asanwal

Good luck.

One alarming thing IMO in the post is the focus on getting funded vs. validating (or even selling) a product

Funding is just an ingredient (not even required always) in the recipe. The final product is the cake.

Bootstrap if you can -- build something people want (sorry for the trite startup advice) and charge for it.[1]

Don't mean to be pedantic. I just find the narrative on getting funding as a pre-req for success which has become the norm to be a bit overblown.[2]

Notes:

[1] I'm a co-founder of a bootstrapped 7-figure recurring revenue SaaS business in NYC.

[2] 2/3 of last year's tech exits were not institutionally funded -- http://www.cbinsights.com/blog/trends/global-tech-exits-repo...

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We are bootstrapped with 7-figure per annum recurring revenue and will be 20 people by this summer.

Recognized as one of NY's 15 enterprise tech companies to watch.

Fair point, but like it or not, cost per user matters.

- When investing in or acquiring companies, people may use this metric in addition to price/sales or in rare cases for tech companies price/EBITDA valuation multiples. It forms the basis for comps analysis which bankers, M&A types and VCs do all the time.

- Companies use the ratio in similar ways when fundraising or talking to acquirers. "Based on how many users we have and comparable transactions, we're worth $X million"

- While you may buy users looking forward, you also may look at how you can "monetize" existing users, i.e., if we can get $X per existing user, that would be worth Y.

It is of course not the only metric that an acquirer evaluates (at least the good ones), but they do look at it as do investors, bankers and startups. So good or bad, it is here to stay.

Good article. A few additional things to note:

1. Most founders don't have to think about hedge funds as a funding source. They're not doing seed/early stage deals. There are 300-600 private companies that hedge funds track and care about. It's later stage, pre-IPO companies.

2. GGV Capital (article author) is a late stage investor so they may compete with hedge funds, but more often than not, hedge funds are providing capital that VCs cannot. Hedge funds are a much much larger asset class than VCs and VC has been contracting. So when a VC-backed company needs big $$, VCs need to syndicate and corporates and hedge funds are often jumping into these deals.

3. This trend is going to increase. As private companies stay private longer, hedge funds and public market investors in general are taking more interest in the private company universe. And they look at private compnaies as investment targets and as potential disruptors of their public company holdings.

4. Hedge funds are a great deal more data-driven and analytical than their VC cousins. VC is still very artisinal and instinct driven. It will be interesting to see how their behavior and approaches influences VCs, if at all, over time. (We sell data to hedge funds investing in private companies and so see how they use data)

Notes:

1. Hedge and mutual funds put $2.45 billion into private companies last year - http://www.cbinsights.com/blog/trends/hedge-mutualfund-tech-...

2. Corporates part of 4 of 10 largest tech financings - http://www.cbinsights.com/blog/trends/tech-corporate-venture...

Copy of post. Original here -

http://www.chubbybrain.com/blog/top-reasons-startups-fail-an...

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Thx. We will add yours. If folks know of other post mortems we missed, leave them in comments and we will add them.

For those interested in trends & hard data on startup failure, this may be of interest - http://www.cbinsights.com/blog/trends/startup-death-data

Great point. Lyft may still be the surprise in this. Affluent Mongolians are unlikely to be traveling and looking for a way to share rides with strangers, no? Possible perhaps but sounds much less likely.

Stephen -- really good points. I think the breadth of the countries is still surprising / bizarre. While Nigeria does sound plausible based on your comment, others like Mongolia, Kazakhstan, Barbados, etc do not have the same characteristics and so def a bit stranger.

Thoughts?

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Yes it is fun to hate on VCs as there is a lot wrong with the model, but this article is misguided. If you want to run a business growing linearly which makes a profit, don't take VC. There is nothing wrong with that, but it doesn't fit their model.

But if you take VC, go in knowing how they measure success. And it's based on mega-wins - not on profitable, dividend-paying companies.

Everpix might have been a great co. They just weren't a great VC- backable biz.

I really enjoy Jason Freedman's posts, but I suspect 42Floors and many of the examples given in this comment thread don't meet Keith Rabois' criteria which he mentions in the Twitter exchange.

"change the world, or $1 Billion exit or 10x for series A, B investors and 5x for later."

Hi - mind resending to me? Sorry. My inbox is a wreck. asanwal@cbinsights.com

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Looking for - the Nate Silver of tech (tech industry analyst)

- inside sales

- full stack devs

- product adoption manager

Smart and humble are important.

While customer happiness is vital, some concerns or questions on this framework:

- Affordability - does that mean priced appropriately for value provided or cheap? In our experience, cheap means more support requirements as customers who pay too little chew up most of the support bandwidth.

- This framework won't scale as the organization gets bigger (more customers). First, low-paying customers will demand more support and providing 2 minute turnaround becomes an impossible standard.

- Finally, this level of support is economically sub-optimal as some customers who want higher levels of service will pay more for that. Support is a feature.

Just my $.02. We have lots of happy customers of our SaaS biz so I wholeheartedly agree with the sentiment. Just think it's important to be mindful of setting expectations correctly for customers as a 2 minute response standard doesn't leave much room for error and may not be sustainable.

Sorry if my point was not clear. The article suggests a new insight into the venture landscape by A16Z given their shift away from consumer startups. Just trying to point out that the shift has already happened among VCs towards enterprise so this is not new.

Whether enterprise is a better area for VCs or not is a separate argument.

This shift is yesterday's news. Given their size, brand and PR, however, when Andreesen Horowitz does it, they get an article in the WSJ.

The reality is that tons of VCs have already migrated away from consumer startups.[1][2]

Data to support above

[1] 84% of 2013's largest exits in tech have been to enterprise companies - http://www.cbinsights.com/blog/trends/enterprise-tech-consum...

[2] 70% of 2013's largest tech financings have been to enterprise - http://www.cbinsights.com/blog/trends/venture-capital-enterp...

Disclaimer: I'm a co-founder of CB Insights - the firm that put out this research.

New York, NY - CB Insights Full-time, H1

www.cbinsights.com/jobs

Bootstrapped to 7-figure subscription revenue business. Building the rating agency of the innovation economy. National Science Foundation-backed

Looking for

- full stack devs

- tech industry analysts (a Nate Silver of tech)

- product adoption manager

Among others

New York, NY - CB Insights Full-time, H1

www.cbinsights.com/jobs

Bootstrapped to 7-figure subscription revenue business. Building the rating agency of the innovation economy. National Science Foundation-backed

Looking for

- full stack devs

- tech industry analysts (a Nate Silver of tech)

- product adoption manager

Among others

Very true. They're just much easier to comprehend so they get more media attention as they ultimately appeal to a larger, non-specialized audience.

Like you said, they're hard to get to that point of scale but when you do, they can be massive.

Enterprise is perhaps "safer" as you build something people pay you for. For startups who might need VC, the sentiment and shift towards enterprise is stark. We knew the enterprise exits would be a larger share of the total tech exits, but it's much larger than we'd have imagined to be honest.

I used to work at Kozmo launching their facilities and new markets, and I can say the brand still resonates with those that used it almost 13 years later.

I have a messenger bag from the firm which I use from time-to-time and every time I do, people stop me to say how much they loved Kozmo and of course point how dumb it was that they could order a Ben & Jerry's for $3 at 2 in the morning.

So ,of course, the model was fatally flawed, but for the average consumer who used Kozmo back in the day, they loved it. And so there is some brand value and a ton of PR that come with the name that someone could exploit.

Let's hope the biz model is just a bit better this time :)

I'd suspect it helps do 2 things

- marginal VCs die sooner. This is already happening but more competition for deals hurts VCs who don't bring a lot to the table. This either brings in new smarter blood or right sizes the industry.

- can allow for a set of investors whose criteria for success is more in line with reality. A $100M exit doesn't get most VCs excited but angels and syndicates of angels prob love those. And 60% of tech M&A exits last year were less than $100M.(1)

(1) http://www.cbinsights.com/blog/acquisitions/tech-mergers-acq...

Absolutely fair critique. Cambridge Associates and Preqin are primary data providers in this world, but in talking to our VC customers, we've heard that sample size, reporting bias (funds doing well may be more inclined to participate) and large time lags are a problem with judging VC performance based on their data. Some studies have also found that the same fund can have different returns in each system.

That said, it's the best of what's available today.

The best indicator or proxy that returns suck is that LPs are voting with their wallets and leaving the asset class and investing in it less.

The returns are abysmal primarily. They lag Wall Street (while taking much more risk)

http://www.geekwire.com/2013/vc-returns-improve-10year-horiz...

This may sort itself out on its own, however, as LPs are investing less and less in the VC asset class.

This has been tried multiple times before (a startup funding marketplace) but all have failed because they couldn't build out the two-sided network.

AL is the first to solve this. They have quality investors and startups (the 2 critical sides of this network) which is what gets the flywheel turning on these marketplaces.

We see lots of Crowdfunding platforms getting funded and all focus on competing on features and fees but fail to build out credible network participants on both sides and getting liquidity on the platform. AL is doing this well.

Given that Naval also seems smart as heck, this is going to be big and I suspect quite disruptive to the broken VC model.

Thx for the comment. We are updating the brief with all the zeros as we have the data.

You are right that the line would point down if all failures raised a lot of money at the seed/Series A stage, but that's not the case. This intuitively makes sense as only a small select group of companies/founders can raise large initial rounds (serial entrepreneur, amazing traction, etc) and most will raise smaller sums.

But thx for comment. Update with zeros coming soon.