Modesty, First Principles and Opportunities for Startups

I met a physicist this week who told me all the Nobel laureates he had met in his studies have been the most modest of physicists. “They realize how small they are in the world, after discovering something incredibly special and new.” Separately, I referenced an executive this week. A former colleague of this person told me,” this is not a person who sees a model work once or twice, and instantly subscribes to the notion that it will work every time for every business.” Those two conversations have me thinking about first principles thinking and modesty. They go hand-in-hand. To approach a problem with first principles, you have to set aside what you’ve learned about the problem or preconceived notions you might have. You have to tell yourself you know nothing about space or the business problem. Then, you have to become a student again, and learn Continue reading "Modesty, First Principles and Opportunities for Startups"

Which to Prioritize – Churn or Growth?

Which is the more important priority? Growth or churn? Churn or growth? Early-stage companies have limited resources to focus their efforts. On one hand, growth is important in order to raise a venture capital round. Growth shows demand for a product. On the other hand, churn is a huge source of friction and raises questions of product market fit. Especially in the early stage, churn is the more important of the two priorities, and when founders ask me which to emphasize that the seed and series A, I’ll always respond churn. Churn is a limiting factor on the business. Like fiction, at some scale, churn will prevent the business from growing. To maintain the subscription revenue from the existing customer base requires ever greater mountains of cash. A $20 million ARR business losing 50% of its customers every year will have to replace $10 million worth of customers each year Continue reading "Which to Prioritize – Churn or Growth?"

How Much Money Should I Raise for My Startup?

How much should a founder raise for their startup? I imagine almost every founder contemplating a fundraising round ponders this question. There are many different paths to developing an answer. The right answer that every startup founder has told me is as much capital as possible at the highest possible price. But what strategies exist to justify increasing the round size and consequently price? These are the three most common I’ve observed. Needs Analysis: the most important principle of fundraising is raise enough money to achieve a set of milestones that will attract a subsequent round of investment from new investors. The needs analysis technique puts this idea into action. In order to raise a great Series B, the company needs to be generating roughly $X00k in MRR. To be in that position, the business requires n account executives, y sales development representatives, z engineers and $Q millions of Continue reading "How Much Money Should I Raise for My Startup?"

The Software Startup Markets Raising the Most Capital in 2017

Over the last seven years, software startup investing has changed quite a bit. In 2010, classic SaaS was booming, the benefits of a subscription model were finally becoming clear to the public markets and the mass-market. Since then, many other types of software businesses have been created in new categories like agriculture technology and robotics. Which of these markets are growing the fastest for investment dollars? The chart above breaks out 14 different software categories and shows the amount of dollars invested in each category indexed to 2010 levels. In other words, if machine learning startups raised the same amount of money in 2016 is 2010, the chart would show a value of 1. If those startups raised twice the amount of capital then the figure would be 2. Advertising technology has seen a resurgence in 2016, reversing a three year trend of declines. Agricultural Technology (AgTech) boomed in 2013,
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The Biggest M&A Multiple in Software History

Cisco announced yesterday it would acquire AppDynamics for $3.7B. We’ve analyzed AppDynamic’s growth and key metrics, because the business had filed its S-1 to go public. However, the management team and board changed plans and made history. By my estimate, AppDynamics is the fifth largest software acquisition in modern times. More astounding, the AppDynamics acquisition does set the absolute high water mark in one regard: acquisition multiple. It’s a very promising predictor of the 2017 M&A environment. Based on the S-1 filings from the business, a $3.7B price implies a 17.3x enterprise value/trailing twelve month revenue multiple, which is 41% higher than the next nearest acquisition, Salesforce/Demandware. There’s no comparable pricing event in the M&A market in the last 10 years. AppDynamic’s revenue growth is compelling, and as the chart above shows, only SuccessFactors was growing as quickly at M&A. However, SuccessFactors commanded a multiple of 11. Continue reading "The Biggest M&A Multiple in Software History"

Is Machine Learning Overhyped?

For the nine years I’ve been a venture capitalist, there’s always been a buzzword of the year. Solomo (social local mobile). Mobile-first. Realtime. Big data. 2016 was the year of machine learning. Is ML just another wave to crash and dissipate on the trough of disillusionment? I don’t think so. In this rare case, I think hype is masking quite a bit of true technical innovation. During last quarter of 2016, machine learning research has made huge strides. Computers now understand human speech as well as other humans. Computers can talk in a way that’s close-to-indistiguishable from true human speech. Computers can translate from one language to another, never having read the second language. Computers can generate new encryption schemes without human input. Computers can write captions to describe a given image. These innovations aren’t limited to the lab. Tesla’s self-driving car reduces crash rates by 40% and a brick-laying Continue reading "Is Machine Learning Overhyped?"

One of the Greatest Entrepreneurial Stories Ever Told

Over the last few days, I’ve been reading Shoe Dog, Phil Knight’s autobiographical tale describing the formation of Nike, and I think it might be one of the very best founding stories I’ve read. Easy to read, brimming with passion, full of harrowing business crises, the book is an inspiration to anyone who has a crazy idea and commits to persevering.
At twenty-four I did have a Crazy Idea, and somehow, despite being dizzy with existential angst, and fears about the future, and doubts about myself, as all young men and women in their midtwenties are, I did decide that the world is made up of crazy ideas. History is one long processional of crazy ideas. The things I loved most— books, sports, democracy, free enterprise— started as crazy ideas.
Originally called Blue Ribbon Sports, an importer of Onitsuka shoes, Nike is now a $88B company. Before Nike, jogging wasn’t Continue reading "One of the Greatest Entrepreneurial Stories Ever Told"