test for this major brand
Image Credits: Abdullatif Omar/EyeEm (opens in a new window) / Getty Images
Jasper Kuria, the managing partner of The Conversion Wizards, breaks down how the CRO consultancy ran an A/B test to boost the conversion rates of a multibillion-dollar company.
“Radical redesigns that incorporate a large number of variables (instead of single-element tests) are more likely to provide substantial gains,” Kuria writes. “Another advantage to doing this is it requires much less time and traffic for your tests to reach statistical significance.”
Here’s a rundown of all the changes that led to a 75% bump in orders.
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