An abbreviated version of this post appeared yesterday on TechCrunch.
If you want the full SlideShare deck with many slides not in either post it’s in this link –> The LA Tech Market
“There’s something going on in LA.”
It’s the most common refrain I hear from investors and even entrepreneurs these days. I hear it right after people have decided to come by for a few days to “check out what all the fuss is about.” I hear it when I visit LPs (the people who invest in VCs) all across the country, “Yeah, I haven’t been out there for a few years but I keep hearing that something is going on there.”
Or if you ask the venerable Greg Bettinelli, he’s #LongLA
So what is actually going on in LA? Is it true that the ecosystem has changed? Has it begun to mature or is it just better marketed than in was say 5 years ago? This is the task I set out to answer with the master of analysis at Upfront Ventures Glenn Poppe who deserves the bulk of the credit for our work.
LA By The Numbers
When you begin to peel back the onion some surprising data presents itself. Let me start with the obvious baseline that most people probably know instinctively: Los Angeles is the 3rd largest technology startup ecosystem in the US. Given our city is the 2nd largest metropolitan area in the country this is hardly surprising.
Marc Andreessen kicked off another great debate on Twitter last night, one that I’ve been talking about incessantly in private circles for the past 2-3 years – what actually IS the definition of a seed vs. A-round.
Cautionary note: No competent VC is actually fooled when you show up after raising $6M in seed financing and say you’re now raising an A!
— Marc Andreessen (@pmarca) October 7, 2014
This is something I think entrepreneurs don’t totally understand and it’s worthwhile they do. My view:
“Spending any time or energy trying to game the ‘definition’ of your round of fund raising is a total waste. Nobody cares. No VC will be so naive as not to see straight through it. And actually many will probably find the gamesmanship as a bad sign of lack of property priorities or perspective.”
Here’s how all the drama started for me.
When I first became a VC, seed rounds were typically $500k – $1.5 million.
Note: this is a non-religious post.
This weekend was Yom Kippur, holiest of the Jewish holidays and the day of atonement. It’s also the day when most Jewish minds are least focused since one needs to fast for 24 hours.
I sat in schul listening to the rabbi’s sermon and given my mind is prone to ADD anyways I must admit that my consciousness often floats around the room but even more so on Yom Kippur. But our rabbi captivated me this year and reminded me of one of the most important lessons I learned myself 15 years ago.
She started with a story — a parable — as Jewish people are wont to do. She told of the teaching of the Talmud – a book which scholars use to debate doctrine and from which Jewish people are reminded to always learn and to debate.
“A rabbi is teaching a young Jewish scholar and he says, ‘Two men go down a chimney, one is dirty and the other is clean. Which one takes a shower?’
‘The dirty one takes a shower says the young scholar.’
‘Are you sure? What if the dirty one saw the clean one perhaps he would assume that he himself was clean.
I was reading Danielle Morrill’s blog post today on whether one’s “Startup Burn Rate is Normal.” I highly recommend reading it. I love how transparently Danielle lives her startup (& encourages other to join in) because it provides much needed transparency to other startups.
Danielle goes through some commentary from Bill Gurley, Fred Wilson and Marc Andreessen about burn rate and then goes on to discuss her own burn rate and others publicly weigh in.
But what IS the right amount of burn for a company? Turns out like most things there are no simple answers. Let’s set up a framework. Here’s overall what you need to know.
1. Gross Burn vs. Net Burn
Burn rate in case you don’t know is the amount of money a company is either spending (gross) or losing (net) per month. (it is also the title of
By all measures the past year has been successful. Teams that I’ve backed have sold their companies to Disney, Apple and AOL for substantive amounts of money. Founders have done very well, our fund has done well. Exhibit: Champagne and celebrations.
But the truth is that selling a company doesn’t always feel like a celebration as a VC. Not being a baby about it – my job is to return money to LPs. But I’ve been thinking about what had me a bit down about selling Maker Studios, Burstly and Gravity. Each of those teams were family. And the family extended beyond just the management team to include investors and the boards.
The more I’ve internalized things I’ve come to see selling a company like graduating high school or college. One day you have these great friends that you talk to all the time, you deal with tons of personal issues and drama, you have highs and lows but dammit – you were there together. I went from weekly (sometimes daily) phone calls with senior members of the team or other VCs. And now we barely see each other. And I miss those interactions. I miss those friends.
We’re all still friends but it’s not the same. Life moves on. You graduate.