The Changing Venture Landscape
bothsidesofthetable.com
bothsidesofthetable.com
Supposing I just left spacex, what funders would I reach out to who would give me money to "search for an idea"?
I recently did a Due Diligence call on a company that was trying to raise a $1M pre-seed round, and had previously taken 250k with basically nothing to show for it. I thought this was silly, for both the amount and the name (esp for first time founders).
Apparently though according to this, a "pre-seed" at $1-3M is actually a thing. This seems insane to me because at least from when I started being involved in startups around 2011, traction was king before you found a cent outside of friends and family or Angels if you were well connected, or had a previous exit.
This whole post though does reflect what we are seeing as a venture fund (I'm an LP in a tiny fund) with people asking for a LOT of money for basically no market proof and there being no real way to win if you're investing at the $3-10M level. I think that is kind of crazy to be honest but I assume if I were raising money again I might be tempted to do that.
I think what is different in my mind from 2011 is that there used to be hope that someone could unseat Google, MSFT, Amazon, WalMart etc... the same way Apple, Amazon and Google did to IBM, DEC and Sun. I don't think anyone truly believes there's a startup that is hatching today that will unseat Amazon in the next 30 years.
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Side note. Mark has apparently lost a ton of weight and become very fit since when I was following him more closely back in 2015. Congrats to him!
[0]https://bothsidesofthetable.com/how-i-lost-65-pounds-in-18-m...
I'm based in Australia, and VCs here still "like" to see traction. the other difference here, as I understand it, is that VCs are taking a smaller equity percentage in seed stage (12%-20%).
I have to disagree with your comment re: [what] startup that is hatchig today that will unseat Amazon in the next 30 years"?
My take, Apple, Amazon, and Google didn't "unseat" DEC and Sun. They created entirely new categories that didn't exist before. Just because IBM, DEC, and Sun were well placed and "should" have owned these categories doesn't mean the were unseated by them.
Some people are still looking for the "next facebook/youtube/etc", but the real opportunity isn't in challenging incumbents, but in creating markets where incumbents don't exist.
What you describe is HOW Goog etc... unseated the majors. Namely that those other companies couldn't adjust fast enough to absorb those new and fast growing markets.
While we could argue whether or not FAAMG is great at executing on attempts to follow emerging markets, I think it's indisputable that they have the resources and nibleness to either absorb via acquisition, take significant positions in (via venture funds) or kill any emerging markets that would actually replace their market positions.
I argue that there exist no emerging markets where the top players couldn't collectively come in and replace/kill the new entrants.
If the answer is (1) acquisition, that's a good reason to invest in the companies attempting to disrupt the space -- you're making the incumbents pay for that monopoly status. Even if they aren't disrupted, you're profiting from their anti-competitive behavior.
Context: in Europe, right now shopping around for a preseed. Realistic target at 500k-1M range but could go higher. We have a bootstrapped MVP but no client yet. B2B, devops kind of tool.
1. Rn with the current market, 500k pay for a team of 4 for a year. Nothing else. That is the reality of market price for tech jobs. In a B2B environment that will limit your sales heavily but let you polish the product and onboard some users. Reaching for less make no sense. You would pay under market rate for only 3 to 6 months. Noone will accept that offer.
2. The cost of bootstrapping are really low. If you get offers smaller than that, better not take in investment and grow at the pace you would have had anyway.
3. I totally agree that Round A and bigger are totally out of whack. In the current environment making money, at least b2b, should be easy.
4. The problem here is that... most of the current tech is not trying to be a giant. As you said. And we have a lack of financial products for that. So you have to keep in mind that the VC landscape is quite separated from what they fund. We have mostly products that will be profitable but not products that will become giants. And VC still finance late rounds as if they were.
5. Also there is a looot of money available in late rounds. LP give a looot to these, from institutional org. So you get a natural inflation. Which mean you do not finance on fundamentals. You finance on being able to interest these big funds in later rounds
6. To raise a pre-seed or seed right now means i would need to work for 3 months full time pitching. People with a working product can't do that. So you get the "grifters"
So yeah. All in all we are losing a funding system for products with the kind of fundamentals you talk about. Cost of starting have reduced... so bootstrapping them and ignoring the VC landscape is easier. Sadly. There is some hope for new financial products but not high here.
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PS: if you want to invest or more info, feel free to contact me. Email in profile will work.
Right, but people aren't just going out and executing and scaling without funding - which is what they should be doing.
Instead they want VC to fund their experiments, which IMO is bad for the market.
Also it is not about scaling. It is about security and good bets. I can be paid 150k to 200k for a FTE job. Why take the risk and reduce my income by bootstrapping.
Investor money allows that to happen. I sell an option on future gain for today cash. Basic investment. The fact that noone wants it tells us the problem is a lack of a financial product.