171–180 of 220 posts
That way the term would make sense for older companies if they hit a high growth phase.
The discussion of expected return sounds good from an investors perspective, but founders have no diversification, so a 1% chance of $100m or 99% chance of wasting five years sounds pretty lousy. This is my biggest issue with the VC world from a founder's standpoint. The situation gets even worse once you throw the decreasing marginal utility of money into the mix, because now the expected value of $100m is not worth…
The most prominent is the trend towards allowing founders to cash out in a portion of their ownership as part of the deal. Another is the trend towards smaller rounds where the founder gives up less control and fewer liquidation preferences.
Based on required growth rates and measurement intervals (5-10% per week), there would seem to be a pretty heavy bias towards the consumer space. B2B or so-called Enterprise Companies, especially industry-specific new companies, would have a hard time qualifying on several fronts (market size, growth rate, growth interval). I am particularly interested in the B2B style of startup because I run an Enterprise Startu-er…
Selling expensive enterprise products does have a longer sales cycle than cheaper consumer products, and increments to your revenue come in more discrete blocks. But that doesn't invalidate pg's argument about growth: you just have to use other proxies to estimate your trajectory. For example, instead of active users you track a number of leads and how interested they are. Even without a single closed deal, you can m…
This article is, for me, more proof of a general phenomenon that's happening recently - startups are no longer considered the best vehicle for hackers to become wealthy. Maybe it's just my own history and confirmation bias speaking here (recently switched from startups to a Consulting business). But lately, the whole "bootstrap" movement is getting much more popular around here. More and more, I'm seeing articles and…
- Venture Capital pouring millions into untried businesses. - The crazy valuations. - The recent complains of VCs that "Entrepreneurs aren't working on enough big ideas". It all actually makes sense now. It's all in the name of Big Risk = Big Reward style ventures. Especially after defining a "startup" as a company meant to grow rapidly and to massive proportions. Not necessarily a tech business. Not an online store…
Fingers crossed for you
Earlier quoted context omitted.
Not at all. Notice that Paul says you should be alarmed if you are not hitting 5/7% growth per week . That kind of growth only makes up a tiny fraction of "the process" and, in my opinion, is the easy part to deal with. The hard part, where VC/gurus can add value is the vast gut-it-out parts, but this essay hurts more than it helps on that axis. I think this is an essay more about "startups y combinator can flip to V…
I found this essay exasperating, but YC doesn't "flip startups to VC". That's not how it works.
From a practical standpoint this means that the company needs to raise n + A where the "+ A" part pays back a return to the angel. But it allows the Angels to shoulder risk early to weed out the non-viable players and still make money at it.
So imagine this scenario. Alice wants to start Woohoo and Bob funds 40% at a $250K valuation (since Alice is the only person so far, that is $100K invested. Alice works hard and gets out an MVP and goes for a Series A where she wants to raise $1.5M at a post raise valuation of $5M. Bob sells into the round half his shares (its taking money off the table for him) with a contractual net return of xx% (probably anywhere from 20 - 100, that being the negotiating rub) and does not participate in future rounds, he retains y% at the end of the series A (optionally converted to Common stock) and dilutes going forward. (remember he's got 'free' stock at this point, he's made his bit with the angel round)
The two negotiation points on Bobs term sheet are the net return and the retained interest portion. The people coming in after Bob are Ok with it because Bob is out now and paid his 'finders fee' or however ever you want to describe his return. The net return will affect the series A amount needed by the founder, the retained interest would be a function of how many rounds the founders think they will need to exit.
Given the seed to series A or bust cycle is usually at most 24months, Bob has a good idea of his risk profile, and by stepping out from an equity point at the Series A he's not an obstruction to new partners coming in, more of an adviser at that point.
1. This is a superb essay delineating the attributes of a fast-growth, all-or-nothing type of startup. No surprise here. Who besides pg has had the depth and breadth of quality first-hand experience with such ventures over such a sustained period and in such an explosive context as that of recent years? He has here given us a classic analysis of the prototypical, Google-style startup.
2. I think the idea of a startup should not be so narrowly defined, however, and the big reason is this: many founders set out to build ventures that are tech-based, innovative, aimed at winning key niches via hoped-for rapid growth and scaling, positioned for outside funding as suited to their needs, and aimed at liquidity via capital gains as the primary ROI for their efforts . . . but who also place a huge premium on minimizing dilution and maximizing founder control. These are the independents. The ones who, by design, want to defer or even avoid VC funding so as to build their ventures on their own timing and on their own terms. Now this is not the Google startup model. It is, in a sense, its opposite. But it is not the model of a small business either. It is just a different type of startup.
3. The trend over this past decade has moved decidedly toward greater founder independence in the startup world. Back in the bubble days, as a founder, you had very little information available to learn how startups worked, you often had heavy capital needs (e.g., $2M to $4M) right up front to do such things as build your own server banks, and you would almost certainly have little leverage by which to minimize dilution or loss of control at the time of first funding. Today, this has completely flipped. Vast resources are extant teaching founders how startups work. Initial capital needs are often minimal. And it is relatively easy to get reasonable funding on founder-friendly terms. What this means is that, today more than ever, the independent-style startup is more open to founders than ever before.
4. Given the above, it seems to me that this is not the time to say that the only style of startup worthy of the name is that of the super-rapid-growth type. The rapid-growth type may be more glamorous by far but it really defines only the tip of the startup world. Beneath it is a vast world offering incredible opportunities to founders who want more control over the timing, scale, and management of their ventures and who seek to realize gains and manage risks accordingly.
Earlier quoted context omitted.
"pg's definition of a startup is just one kind of startup." Most important is that PG's definition of a startup (or Fred Wilson's or Steve Blanks or pmarcas or Doug McClure's etc.) is to serve a purpose of what is good for them in their business model which is to make money off of people who take chances with their time hoping for a certain outcome. It's not about what is good for any particular person or for society…
Businesses that are good for society need to grow quickly to actually reach a large fraction of society. To get from 100 users to 100 million, you need to double 20 times. If you only double once a year, it'll take 20 years before you benefit a lot of people. If you can double 5 times a year, you benefit a lot of people after only 4 years. So no, rapid growth isn't just something investors like. If your product helps…
That is not true (and is more relevant to manufacturing than to tech companies). Look at ARM, for example, it never needed to grow rapidly and it doesn't actually produce stuff - it just licenses intellectual property - but the existence of ARM benefits millions. Would this fledgling firm in the early 90s Cambridge not be called a startup (was Apple dumb to fund it as a joint venture?) - would VCs not have liked to have a piece of it in the early 90s?
EDIT: Same goes for id, Valve and other game studios - you see sometimes it's better to have the best engineers and researchers take their time, let them develop and mature the technology they're working on and build something long-lasting that affects millions of people.