Y Combinator CEO Michael Seibel is featured in one of our most-watched SaaStr videos of all time — so we were delighted to have him back during our SaaStr at Home event to share the top 5 things that kill startups after their seed rounds, and how to avoid them.
In this tactical session, he highlights the trends he’s seen most commonly seen in startups that die and offers insights on the causes, symptoms, and solutions.
#1 Fake product-market fit
You’re company building before product building.
This is one of the most common symptoms of “impending death” for post-seed companies. So why do founders believe they have market fit, even if they don’t?
Ep. 373: Bessemer’s 5th Annual State of the Cloud Report returns for a definitive look at the cloud industry today. Byron Deeter and Elliott Robinson, partners at Bessemer Venture Partners, offer macro trends in the public and private cloud markets, strategic advice to cloud founders, and insights into why entrepreneurs should feel auspicious about the future.
This episode is sponsored by Linode.
SaaStr’s Founder’s Favorites Seriesfeatures one of SaaStr’s best of the best sessions that you might have missed.
This episode is an excerpt from a session at SaaStr Annual @ Home. You can read the podcast transcript below.
Ep. 374: ZoomInfo founder and CEO Henry Schuck shares how he built a business from scratch and grew it into one of the most successful IPOs of the 21st century—and what it was really like…the good, the bad, and most of all, the ugly. He reflects on where he went wrong, what he would do differently, and how to avoid making the same mistakes he did.
I can’t literally answer for an accelerator, but as an investor here’s what I’ve observed:
It’s a huge, huge boon for start-ups not based in SF / NYC / etc. No one cares anymore. This is a big, big change.
Investing has accelerated even faster. All the stakeholders can get together even faster now. So decisions can be made even more quickly, especially for slightly larger checks that require consensus.
The 1 slide summary is even more important. There’s too much to process digitally, so if the summary doesn’t hook an investor, it’s tougher than ever. You click and move on, rather than stay in your seat and quietly check your phone.
Q: What’s considered a large amount of money for an investor?
A rough answer is more than 1.5%-2% of their investable capital is a “lot of money” for most professional investors. 2% is a pretty standard target for most core VC investments, and then more than that starts to become risky. And 5% starts to become a “this investment has to work” investment.
So take say a $150m venture fund:
A $250k or $500k investment is immaterial (0.1%-0.3%). It can generally be done quickly with limited diligence.
A $2m-$4m investment is the sweet spot. That’s 1.5%-2.5% of the fund. Enough to move the needle, but not so much it can’t be written off.
A $7m-$8m+ investment can work if there is “high conviction” in the investment, but is stressful. That’s 5%+ of the fund.
Tom TaulliKlue, which operates an AI-based competitive analysis platform, announced a $15 million Series A investment this week. Craft Ventures led the round and there was participation from HWVP, OMERS Ventures, Rhino Ventures, and BDC Ventures. The round also saw investments from angels like Frederic Kerrest, who is the co-founder of Okta. Founded in 2015, Klue addresses a part of the corporate world that has seen little innovation. After all, when a company engages in competitive intelligence, there will often be the retaining of a consulting firm. The engagement may last a few months and involve extensive interviews and online research (yes, lots of Googling!) But there are some obvious drawbacks. First of all, the process is highly manual and costly. Next, the information may be useful for a limited amount of time, which can definitely be damaging for a Continue reading "Behind the Round with SaaStr: Klue Raises $15 Million from Craft Ventures for Competitive Analysis"
There’s a phenomenon, a type of SaaS company, that I think if you are scrappy, if you can make things happen as a founder — that you need to be careful not to become. It’s the Bootstrapped-to-Death Start-up.
I’ve known quite a few over the past 7 years, and each and every one is a bit of a slow-motion train wreck disguised as a modest success.
The basic scenario is this: By Hook or By Crook, after 2-3 years, they get themselves to $1m-$2m, in ARR, with no capital at all, no investors except themselves.
Now if you can get there in 12-18 months, that’s great. 24 months is probably OK, but at the edge for most people. Or if it’s a semi-mythical lifestyle business, Continue reading "Don’t Accidentally Bootstrap Yourself to Death"
Why do venture capitalists invest in lots of companies even though 90% of them go bankrupt?
Well, 90% of most venture-backed startups that don’t go bankrupt. They at least try to pick the best ones they can. That helps — a bit.
But many still do. The “loss ratio” at early-stage VC firms is often around 40% by logo, and 20%-30% by dollars. In other words, 4/10 may go bankrupt or at least lose money … but since the winners tend to get more than the losers, in the end, maybe “only” 20%-30% of the fund is lost in losers.
The thing is, that’s build into the model. Because if you do VC investing right, the winners far outpace the losers.
Once a VC finds a deal they really want — they move fast. They hunt, and close, just a few deals they really want each year. Each individual VC partner typically only does 1-3 deals a year. So when they find one they are really interested in, they often drop everything to close it.
If you are frustrated it takes a VC a long time to reply, that’s a sign. That’s a sign either they aren’t interested, or your pitch isn’t quite good enough.
Try again with your very top pitch, include the deck, and all the best salient points.
Use Mixmax or another tool to see if they opened it. Don’t use Docsend generally to gauge interest — it’s a gate that will deter opening a document.
Q: How is Venture Capital difference since Covid-19?
At first — and only briefly — things slowed way back. Portfolios in many cases were hit hard, with startups in travel, events, fitness, etc. hit hard, and VCs distracted with working out the issues in their portfolios:
But the slow down lasted, at best, 60 days:
First, Cloud stocks went on an unprecedented tear. As did Cloud revenues. Zoom, Slack, RingCentral, and more all took as companies needed more of them to work from home:
Second, VCs adjusted to the new risks. Every fund one way or another got used to investing over Zoom. At first, funds invested in founders they already knew. That was easy. The next wave was adjusting and investing in founders they hadn’t met face-to-face. Some do “walk and talks” with masks at the end of a diligence process. F2F meetings are still happening — just fewer