Call it what you like. The Series A Crunch or Silicon Valley’s Financial Cliff, there’s a lot of talk about the challenge seed stage companies facing insurmountable odds raising Series A investment - PandoDaily’s analysis pegs the odds at 20% based on anecdotal data. The three horsemen of the seedpocalypse In the past 3 years, the three major trends influencing the seed market are: The decreasing cost of starting a company is balanced by growing labor costs.
Yesterday, I showed the increasing share of venture capital investments consumer companies represent. But examining the trends at a category level may mask patterns by consumer category and also by stage. So, I’ve created two charts: the first is a bar chart of consumer investment by segment and the second is a heatmap of of sector and stage. I categorized the consumer investments by 10 leading firms over the past 18 months into six buckets of my choosing.
Fresh from porting to HTML5, browser-based diagramming toolmaker Gliffy is a bootstrapped, money-making exception to the VC-funded norm among San Francisco start-ups
Department stores. Computer software. And even education. Products and services are being broken into their atomic units and optimized for price, selection, features and, most importantly, customer satisfaction. This is an inexorable trend that cannot and should not be stopped. Roger Ehrenberg in a post called “The Great Unbundling” This unbundling is happening. But I’m not convinced it’s every consumer’s desire to consume media or purchase clothing a la carte.
Fred Wilson’s perspectives on trends in consumer web investment created a big brouhaha over the weekend. Commenting on a WSJ article, Wilson offered his confirmatory observations that follow-on investments in the consumer web have become more challenging as momentum investors have shifted toward enterprise. Over the past 18 months, valuations of later stage consumer internet companies have ballooned into the hundreds of millions propelled by enormous user growth. For many of these startups, revenue hasn’t been able to keep pace with rising serving costs.
Last week I wrote about the importance of a financial plan for startups at every stage. It’s a challenge to balance the predictability the board requests and the ambition the company wants. Often, as startups grow, they adopt two plans: a board plan and a company plan. By creating two plans and presenting each to the right audience, founders can communicate and motivate their teams effectively. The board plan is the more conservative of the two.
Over lunch last week, I asked a Redpoint entrepreneur, who had recently sold his company, how his board could have been more helpful to him. His answer surprised me. He wished the company had built a financial/operational plan sooner. Building an financial plan is challenging and it is often perceived as a waste of time because the plan can be so inaccurate. Lots of entrepreneurs tell me their plans are just WAGs - wild assed guesses.
Cloud services are much more than software alone. Cloud providers should focus on delivering business outcomes.
When building a freemium SaaS company or an ecommerce company or any product that requires users to move through a funnel towards an objective, it’s important to track this funnel to understand where the funnel can be improved. But tracking one funnel may not be enough. The aggregated funnel may be masking conversion differences across customers segments. For example, at Expensify conversion rates to paid vary quite a bit across customer size.
Great products are like ducks. They are calm above the water but paddling furiously below the water. An entrepreneur told me this quip last week and I think it had great wisdom in it. In other words great products are graceful. They make something complex look effortless. Great athletes are the same. So are great dancers. And even great entrepreneurs. The secret within this aphorism is that success is a grind.