Startup Lessons


I recently attended and presented at Dave McClure’s PreMoney conference in San Francisco. I go every year because I love events hosted & moderated by insiders involving discussions by insiders because it maximizes the amount of real discussions people have. What you’ll see if you watch the video is an unscripted and unfiltered look into how Scott Kupor & I see some of the changes and challenges of the venture industry.

tl;dr version

Scott and I agree on nearly everything: The VC structure is changing and there appears to be a bifurcation into small & large VCs with an impact on “traditionally sized” VCs. I wrote my version here and Scott wrote an excellent write-up of his views here.
We both agree that the later-stage valuations are being driven up to a point that feels irrationally priced [he uses b-round SaaS valuations as an example and I am willing to be even more broad based]
We both are concerned about non-traditional capital entering the late stages and the impact that may have in the next downturn in the economy to the startups who merely trying to optimize for short-term valuation maximization

Here is the video of the presentation that I gave that preceded our debate.

The only point we didn’t seem totally aligned on was what we happening to the “middle of the VC market.” I believe Scott’s argument is that the market is following many other services markets where you have small, expert, boutique small firms and a handful of mega players as we see in banking, law, accounting, entertainment agencies, et.

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Since 2009 we’ve been in an unequivocal bull market. Venture capitalists have raised increasing amounts of money from their investors (LPs) every year. An impressive number of new VCs have been created – most of them with new seed funds. We’ve had an explosion of alternate sources of financing from crowd-sourcing, angels, accelerators, incubators, corporates, corporate incubators.  And importantly we’ve had revenue. Consumers buying through smart phones, travelers using the new, shared economy and businesses replacing old software with modern cloud-based solutions.

It has been a good run.

But it won’t last forever. It could last 6 more months or 6 more years for all I know. But the economy grows in cycles and always has: Expansion & contraction. For what ever reason we’re wired to have amnesia during the run up and prescient memories of how we ‘knew it all along’ as soon as the slide begins. I do believe that we are in structural change where technology will increasingly play a bigger role in all facets of life so the long run up for tech is promising through all of these cycles. Once you understand both sides of the cycle you start to recognize signs of behavior during each phase.

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By now almost everybody knows that Marc Andreessen has taken Twitter by storm. By Tweetstorm, that is. Marc seems to single handedly have changed all conventions in Tweeting by dropping 7-10 rapid Tweets in a related stream-of-consciousness labeling each Tweet with a number and a slash before it.

Fred Wilson wrote a Tweetstorm and then did a blog post on the topic. I’ll address his questions at the end of this post.

While Fred’s post makes sense, I honestly think Tweetstorming isn’t Marc’s real magic on Twitter. So I’d like to weigh in with what I believe is.

Background

Marc Andreessen was a prolific and much read blogger for a brief period of time. People religiously read, shared and pontificated on his work. This was pre social media. And then out of nowhere he abruptly stopped. And from there Ben Horowitz became the amazing blogger of record at a16z. Of course they then added Chris Dixon, Ben Evans and many other great public voices.

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It’s not hard to find people willing to write the narrative that “venture capital is not an asset class” or “venture capital has performed terribly.”

The most recent was 18 months ago or so called The Kauffman Report. It had an influence on the people who fund our industry in a negative way as many asset managers who fund our industry read this flawed report. That’s a shame because many of these people missed out on what will be a few great VC vintages.

The biggest problem with the report was that it pulled together data from more than a decade ago to proclaim what the future of our industry would look like. I wrote about this in a blog post last year titled “It’s Morning in VC” but I never made the full deck available until now.

I presented the deck below – which was prepared with the great help of Upfront Venture’s Principal Jordan Hudson – at Dave McClure’s must attend event called PreMoney with much more data and narrative than I had in my blog post.

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Startups are hard. You’ve heard that a million times. Those that we survive with become family. It’s something you can’t know unless you’ve ever been in the trenches. Working hard together at a big company just isn’t the same.

 

 

The truth is you really don’t know how your teammates or your bosses will perform in good times and bad. You hire people who look good on paper. You join teams that got good write-ups on TechCrunch, have great VCs, have star CEO’s, whatever.

After 6 months – you know. You REALLY know. Which engineers dialed it in before a big release because it was during July 4th weekend? Who came in the office at 2am when the servers crashed – even on the night of the big company party. Who was willing to jump on a plan on a Sunday morning with a hang-over to make sure they were there the night before an important biz dev pitch on a Monday morning.

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I just returned from 3 days in Cincinnati including attending the annual meeting of one of Upfront’s LPs – Cintrifuse.

I have never been more optimistic about the impact that the tech startup community is having on cities in America or about the role that cities outside of San Francisco / Silicon Valley can play in our future.

Cincinnati, like many startup communities in the US over the past 5 years, has revitalized important regions in its urban core, created accelerators, built co-working facilities, pooled together angel capital, attracted VCs, involved educational institutions and solicited the help of important corporations in a more cohesive ecosystem. I believe the next 20 years will be an excited time of regeneration for Cincinnati and many more progressive communities across the country.

Why Now?

The “Infrastructure Phase” of the Internet …

Before we had an Internet startup explosion we needed infrastructure which spawned the original tech startup community in Silicon Valley. It required a diffusion of personal computers that led to the massive growth of Hewlett Packard, Intel, Apple Computers and others.

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