Tag Archives: Small Business

VC Funding Down 67% in December

Tough times in startupland show no signs of ending. Venture funding fell 67% in December from a year earlier, according to a new report by S&P Global:


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The aggregate value of venture capital-backed funding rounds worldwide dropped 66.7% year over year in December 2022 to $19.71 billion, which is around the same level of annual decline seen in November 2022, according to S&P Global Market Intelligence data.

The number of completed rounds fell by 57%.

These grim stats match what I’m seeing in the market every day. Far fewer deals are getting done, and those that are take longer to close.

The weakest companies have left the market.

The $100 million “seed” rounds in crypto startups with no product or customers were everywhere in 2021. Now, those companies have either given up on fundraising or gone out of business.

The good news is that good companies are still getting funded. I’ve been a part of several multimillion dollar seed rounds in recent months.

These companies have annual revenues in the hundreds of thousands, growing fast. They also have a head start in huge markets.

Even for these companies, rounds take months to close and sometimes don’t fill completely.

If your startup doesn’t have rapidly growing revenue, your chances of raising today are slim. Instead, I’d focus on getting more customers first, which will make your fundraise much easier.

If you are fundraising, you want to raise enough to give yourself runway for two years at least. The 18 month standard I used in 2021 just isn’t enough in this bleak environment.

And don’t count on all that “dry powder” saving you. VC funds may be sitting on a lot of cash, but they’re also deploying more slowly.


As for me, I’m investing in about one company a month, same as I always have.

A few great companies are born every year. In venture, our only job is to own a piece of them.

What do you see in markets today? Leave a comment at the bottom and let me know!

More on tech:

They Passed on Apple, Google and Facebook…Here’s Why

How Startups Change Lives

Entrepreneurial ADD: The Startup Killer

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How Startups Change Lives

Many founders work incredible hours. So what’s all this for…just to make someone like me money?

Hardly.


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I know startups can change lives because I’ve seen it happen.

My mom lives in a small town in Wisconsin. Getting around without a car is nearly impossible — but she can’t drive.

She was born blind in one eye, making depth perception a mess and driving a nonstarter. The basic things we take for granted — getting groceries, making a doctor’s appointment, or just grabbing coffee at Starbucks — are very difficult for her.

Or were…until Uber and Instacart!

When I was a kid, we often waited over an hour for a taxi home with our groceries. And we did that outside in frigid temperatures, lest we miss the car.

Now, neatly packed bags appear on Mom’s doorstep, like magic.

We stood in deep snow waiting for the bus if we wanted to go anywhere. I think I spent half my childhood saying “Where the heck is this thing?”

Now, an Uber glides up in minutes, taking Mom wherever she likes.

One of my companies got acquired today. It made me think that despite this financial win, we do this job for a lot more than money.

Whether you’re a founder, investor, or startup employee, we want to make something amazing! We want to make a nicer life for other people.

So the next time you’re staring at your computer at 3am, remember this: what you do matters. You’re creating the future, and it’s going to be awesome!

What motivates you? Leave a comment at the bottom and let me know!

More on tech:

They Passed on Apple, Google and Facebook…Here’s Why

Entrepreneurial ADD: The Startup Killer

Have We Reached SaaS-turation?

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Entrepreneurial ADD: The Startup Killer

Every time I get the monthly update, I’m confused. Did I really invest in this company?


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There’s a disease that will kill a startup faster than anything else. It’s called Entrepreneurial ADD.

This deadly condition involves a founder who gets distracted too easily. Rather than nailing one business model, he’s always running off in new directions.

Hot new trend? He’ll pivot the entire business to work on it.

New product showing signs of working? Trash it and build something even cooler!

Entrepreneurs have boundless enthusiasm and tons of ideas.

This can help them innovate and succeed. Or it can have them running around like chickens with their heads cut off, accomplishing nothing.

Take the example of my portfolio company. After seeing some early signs of success with one product, they pivoted to something completely different.

The founder continued to chase down every hot trend in tech. Meanwhile, revenue shrunk and cash evaporated.

Now, runway is minimal and the chances of raising more money are poor. In this environment, a cash burning company with declining revenue is not investable.

What if they had simply hammered away at their original, successful business? They might be break-even by now and raising from a position of strength, if at all.

Venture capitalist Ben Narasin notes that in decades of investing, he’s almost never seen a pivot work. How many companies pivot over and over and succeed?

Probably almost none.

Don’t abandon a winning business model for the shiny new toy! Double down on what works.

And if your model isn’t working, fix it! If a particular problem is important to you, don’t just abandon it at the first sign of difficulty.

Because guess what? The next business will be difficult too!

Do you struggle with Entrepreneurial ADD? Do some of your founders have it?

Leave a comment at the bottom and let me know!

More on tech:

Have We Reached SaaS-turation?

Is 2023 the Best Time to Invest in Startups?

The Magic of Milestone-Based Funding

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This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 with great returns.

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Photo: Jack Dorsey, one of the very few CEO’s to successfully pivot a company. He pivoted Odeo to Twitter. “Jack Dorsey” by jdlasica is licensed under CC BY 2.0.

Is 2023 the Best Time to Invest in Startups?

It was a rough 2022 in tech — layoffs, shutdowns, and stocks falling off a cliff. But 2023 promises to be a golden age for startup investors.

Here’s why I’m more excited than ever to invest in 2023…


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Valuations

In 2021, you could raise venture capital for a fruit stand.

I saw crypto startups with no product or customers raising “seed rounds” at $100 million valuations every day. Deals moved so fast that if you did any diligence, you might miss it.

Now, the market has slowed to a crawl. The vaporware startups have disappeared.

What’s left? Great companies raising at reasonable prices.

I’m often paying half as much for a company as I did in 2021. Even fast growing startups with several hundred thousand in yearly revenue go for about $10 million.

A lower entry price means more upside. And since a seed investor like me probably won’t exit for 10 years, prices could skyrocket in the mean time.

Focus

Founders today are laser focused. They’re not speaking at conferences or rolling out NFT’s.

They’re fighting to make sure their businesses survive.

Founder distraction is a giant killer of startups. For better or for worse, facing bankruptcy concentrates the mind.

I think founders and teams will perform better under this pressure, difficult as it can be.

Access

These days, I can get into any deal I want. Founders have to cast the net beyond the most famous firms in order to raise a round.

For angels and new VC’s, this is a boon. If you ask to get into any deal out there right now, it will probably happen.

There are only a few companies founded every year that matter. Our only job is to get as big a slice as possible of those deals.

That’s a lot easier to do in 2023 than it was in 2021.

Uber, Airbnb, and Block were all founded during the financial crisis. Someone is out there creating the next Uber right now.

It’s our job to find them.

How do you feel about investing in 2023? Leave a comment at the bottom and let me know!

More on tech:

The Magic of Milestone-Based Funding

Is SBF Laundering Money As We Speak?

Zero to One

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This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 with great returns.

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Photo: Uber founder “Travis Kalanick” by jdlasica is licensed under CC BY 2.0.

The Magic of Milestone-Based Funding

There’s a law in Silicon Valley as basic as F = ma: milestone-based funding. It’s why you can’t raise $100 million on day 1. It’s also why my positions in my strongest companies are many times larger than my weakest ones, as if by magic.


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…You show incremental progress. We’re engaged in milestone-based investing where the amount of money you raise and the valuation you’re able to get scales with the amount of proof you have delivered to investors about the company.”

David Sacks, All In Podcast #43

Milestone-based funding means that you don’t get all the money your company will ever need at once. Instead, you get a little now, go accomplish some stuff, and come back for more.

In venture’s early days, a company was financed once, and it either sunk or swam. Milestone based funding lets investors allocate their capital more efficiently.

The most successful companies need more money to grow. Meanwhile, throwing good money after bad rarely gets you anywhere.

Let’s see how this works in practice by looking at two companies in my portfolio.

A Tale of Two Startups

I invested in both Company A and Company B within weeks of each other in the spring of 2021. With high hopes, I sent in my wires and envisioned a wonderful future for both.

Well, I was half right.

Company B has increased revenue 6-fold since then. It’s expanding to new markets and signing up customers like crazy.

For Company A, the picture isn’t nearly as rosy.

Revenue hasn’t grown at all and burn is heavy. Raising more money is impossible and bankruptcy is a very real possibility.

How Milestone-Based Funding Played Out

My initial investment in both these companies was exactly the same amount. But now, my investment in Company B is almost 6 times as large.

The reason is very simple: I doubled down in Company B and did not reinvest in Company A.

Company B recently raised a much larger round at the same price as before. With amazing progress, I was happy to 6x my investment.

Add in a little dilution from this round, and my position in Company B is nearly 6 times bigger than my position in A.

If Company B continues to perform well, I’ll be putting in even more. That, plus increases in valuation, may eventually make my investment in B dozens or hundreds of times larger.

What This Means for Founders

Raise an amount appropriate to where your company is at today.

If you have only a couple of customers, you’re probably looking at around $500,000 in pre-seed. If you have $250,000 ARR, you may be able to raise a $2 million seed round.

Then, keep those investors updated on your progress. Remember, there’s more money where that came from!

Milestone-based funding is a brutal system, but it’s necessary.

I’d love to help Company A with another check. I love what they do and I want to see them succeed.

But I just can’t justify it when other startups are performing better.

What questions do you have about fundraising? Leave a comment at the bottom and let me know!

More on tech:

Is SBF Laundering Money As We Speak?

Zero to One

Why I Just Invested in Rilla, the Killer App for Outside Sales

Note: Shout-out to Fathom.fm for finding that David Sacks quote in seconds. Making audio searchable really is the future! Delighted to be an investor in this great startup.

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Fundrise

This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 with great returns.

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If you decide to invest in Fundrise, you can use this link to get $100 in free bonus shares!

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Photo: “David Sacks” by jdlasica is licensed under CC BY 2.0.

Seedscout: Where Underestimated Founders Win

Every morning, I have dozens of new LinkedIn messages from founders. I seldom have time to reply. But what if there were a better way for founders and investors to meet?


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Enter my latest investment, Seedscout. Seedscout is an awesome new platform for founders to meet investors.

The magic of Seedscout is that there’s a monthly fee. This filters off people who aren’t serious.

What’s left? Awesome founders I want to meet!

I find myself meeting with almost every Seedscout founder who asks. Meanwhile, my LinkedIn requests languish in digital limbo.

I recently met an amazing founder on Seedscout whose startup is growing revenue at 70% a month. Once I wiped the drool off my chin, I reached for my checkbook!

When a platform gives me deal flow like that, I pay attention to their next intro. Meanwhile, since I rarely find solid deals via cold messages, I often don’t have time to respond to those messages.

For founders without a strong network in venture capital, Seedscout is a super power. You can buy your way in.

With plans starting at $100/month, a scrappy young founder can drive Uber for a few hours and pay for a membership.

Seedscout Founder & CEO Mat Sherman is fanatical about opening up venture capital to all great entrepreneurs. In an industry where just 2% of funding goes to women and just 0.4% to black founders, Seedscout is changing the rules of the game.

In time, Seedscout may replace LinkedIn and AngelList. For me, it already has.

I’m delighted to be an investor in innovative startup. Best of luck to this scrappy team as they take Sand Hill Road by storm!

I’m on vacation for the next two weeks. I’ll see you again on Monday, December 19th!

Until then, please enjoy some classic posts from the archives:

The Startup Pitch Checklist

Mark Twain: Venture Capitalist

North Jersey’s Secret Campground

The Swami Who Taught Me About Politics

The Ultimate Score: Turning $300k into $2.4 Billion on Coinbase

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Fundrise

This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 with great returns.

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Why I Just Invested in Rilla, the Killer App for Outside Sales

Every day, sales reps go to meetings across America to land that big deal.


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Their managers hope they absorbed the lessons of training and can bring in the sale. Unfortunately, they rarely have the time to go along.

But with cutting edge AI, sales managers can now analyze every customer meeting without ever leaving their office!

Rilla records sales meetings and tags the most important moments. You’ll know if reps are following the script, what customer objections are, and a lot more.

Other platforms like Gong or Chorus may work for inside sales with its clean audio. But for outside sales in the noisy, chaotic world, Rilla is king.

You just press record on a phone or tablet and that’s it! Rilla takes care of everything else.

No wonder sales teams are adopting Rilla at an incredible rate.

Sales managers see a 20-30x productivity increase. Reps get the feedback to make their pitch better than ever, meaning more commissions.

I’m delighted to be an investor in Rilla’s recent seed round. The founder, Sebastian Jimenez, is tenacious and laser-focused on his customers.

If you’re in outside sales, book a demo with Rilla and see what it can do for you!

More on tech:

Seeing Through SBF: How One VC Found the Truth

Getting to $10 Million ARR Without a Series A

Why I Love B2B Startups

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This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 with great returns.

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Photo: Sebastián Jiménez, Founder & CEO of Rilla

Why I Love B2B Startups

Last year, most of my investments were consumer startups. But in 2022, I’ve done a 180.


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Of the 11 investments I’ve made so far this year, all but 2 are selling software to businesses. So why the about face?

Over the last year, I’ve noticed that many of my best performing investments sell Business to Business Software as a Service (B2B SaaS or just SaaS). Meanwhile, some of my consumer investments have struggled.

Here are some of the unique advantages of SaaS:

1) Less churn.

Consumers are fickle. We try a service for a while, say “meh,” and cancel.

But businesses don’t sign up for new software without thinking it through. And once they start using it, they’re much less likely to cancel.

Changing software tools disrupts their business. So if you’re product is solid, you’ll probably have a customer long term.

A good Enterprise SaaS company might have churn of 1-2% a month. But even a strong consumer company is likely to see 3-5% churn.

If your customers churn at 5% a month, you have to rebuild your company from scratch every 2 years. A SaaS company doesn’t have to do that.

This is a huge advantage.

2) Land and expand. SaaS companies have a unique ability to grow…even without signing new customers!

How the heck do they do that? By doing more business with the customers they have!

Let’s take Density as an example. Density is an awesome startup that sells sensors to measure how people use physical spaces.

Let’s say LinkedIn buys Density to track how its headquarters is used. It’s so helpful that they expand it to their New York office, paying Density even more!

That’s land and expand.

The best SaaS companies can grow at 50% a year without signing a single new customer. And that’s after accounting for their churn.

This rarely happens in consumer. I’m only going to buy one Paramount Plus subscription, no matter how much I love Beavis and Butthead!

3) You can afford a sales team.

I pay $5/month for Paramount Plus. My value as a customer is way too low for Paramount to have a sales team contact me.

They just have to hope I show up.

But SaaS subscriptions cost a lot more. This means they can afford a sales team to go find customers.

That makes bringing in new business a lot easier!

This is especially important now that online ads, the most likely alternative, aren’t working well. Apple’s removal of ad tracking made targeting difficult, drastically reducing their effectiveness.

So does this mean I’m only doing SaaS from here on out? Absolutely not.

But I’m focusing on consumer companies with a clear value proposition. An example would be a marketplace like Gauge, which makes it way easier to sell your car for a great price.

I’m avoiding social media startups. The sector is more hit driven and the value prop for customers is a lot less clear.

Do you prefer SaaS or consumer? And why?

Leave a comment at the bottom and let me know!

More on tech:

Talking FTX, Twitter and Startups at Starta VC

Is SBF Headed to Prison?

Bridge Rounds: The Path to Riches?

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Bridge Rounds: The Path to Riches?

We usually think of bridge rounds as throwing good money after bad. But new data shows that some bridge rounds can be an amazing bet.


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Bridge rounds with a top tier VC are some of the best performing investments in venture capital. They have returned a multiple of over 5x in less than 4 years, according to a new analysis from AngelList:

…on an indexed basis, the top-tier / bridge segment is the best performing segment. We find that for investments aged 2+ years (completed after 2018), the gross TVPI of capital in bridge deals with top-tier VCs vastly outperforms all other segments:

Case in point: a consumer app I re-invested in this summer. I first invested in this startup’s seed round last fall.

Since then, it had more than 5x-ed revenue. Burn is low and the company is firing on all cylinders.

Seeing the same great performance I did, several top tier VC’s joined the round. But the valuation was only a little higher than the fall of 2021.

Given the opportunity to put more capital into one of my winners, I backed up the truck. And I hope to invest even more in their Series A!

Why is this such a great bet?

I already knew the company well, and I saw it execute on its plan over a period of 9 months. Meanwhile, the revenue multiple I paid this time was far lower than before!

So what’s in it for the founder?

They can quickly raise capital from investors they already know and trust. Then, they can get back to building.

They’ve still preserved the option to get a Series A at a much higher valuation. And now they have the cash to get them there.

The outperformance of bridge rounds with top tier VC’s is no accident. Many top firms opportunistically offer more money to their top performers, even when they’re not raising.

If you’re getting the investor updates and you saw the company just tripled revenue, why wouldn’t you offer them another $1 million? What’s the point of waiting for someone else to steal the deal from you?

But we have to distinguish these awesome bridge rounds from their evil twin: the bridge to nowhere.

A company in my portfolio that’s barely growing and burning tons of cash raised a small bridge recently.

Tellingly, no top tier VC participated. They were only able to raise from a few angels.

I declined to participate. I’m happy to help the company in other ways, but follow-on capital is reserved for top performers.

No exceptions.

I’m excited to keep re-investing in the stars of my portfolio. I can’t wait to see them use that cash to take over the world!

Do you do bridge rounds? Why or why not?

Leave a comment at the bottom and let me know!

Have a great weekend everybody!

More on tech:

Bridge Rounds: Yea or Nay?

VC’s Sour on China — Funding Down 44%

The First Time I Used the Internet

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This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 with great returns.

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Photo: “Fishing at Jade Belt Bridge, Summer Palace, Beijing” by Dimitry B is licensed under CC BY 2.0.

What I Don’t Invest In

Being an angel investor is never boring. I see everything from spacecraft to nude resorts.


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But I can’t invest in everything!

I focus on the areas I know best. And I want to back companies building the type of world I want to live in.

Here are some areas I don’t touch:

1) Gambling. I don’t believe in it, simple as that.

To me, gambling startups are tech at its most predatory. Many people struggled to stop gambling even when the casino was hundreds of miles away.

What happens when it’s in their pocket?

In a free society, I don’t have a problem with adults making the decision to gamble. But I don’t have to fund it.

Gambling is also a tough business. You’re offering a commodity product – the ability to take a bet.

It’s a race to the bottom and margins are razor thin.

2) Drugs. There may be incredible applications of illegal drugs like psilocybin and ketamine for conditions like depression.

But I don’t have the scientific background to evaluate these claims. What’s more, in our enthusiasm, I’m concerned we may be glossing over the risks that come along with some compounds.

3) Space. Who doesn’t love spaceships?

I look forward to a world with lightning fast satellite internet for everyone and resorts on Mars.

But I don’t have a scientific background. How would I know a good space company from a bad one?

Better leave it to Elon.

4) Biotech. I would love to invest in biotech.

I find it fascinating. And its potential to improve our lives is limitless.

But my background is in software, not medicine. How will I know if a company is good or bad, or what a fair price is?

Instead, I stick to what I know. And when I see the occasional biotech startup that gets me excited, I pass it along to investors I know who are experts in the field.

5) D2C. Selling physical goods direct to consumers online used to be a great business model.

Not anymore.

Apple stopping ad tracking has caused customer acquisition costs to triple for many companies. Supply chain issues crush margins and make filling orders difficult.

Even the biggest successes, like Peloton, have been crushed. Its stock is down 90% from the highs.

I’m better off in a pure software business without the messy “stuff”.

It’s hard to succeed if we don’t focus. And in startupland, it’s easy to lose a fortune investing in exciting things you don’t understand.

I stick to my knitting and invest in pure software companies. Most sell software to businesses (SaaS), the area I worked in before becoming an investor.

This gives me the best shot at identifying a great company, since I know what great looks like in my field. It’s also easier to add value in an industry I know well.

What areas do you invest in? What areas do you avoid?

Leave a comment at the bottom and let me know!

There will be no blog tomorrow. I have an acting gig.

See you on Wednesday!

More on tech:

Andreessen Crypto Fund Down 40%

Why Now Is the Best Time to Invest in Startups

How I Help Startups

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Fundrise

This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 with great returns.

More on Fundrise in this post.

If you decide to invest in Fundrise, you can use this link to get $100 in free bonus shares!

Misfits Market

I’ve used Misfits for years, and it never disappoints! Every fruit and vegetable is organic, super fresh, and packed with flavor!

I wrote a detailed review of Misfits here.

Use this link to sign up and you’ll save $15 on your first order. 

Photo: “sand hill road sign” by stevendamron is licensed under CC BY 2.0.