It's about time! …Tech sites become more critical of startups and investors

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First off, my hats off to any entrepreneur who is willing to put him/herself out there and take the risk to start a company, sell to customers, and raise money. I wish I could to it myself, but that’s another story.

I came across this article this morning: http://www.businessinsider.com/there-are-too-many-founders-raising-millions-of-dollars-without-any-plans-2013-4

A while ago, when I was a more avid reader of tech sites like BusinessInsider, Techcrunch, PandyDaily, and Betabeat, I noticed majority of stories about startups were rah-rah – everyone will conquer the world and every industry was going to be disrupted.

But over the last few weeks, I’ve noticed that writing has become more critical of both startups, founders, and investors. It’s about time!

It’s a great start to talking about the difficulty of building a sustainable business, how raising money is not success (already been beat to death), and money is too abundant.

Getting a job in VC

Without fail, I get at least one email a week asking about how to break into VC. I will give my short answer, and then point you to some other posts with great answers and advice, much better than mine.

There are two common paths to becoming a VC:

  1. You worked in the startup space
  2. You have transactional experience as a banker

Some other common traits:

  • Have a network of entrepreneurs and VCs/lawyers/bankers
  • Strong interest in working with startups.

Most of all… you have to be Lucky. There aren’t many openings, so you have to be there at the right time and place.

Other Posts: (will add as I come across others)

Random Stuff: What HootSuite has taught me about freemium SaaS

Random Stuff: What HootSuite has taught me about freemium SaaS

Investment banks are now in the startup scene

Lots of change is going on in the startup investing landscape. Institutional seed funds/incubators/accelerators, acqui-hires (Gowalla), and now investment banks.

Goldman Sachs recently held a “Private Internet Company Conference” in Las Vegas. Why?

Because the internet landscape is changing and they don’t want to be left out. It takes small amounts of investment to get started, you can raise money quickly, and the path to IPO is getting shorter.

Upcoming and recent IPOs and their founding

Zynga – 7/2007
Yelp – 7/2004
Facebook – 2/2004
Groupon – 11/2008; 2011
Pandora – 1/2000; 2011
Linkedin – 5/2003; 2011

Google 1998; 2004
Amazon 1994; 1997
Yahoo 1994; 1996
Oracle 1977; 1986
Apple 1976; 1980
Microsoft 1974; 1986

What does this mean to startups and investors?

The investment banks want the IPOs and the mega-mergers.  They don’t care about sub-$50 million fund raises or acqui-hires. So I think they’ll do their best to help out the both the investors and the entrepreneurs with introductions for hiring, investment, acquisition all in hopes of building the relationship to be at the front of the line for the big deal.

Build a proper financial model

In my career, I’ve build hundreds of financial models and reviewed thousands more for everything from VC funding to M&A to LBOs.

Lately, I’ve been receiving half backed financial models. 

I’m not talking about seed companies where the focus is the product and getting the first customer. I’m talking about companies with a product and paying customers. 

I’m not asking for a complete 3 statement financial model that bankers put together.  I’m asking for a model with the key performance metrics highlighted and understanding of the levers that drive your business. 

Vanity metrics are nice, but they don’t tell the whole/proper story. 

The most important part of the financial model is the revenue build.

I’d like to see your assumptions and understand how you got to the revenue numbers you presented. Don’t just plug 20% growth for the following period. 

I want to see that you’ve thought through the number of customers, their spend, their time as a customer, and cost to acquire.  This will lead to your KPIs metrics like LTV, churn, and break-even.  Then compare those to industry numbers and be able to explain why yours are different.

It’s not about being accurate, it’s about thinking it through. Remember back in high school, you had to show your work on those algebra exams to get full credit? Same here.

Every industry and situation is unique, but a well thought out model is important to move an investment along quickly.

I saw the first two episodes of Techstars on Bloomberg over the weekend and I think it’s a pretty good depiction of building a startup. So far is shows how hard, tiring, and humbling the experience is for a startup. I’m sure in the end, it’ll be about the wins and the funding.  What they need is an annual update on the companies and their founders.

The first two episodes highlight how difficult it is to define your product. Most written stories a la Techcrunch are about the launches and funding closes; they barely touch on the difficulties of getting to that point.

In one episode, ToVieFor’s meeting with a potential customer shows how hard it is to explain your service let alone sell it. The show also covered the team dynamics – ToVieFor’s Melanie and her co-founder split only to be replace with someone who she still had issues with. Drama makes for good TV, so maybe it’s just creative editing. ToVieFor shutdown in Sept 2011.

Good job of Bloomberg and Techstars for showing the hard part of startups.