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How Funding Works - Splitting The Equity With Investors - Infographic

How Funding Works - Splitting The Equity With Investors - Infographic | Venture Capital Stories |
This infographic shows how funding works for a hypothetical startup splitting equity with angel investors, venture capitalists and IPO.

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Another great article brought to you by

Anake Goodall's curator insight, May 19, 2013 7:01 AM

the all-important equity funding recipe ...

Venture Capital Stories
Whether it's  Silicon Valley or Boston, it's a world of millionaires and billionaires, the domain of the happy few.
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4 things Mark Suster had to say about raising Upfront Ventures' new $280M fund

4 things Mark Suster had to say about raising Upfront Ventures' new $280M fund | Venture Capital Stories |

Upfront Ventures, the Santa Monica-based venture capital firm that invested in Maker Studios, Factual, and TrueCar has just raised a $280 million new investment fund. This new fund is the VC’s fifth

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Google Ventures: Year in Review 2014

Google Ventures: Year in Review 2014 | Venture Capital Stories |
Slack, Medium, and Cloudera joined the Google Ventures portfolio. Nest was acquired by Google, and HubSpot IPO'd. See the full Year in Review for more.
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Amazing numbers and notes from Google Ventures.Take a look.

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This Unusual Startup Strategy Led to a $200 Million Acquisition by Microsoft in 18 Months

This Unusual Startup Strategy Led to a $200 Million Acquisition by Microsoft in 18 Months | Venture Capital Stories |
Listening to typical startup advice would have cost these entrepreneurs millions.

It's every startup founder's dream: being acquired for hundreds of millions without years of slogging away for decades.
And it came true recently for the founders of Acompli, an 18-month-old mobile email app.
I know what you're thinking--how in the heck did that happen? The industry is flooded with startups toiling away at email apps. How did Acompli get acquired by Microsoft for $200 million before it even reached its second birthday?
It turned conventional startup wisdom on its head.
Its strategy makes a great deal of sense when you consider how the biggest and best products are developed, yet it's contrary to the day-to-day grind that  traps so many companies and startups.
I spoke recently with Kevin Henrikson, one of Acompli's three co-founders and a friend of mine, about his startup experience. What he told me about Acompli's pre-acquisition growth strategy blew me away.
They Had a Huge Vision
Henrikson and his co-founders, Javier Soltero and JJ Zhuang, had a huge idea. "Email on mobile is broken for business users," Kevin told me. "We needed to reimagine and develop a mobile email app that would work on any device for any email account and enable any user to do the same kinds of tasks that business users are accustomed to doing with their email at the office." Their goal was to enable professionals to complete key workflows from mobile without ever leaving the app.
Their target: the professional mobile-power user--an incredibly important market.
As a relatively late entrant into the mobile email app market, Acompli was also looking to penetrate one of the most saturated marketplaces on the planet: the App Store. It would have to be more agile and move far faster than the Internet-based email incumbents who just couldn't get on the ball quickly enough to satisfy mobile-first business users.
This technically complex and challenging vision really should have slowed Acompli down. The way most startups are structured, it would have.
But it didn't.
Realizing Their Big Vision Meant Prioritizing Development Over Marketing
Of course, we know a massive, crazy ambitious vision is critical to venture startups. But realizing this bold vision is a huge challenge. Here's why.
It's pretty tough to build a software business without funding (and almost impossible to do it quickly), yet Acompli went through just one round of Series A funding in its relatively short lifespan.
The challenge is that in order to land an initial and subsequent rounds of venture capital investment, investors (particularly east coast VCs), want to see evidence of market traction in the form of product sales and revenue before they'll get behind an idea. You're typically looking at hundreds of thousands in revenues and non-trivial numbers of paying clients to prove you have product-market fit.
This inevitably means investing heavily in sales and marketing early on. However, this carries with it its own set of challenges.
Essentially, it's very easy to fall into a trap of endless loops of feedback and modifications to please your existing client base. Your bold product vision can become diluted with someone else's. Supporting customers too early on means you're slower to develop and fine tune your product, with more emphasis (and budget) on sales and marketing and less on actually making something really, unbelievably awesome. Is this really the best way to grow?
Acompli went in a somewhat unconventional direction, with a team of 23 that consisted of 20 engineers. All three founders are engineers.
"You need to conquer the big technical problems first," Henrikson told me. "Getting involved in sales and marketing too early can hold you back in a lot of ways--you end up chasing the next deal instead of building a better product."
That's not to say Acompli completely deprioritized marketing; it invested in three incredibly talented and essential non-engineering executives for marketing and business development. But clearly the ratio of people at the company was heavily skewed toward engineering.
This unusual allocation of resources afforded Acompli the ability to hyperfocus on product. Its big engineering team could move at warp speed and overtake competitors, to reach its target audience first. It also allowed marketing to clearly position the product and stack all messaging and marketing programs against that audience.
As Henrikson says, "When you solve things with technology and engineers, it's a more scalable solution. That's where the greatest leverage is."
Acompli was highly disruptive in its timing and tapped into a strategy that enabled it to move fast enough to keep that edge. Rather than taking a typical allocation of equally splitting hires into sales, marketing, client support, engineering, etc., for its mobile email app (it's free for consumers, by the way), it prioritized innovation and the development of its vision.
The unusual approach was a winner, to the tune of a $200 million acquisition in just 18 months.

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Marc Kneepkens's insight:

Interesting story. It shows again that there are no rules when it comes to startups. Disruption, all the way.

Marc Kneepkens's curator insight, December 13, 2:26 PM

Extremely interesting for engineers/developers. This article points out a very important point regarding your work.

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Twitter cofounder launches venture fund for 'world-positive' businesses

Twitter cofounder launches venture fund for 'world-positive' businesses | Venture Capital Stories |
Ev Williams has partnered with two other industry veterans to launch Obvious Ventures, a new fund that promises to invest in "world-positive" businesses.

We’re experienced investors, with several IPOs under our collective belt. But we’re product designers and company builders first, and we are on a mission to help fuel startups that combine profit and purpose," the Obvious Ventures team wrote in an announcement. "Startups that create new solutions to big world problems in a profitable and scalable way."
The fund represents the latest iteration of the "Obvious" brand. Williams previously used The Obvious Corporation as a startup incubator, where he launched Twitter and later Medium, both of which were spun off into standalone businesses. Biz Stone, another Twitter cofounder, worked at Obvious while he launched his Q&A-based social network Jelly.
Obvious Ventures is still in the process of raising its inaugural fund, according to Re/code, but it has already invested in nearly a dozen startups, ranging from healthy food to tools for small businesses.
Williams is estimated to be worth more than $2 billion thanks to his stake in Twitter, according to data from Forbes. His cofounders in the Obvious venture are James Joaquin, who ran Xmarks and Xoom, and Vishal Vasishth, who was the chief strategy officer at Patagonia and previously worked with the Revolution investment group.

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"...we are on a mission to help fuel startups that combine profit and purpose," the Obvious Ventures team wrote in an announcement. "Startups that create new solutions to big world problems in a profitable and scalable way.""

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Stripe is the breakthrough startup of 2014 | Mashable

Stripe is the breakthrough startup of 2014 | Mashable | Venture Capital Stories |

Patrick and John Collison were walking home from dinner one night in October 2009, talking yet again about their latest idea for an online payments company, when John stopped and turned to his brother.
"Why don't we just go build it?" John said, as Patrick later recalled. "It probably won't be all that hard."
Never mind that the payments industry was notoriously complex and already home to major, established tech companies like PayPal. Never mind that Patrick was just 21 and John was still a teenager. It probably won't be all that hard.
The most shocking thing about John's statement, though, was that in some sense it proved to be true. Barely five years after that conversation, their startup, Stripe, has emerged as a leader in the payments space, with a multi-billion dollar valuation and a fast-growing list of influential partners.
When Apple unveiled its long-awaited mobile payments service this year, it was Stripe — not PayPal or Square — that earned a spot on the coveted list of initial partners. When Twitter and Facebook decided to embrace ecommerce with the launch of "Buy" buttons, they turned to Stripe to help process the payments on site.
If you pay for a ride with Lyft, order groceries to be delivered by Instacart or purchase cleaning services through Homejoy then you're using Stripe as well — even if you don't know the startup's name. These and other businesses can embed a few lines of code from Stripe, as simply as one might embed code for a video or a tweet, and then begin processing credit cards as seamlessly as Amazon. Stripe handles everything else: fraud prevention, currency conversions, you name it. In exchange, Stripe takes a 2.9% cut plus a $0.30 charge per transaction.
The goal, according to those close to Stripe, is to expand Internet commerce around the world and help the next generation of businesses quickly get set up to accept payments without having to hire dozens of developers and billing experts. This proved to be a breakthrough year for Stripe, but it was several years in the making.
From the middle of nowhere in Ireland to Silicon Valley
The brothers trying to reimagine Internet commerce spent much of their childhood without Internet. At first, Patrick didn't have access to a computer at home so he resorted to reading about the Internet in library books. When he and his brother did get to use a computer, the Internet on it was painfully slow in their rural town of Nenagh, Ireland.
Despite their connectivity issues, Patrick and John grew up in a technical household. Their father was an electrical engineer and their mother was a microbiologist who ran a quality assurance business out of their house. Patrick tinkered on her business computers, taught himself how to code and won an award for his programming work at the tender age of 16. John, two years younger, was whip-smart too, albeit somewhat less technically minded than his brother.
Their parents were supportive enough to let Patrick move to Boston to attend MIT when he was 17 and open-minded enough not to stop him from leaving school after one term to try his luck with startups. Patrick decided to take on eBay by building an online auction company called Shuppa, with John, who was then 16 and taking a gap year in high school.
"In terms of being cofounders, it's worked out very nicely," Patrick told Mashable in an interview in January about the experience of working with his younger brother.
"Fast-growing companies tend to have cofounder strife that develops. Luckily myself and John had all our battles out of the way when we were young."

Soon enough, the brothers shifted gears and decided to sign on as cofounders for a similar startup in the works called Auctomatic. In 2008, it was acquired by a Vancouver-based domain name company for $5 million in 2008. Patrick was still a few months shy of turning 20. He moved to Canada to work at his new parent company, but after about a year, Patrick decided to return to MIT.
"The reputation Patrick had on campus was that he was a brilliant guy. He had already built a small company," says Hemant Taneja, who taught at MIT at the time and is now managing director at General Catalyst, which has invested in Stripe. "I went to MIT as well and I was thinking, 'What did I do when I was 19?' That was my initial impression. Patrick is a rare, rare individual. Intellect, execution, capability."
John had already started school at Harvard and the brothers resumed working together on side projects. In the process, they ran up against the difficulty of accepting payments and decided to work on a fix for themselves first, before realizing they weren't alone.
"We realized the problem was much larger," Patrick told me in our earlier interview. "It wasn't just a problem for individual developers like us."
So the brothers decided to solve it.
The rise of Stripe
Elad Gil heard about Stripe when the product was still in alpha and immediately recognized the need for it. "I wished it was around when my startup was up and running," says Gil, whose startup Mixer Labs was acquired by Twitter in late 2009. Gil reached out to Patrick and became an early investor in the company.
That experience, in a nutshell, is what helped Stripe stand out from the pack of payments service: it was geared very much for startups and developers.

"Payments themselves are not that important. It's the last thing you think about and can be kind of a headache," says James Wester, a research director with IDC. "What Stripe did was simplify that process and really cater to developers. It said, 'You go develop you application and we'll take care of the payments.'"

Taneja, the Stripe investor, remembers asking Patrick in the early days who Stripe's biggest customer would be. "He said, 'They probably haven't been born yet.' His whole point is there are so many new companies getting created and only 2% of commerce was online."
Perhaps the best example of that thinking is Lyft, a popular and well-funded ride-hailing service founded in 2012. The car and mustache may be the face of the company, but it's the seamless and automatic transaction experience that allows Lyft to function and that runs on Stripe.
"When you think about companies like Lyft that probably wouldn't have been able to exist five years ago because it would have been too hard to cut checks to drivers," says Cristina Cordova, who heads business development and partnerships at Stripe. "Those are companies that we're really interested in exploring brand new business models with."
Stripe is a key reason that some of these on-demand startups have been able to get off the ground so quickly — and Stripe has prospered in return. Tens of thousands of businesses now use the Stripe API for payments. Stripe has raised nearly $200 million in funding and it has brought on more than 100 talented employees. (Patrick, insiders say, has a knack for attracting smart and entrepreneurial engineers.)
The breakthrough year
For Stripe, the year started off with the news that it had raised $80 million in funding at an eye-popping valuation of $1.75 billion and ended with the news that it had raised another $70 million at double that valuation. In between, the startup scored a number of high-profile partnerships including with Apple, Twitter, Alipay and others.
Suddenly, Stripe's notoriety started to approach that of the many companies it has helped power behind the scenes.
"Obviously we were much less well-known previously. I think funding and some of the other partnerships we've launched recently have really changed that for us
"Obviously we were much less well-known previously. I think funding and some of the other partnerships we've launched recently have really changed that for us," says Cordova, Stripe's business development exec.

Funding and partnerships weren't the only reasons for Stripe's momentum this year. Investors point to other events like Braintree, a Stripe competitor, getting acquired by eBay late last year. Stripe used some of its funding to invest in international efforts; the service is now available in 18 countries. It also continued to build out its suite of supplementary services, including launching a tool that lets businesses charge customers in whatever currency they're comfortable with.
"Everyone is kind of focused on the fact that we do payments and basing a lot of their assumptions about our business on that," Cordova says. "In reality, we are building the products and tools that help businesses run efficiently... without needing a 50 person tax and compliance team."
That is what Stripe will be working to solve globally in 2015 and beyond.
"We don't really see anybody else approaching the problem the way that we do and thinking about building the platform of Internet commerce," Patrick told me in our earlier interview. "We want to increase the GDP of the Internet."

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An inspiring success story!

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21-Year-Old Helped Fund 30 Startups - Business Insider

21-Year-Old Helped Fund 30 Startups - Business Insider | Venture Capital Stories |
Zachary Hamed finished his computer science degree at Harvard before he did the Thiel Fellowship, the most famous startup school for dropouts.

It turns out, you don't have to drop out of school to join the most famous "startup school for dropouts" in the Valley, the Thiel Fellowship.

You just have to be young and exceptional.

Zachary Hamed is certainly that.

The Thiel Fellowship is a startup accelerator program founded by billionaire investor Peter Thiel that encourages brilliant kids to leave school and launch tech businesses instead.

But Hamed finished his computer science degree at Harvard before he did the Thiel Fellowship, graduating high school at age 17 and breezing through Harvard in three and a half years.

Hamed was part of the 2013 Thiel Fellowship class. And today, at the ripe age of 21, his NYC-based startup Bowery just landed its first venture investment $1.5 million from Google Ventures, Bloomberg Beta, and others.

Another 'Docker'

Hamed launched Bowery with two young co-founders David Byrd also 21, previously an intern at Medium, and Steve Kaliski, 24, a former engineer at Palantir via Palantir's acquisition of Poptip.

Word on the street is that Bowery is on track to become "another Docker," meaning a fast-growing startup that software developers love and bring into work.

Bowery makes a tool so obvious you can't believe it hasn't been done before. It lets developers load all the tools they need to write and test software on any PC in about 30 seconds. It eliminates the huge amount of troubleshooting they typically have to do to get set up.

The idea came from the cofounders' own experience.

"I tried to install Ruby on Rails [a software language] on my Mac like 18 times, and every time I tried, I wanted to throw my Mac out the window. It was incredibly frustrating," Hamed tells us.

Other software engineers agree. The three young founders are already attracting some interesting talent to work with them. They just snared Mitch Pirtle.

Pirtle is best known as the creator of the open source project Joomla that has millions of users worldwide. Joomla is a website creation tool that competes with Wordpress and Drupal and has a loyal band of developers. Pirtle was working for MongoDB before joining Bowery.

And Bowery also nabbed Francesca Krihely from Mongo, too, former community manager working with all of MongoDB's developers.

This startup is worth watching for the tech itself.

But Hamed's story is equally awesome.

How a college grad got a Thiel Fellowship

The Thiel Fellowship has become one of the most prestigious alternatives to going to college — in some cases, even to finishing high school. Each year 20 kids are accepted into the program, where they are mentored by some of the brightest minds in the Valley. Then they get $100,000 to work on their own startups, and they're off.

With only 20 young people accepted, all under 20 years old, competition to get in is incredibly fierce.

In Hamed's case, he doesn't fit the standard drop-out profile.

"The public face is that everyone’s a dropout and that's the main goal of the program. But it isn't. It allows anyone under 20 to continue education with/without college," Hamed says.

He's an advocate of college. "I took classes that formed my thinking around software development, design, education, around government, political science."

He turned the fellowship's heads for two reasons. He was the first freshman to win Harvard's prestigious student business plan competition, he says.

That experience helped him get a summer's internship at hedge fund Allen & Co, known for putting together the prestigious Sun Valley Conference. That's an invite-only show where the Valley's who-who descend on Idaho.

And that experience caused him to work with his friend at Harvard Peter Boyce. Boyce was setting up a venture capital fund for Harvard students called Rough Draft Ventures, an offshoot of venture firm General Catalyst Partners.

"I started that with a friend of mine in school. We eventually have done at least 30 investments and those companies have gone on raise hundreds of millions in investment," he describes.

The idea was to get students seed money, from $1,000 to $25,000 to buy computers, or pay for other startup costs.

"We went to General Catalyst and said. 'Boston is such a unique student ecosystem, no one is capitalizing on that  providing investments they need,'" he describes. General Catalyst agreed and the fund was launched.

The students are just advisors. They don't get a stake in any of the companies they fund. But Hamed learned a lot about the venture world, which came in handy when raising a round for Bowery.

Rough Draft Ventures is still going strong today, with Boyce still involved and a new crop of students leading it.

The 10x engineer

Hamed was also helped by doing other internships in the Valley, including one working with Aza Raskin at Jawbone. Raskin has played a huge part in creating some of the coolest stuff on the internet like browsers, streaming music, and health tech.

Raskin talked a lot about the "10x engineer," those mythical engineers that are so talented and efficient, they are 10 times more productive than mere mortal engineers.

While in San Francisco working at Jawbone, Hamed met his co-founders and the three of them wanted to make all engineers into 10x-ers. 

With Bowery, they are off to a good start.

Marc Kneepkens's insight:

This pictures the kind of people that get VC money as a matter of fact.

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These Mesmerizing Time-Lapse Maps Show How Startups Are Transforming Major Cities - Business Insider

These Mesmerizing Time-Lapse Maps Show How Startups Are Transforming Major Cities - Business Insider | Venture Capital Stories |
Zillabyte software engineer Nikhil Karnik plotted the size of rounds raised by startups based in San Francisco, Austin, and New York.

San Francisco is being flooded with startup funding. Rents are sky high, newly formed companies are offering lavish perks, and storefronts across the city are transforming. 

Zillabyte software engineer Nikhil Karnik decided to analyze exactly how this growth had changed the city, as well as several other startup hotbeds like New York and Austin, in a series of interactive maps.

Using Zillabyte, a framework for high-end data analysis, and the Crunchbase API, he created time-lapse visualizations of venture funding rounds for each city. The results are captivating.

Bubble sizes correspond to the total amount of funding raised, and the sample size for each city is limited to 1,000 companies.

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Marc Kneepkens's insight:

Fascinating to see how startups are changing major cities. It's definitely affecting the economy, not only with employment, but also with general living conditions such as rent, real estate, services...

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The Turning Point for Venture Capital?

The Turning Point for Venture Capital? | Venture Capital Stories |

Venture capital fund managers have to maintain a strong strategy and deal pipeline to sustain investor interest.

Thanks to one-year horizon returns among the best in the entire private equity industry, venture capital is attracting significant investor confidence, notes Preqin.

Preqin in a November 2014 report titled: “The Turning Point for Venture Capital?” notes that for 62% of investors surveyed, venture capital fund investments in the past 12 months have met expectations.

Improved performance

According to the Preqin report, the pattern for venture capital returns indicates clear underperformance relative to other strategies over 10 years. However, the last three- and one-year periods highlight venture capital horizon IRRs improving from 12.7% for the three-year period to March 2014 to 27.0% for the one-year period to March 2014, outstripping all other strategies. The following graph captures PE horizon IRRs:

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500 Startups Launches $10M Mobile Collective Fund, Hires Ex-Dolphin Browser Exec Edith Yeung To Run It

500 Startups Launches $10M Mobile Collective Fund, Hires Ex-Dolphin Browser Exec Edith Yeung To Run It | Venture Capital Stories |

Now 500 Startups is handing Edith Yeung the keys to one of its micro-funds, a new $10 million investment vehicle focused on investing in and helping mobile app.

“In the past we were 500 Startups. In the future we might be 500 VCs.”

That’s Dave McClure, founding partner and Sith Lord behind global seed fund 500 Startups and his growing roster of investment partners. The latest new partner to join the ranks is Edith Yeung, who will be heading up the firm’s latest micro-fund, a $10 million fund it’s calling the 500 Startups Mobile Collective.

The firm passed 500 portfolio companies a while ago, and is now up to about 900 startups that it’s put money into. That’s why it might make sense for McClure to set his heights on a new, even more ambitious target.

And why not? Since being founded in 2010, 500 Startups has quickly ramped up worldwide operations and now has a global team of 44, including 15 who make investments for the firm. According to McClure, investment partners will generally do about 20 deals each year, which has 500 Startups doing more than 300 investments over the last 12 months.

Yeung joins the firm after running marketing and business development for Sequoia-backed mobile browser Dolphin Browser, which has had more than 150 million downloads since being founded. She also co-founded angel investment firm RightVentures, where she made more than 20 investments.

Before finding enlightenment in the startup world, Yeung worked for a ton of old and busted enterprise organizations like Siebel, AMS, AT&T Wireless, Autodesk, Cisco, and Telstra.

Now 500 Startups is handing her the keys to one of its micro-funds, a new $10 million investment vehicle focused on investing in and helping mobile app startups. The goal is to create an ecosystem through which the Mobile Collective can help independent startups get distribution and ramp up monetization.

Yeung won’t be alone in the effort, which is why it’s called a “Mobile Collective.” The fund brings together the talent and insights of a group of partners and advisors that includes Twitter and Square seed investors Greg Kidd, 91 co-founder and mFund founder Joe Chan, former Firefox CEO Jay Sullivan, and Dolphin Browser founder and CEO Yongzhi Yang.

Of course, “investing in mobile” is kind of like “investing in the Internet” — it sounds like an incredibly broad category to single out for a single fund. Yeung says she’s looking to find startups making apps focusing on mobile content, security, productivity, and other functions. Basically everything but mobile gaming.

Since there are already about 3 billion mobile Internet users in the world, 500 believes the category is fertile ground for startups to invest in and that there’s still a lot of growth ahead.

Over the last few years, 500 Startups has launched a number of micro-funds to invest in startups based in certain areas of the world — like the 500 Luchadores fund for Mexico or the 500 Durians fund for investing in Southeast Asia.

Like its other micro-funds, the 500 Startups Mobile Collective is expected to do about 30-50 investments over the life of the fund, which the main fund will occasionally co-invest in. Those co-investments will sometimes happen on the first check, and sometimes on the second, according to McClure.

And who knows, if it works, we’ll probably see even more individual funds pop up within the 500 family to go after verticals like Bitcoin, payments, hardware — the possibilities are endless.

Edit Note: Totally tangentially related, but 500 Startups also has an accelerator and is taking applications for Batch 12.

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500Startups is doing great work, partnering, connecting, educating and disrupting the whole funding sector.

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New Study Underscores the 5 biggest problems for Venture Capital in Europe

New Study Underscores the 5 biggest problems for Venture Capital in Europe | Venture Capital Stories |

We’ve heard it all before - “There’s not enough local money,” “Corporates don’t interact with startups,” “we need to think more Europe, less London v. Berlin v. Stockholm v. Paris v. …;” however, a recent study commissioned by the European Union was delivered by France Digitale called “Boosting Digital Startup Financing in Europe” has found that some of these problems are bigger than we thought.

The study saw 44 interviews across Europe with Venture Capitalists about the state of VC in Europe – here are their findings.

We need more Exit Opportunities

95% of interviewed Venture Capitals said that a lack of Exit Opportunities was the biggest challenege facing European Startups ( & VCs) today. Whether it be IPO, Acquisition, or a PE Buyout, it seems that exits are the exception, rather than the rule in Europe. IPO’s by Zalando, Criteo & are rare, as are acquisitions like Skype, La Fourchette, Neolane & MySQL. One of the biggest issues is that IPO’s and acquisitions, like those mentioned, are almost always “to the benefit of a US player as there are almost no European [buyers]… conditions for tech IPOs…. are not favorable.”

In short, “The industry needs large European tech companies that can compete with US players.”

Distribution of VC across Europe is unbalanced

In Southern Europe (Portugal, Italy), a lack of early & seed stage kills companies early. In France, it’s the late stage that kills. The report found that “only 4 to 6 VC firms are able to fund [late stage] deals.” On the one hand, it’s normal that later stage investment come from foreign investors (your company should be international by then, and strategic investment can help enter certain markets); however, it is very rarely the case that foreign companies take European investment to enter Europe.

The European Single Market is still just a Dream

Conversations of London vs. Paris vs. Stockholm vs. Berlin has more or less died down; however, communication between these hubs on a level similar to how NYC, Boston and San Francisco communicate is still lacking.

Unification of Best Practices for Startup Legal Renovations

Every country in Europe is fighting a different battle – in Spain, stock options are taxed too high, for example - and, in general, the Venture Capital asset class is regarded negatively across Europe, which breeds dependency on public funding. A common Venture Capital legal & fiscal standardization across Europe is a lofty goal, but is necessary if countries hope to create pan-European opportunities.

European Corporations are still facing “Not Invented Here” (NIH) syndrome

Acquisitions in Europe by European companies are staggeringly low, and, when they happen, are often more about maintaining market share than about integrating technology into the company. The report found that corporations today use accelerator models more as a public relations tool than as a real opportunity to attract new innovations.

Working on this report as well as participating in the Web Investors Forum is allowing us to go beyond our usual borders and reach out to the rest of the continent in order to contribute at an International level. In doing so, we hope to help create a more compelling an dynamic environment for investors and entrepreneurs to thrive in, something which begins by looking at the situations from a European perspective. The venture capital ecosystem in Europe is still quite young but full of promise nonetheless.


Thanks to pan-european initiatives such as Startup Europe and Digital Agenda as well as the support of Neelie Kroes, Vice Président of the European Commission, I am confident that we can move things forward, apply our recommendations to create a truly European ecosystem and ensure that Europe becomes the place where the next Internet powerhouse emerges from.”  T-aro Ugen, author of the report and VP Venture Capital at France Digitale.

The report goes on to outline proposals for changes on the European level that could help resolve these issues – whether or not these proposals will be taken into account, or how long execution on such proposals will take, is unclear. Nonetheless, recognition of such issues on a European Commission level is the first step to enacting change – previous fights for SMEs by the EC have been relatively successful, due in large part to Neelie Kroes.

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Marc Kneepkens's insight:

Europe wants to catch up with the US Venture Capital environment. They know that there is a lot of employment with successful startups, and lots of profits to be made, both for companies and governments. This article explains the pain points.

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Jack Ma's problem: what to do with all his money|Companies|Business|

Jack Ma's problem: what to do with all his money|Companies|Business| | Venture Capital Stories |

Jack Ma, the founder and executive chairman of Chinese e-commerce giant Alibaba, recently said that he is looking for ways to use his wealth to give back to society and wants to compete with Microsoft founder Bill Gates to spend money more efficiently on charity.

"It's even more difficult to spend money than to make it," Ma stated while elaborating on his business operating philosophy at this year's Singles Day shopping festival event on Nov. 11.

He added that he was unhappy of late and found being the country's richest man "a great pain." He believes that the record-setting US$25 billion that his company's IPO was valued at may have contributed to this stress.

Ma saw his fortune swell to US$19.5 billion after Alibaba stood at a record-breaking US$25 billion IPO on the New York Stock Exchange on Sept. 19. The company's share price closed at US$114.54 on Nov. 12, almost twice its offer price of US$68.

He further noted that Alibaba's listing was not meant to make money. Instead, it was meant to make the company's governance more transparent by putting it under the supervision of its shareholders and users around the world.

"The primary reason for going public was that it calls for more transparent corporate governance and puts stock investors and users around the world in a position to supervise the company and take part in its development," the executive chairman explained.

Ma also pointed out that he intended to get Alibaba listed in the stock market in Shanghai. "For various reasons, Alibaba cannot be listed on the A-share market, but we hope Alipay can list on it in the future," he added.

Alipay is the country's most popular online payment tool launched by Alibaba.

Since Alibaba went public, Ma said that he has been under tremendous pressure due to high expectations from investors. "The stock value may rise; people may have high expectations of you; I may just think too much about the future and have too many things to worry about," he said.

The founder of the e-commerce giant admitted that while being a rich man was good, being the richest man in China was not. "It's a great pain because when you're (the) richest person in the world, everybody (is) surrounding you for your money," he stated during an interview with CNBC at his company's headquarters in Hangzhou the same day.

In order to get rid of this "pain," Ma noted that he was looking at ways to use his money to give back to society.

He affirmed that he is considering establishing a foundation that can "spend money following a business-like framework." He may even compete with the other global billionaires in this regard.

"The competition is probably between me and Bill Gates-who can spend money more effectively and who can be a better philanthropist," he said.

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Via Enzo Calamo
Marc Kneepkens's insight:

Great challenge, too much money!

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The 20 Hottest Startups Founded By Women - Business Insider

The 20 Hottest Startups Founded By Women  - Business Insider | Venture Capital Stories |
Women in tech are doing amazing things.

Women may be underrepresented throughout the tech sector, but they're building some incredible startups.

The folks over at Product Hunt have created and curated a list of the best startups and products founded by women. VCs, entrepreneurs, and Product Hunt members have all weighed in on their favorites. 

From uBeam's innovative wireless charging technology to Hopscotch's program for teaching kids how to code, the products women are making are changing the world.

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Marc Kneepkens's insight:

Some amazing ideas and great startups created by women. Get inspired.

Blog MNS's curator insight, November 16, 9:40 AM

Women in tech are doing amazing things.

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The New Geography of Super-Charged Startup Cities - CityLab

The New Geography of Super-Charged Startup Cities - CityLab | Venture Capital Stories |
The Bay Area clearly dominates in software companies that have been valued at a billion dollars or more, but China is coming on strong.

The location of startup companies is a key indicator of innovation, entrepreneurship and economic growth. But not all startups are created equal. What distinguishes leading-edge startup clusters is not just a large volume of companies, but a series of really successful startups like Apple, Google, Facebook or Twitter. These big successes, which go public and are worth billions of dollars, set a powerful example for other entrepreneurs and also create a pool of business people-turned-venture capitalists who can in turn use their money to invest in fledgling startups.

I've tracked the geography of startups in my series here at CityLab on Startup Cities, but a new study by the international investment firm Atomico provides detailed data on an intriguing subset of these uber-successful startups. It identifies the location of software companies founded in the past decade (since 2003) that have reached billion dollar valuations, 137 companies in total worldwide.

The map charts the location of these billion dollar startups across the globe. Click title or image of the article to see the map.

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Marc Kneepkens's insight:

Amazing to see China coming in second in the start up world.

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Video Of The Week: The Bubble Question – AVC

Since the LeWeb video I posted on wednesday was so long (>40mins), we are going with short and sweet today.

In late October, I did an event with City National Bank. For those that don’t know, City National is one of the banks that are active in the tech startup sector, banking and lending to startups. We did a “fireside chat” format which is really my favorite way to do a public appearance. And, of course, I got “the bubble question.”

Here is how I answered it in less than three minutes:

To see this great little video, click here:

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Marc Kneepkens's insight:

From Fred Wilson's blog, well known VC, about the internet of moving things. Must see.

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How To Speak Startup | TechCrunch

How To Speak Startup  |  TechCrunch | Venture Capital Stories |

Hang with startup kids long enough, and you'll notice that they have their own language. No, bro, it's a SaaS play in the on-demand food space. Think of it as the Uber for gluten-free Whole Foods delivery, ok? It never ends: We’re actively raising, but really want to make sure that we hit investor-board fit before product-market sync, you know?

This can be confusing.

However, TechCrunch is here to demystify startup lingo into a more common lingua franca. The startup kids, after all, are worth trying to understand. One or two of them might even build something usable.

So, without further ado, I give you How To Speak Startup:

Acqui-hire – A strategy for acquiring talent pioneered by Google in the mid-2000s that happens when a bigger company thinks your team is good but your idea is hilariously bad. Also called a “signing bonus.”

Failure – A bad thing that the Silly Valley has recently put on a pedestal as something to be celebrated.

Cashflow Positive – Someone gave us a dollar.

Pivot – What happens when a company realizes its course of action is not living up to expectations. The classic historic example is The Point, which became Groupon after the company posted a coupon to a pizza place in The Point’s building in Chicago. (See also, Failure.)

SaaS — It loses money.

Pre-Money Valuation – A number you made up.

Post-Money Valuation – A number that you made up alongside your VC with the addition of some cash. Your burn rate is probably too high.

“I work in PR.” – I am, in fact, in possession of several journalists’ email addresses.

Exit – Exits come in two different flavors for entrepreneurs: good and bad. Good exits happen when you’re “killing it,” your company hasn’t killed you yet, and another company comes along to buy yours. (See possibly, acqui-hire.) Bad exits are another way of saying you failed to disrupt much of anything besides your VC’s portfolio performance.

“I’m a serial entrepreneur.” – Person who had two ideas, both of which failed.

The Space – Because calling the field in which they’re operating an industry, vertical or even genre is too hard, entrepreneurs like referring to their company as being a player in a given space. They especially like doing this when they know they’re in a crowded market. We don’t know why they do this either.

VC – 1) Venture capitalists raise money from wealthy individuals and institutions and dump lots of said money into young companies in exchange for a cut of the company.  2) An institutional dealer of pharmaceutical-grade Opium. (See also, Opium.)

Opium – OPM, or “other people’s money,” is an incredibly addictive substance to entrepreneurs that’s rarely respected or missed until it dries up.

“We’re doing great.” – We are not doing great.

SF / The Valley – A place that VC’s and tech luminaries talk up as the greatest place on Earth that you must move to if you’re from anywhere that isn’t SF or The Valley.

“We’re growing 500 percent week-over-week” — Last week we had one user, today we have six.

“We’re not currently raising.” — We’re currently raising.

UI/UX – A portmanteau of UI (“User Interface”) and UX (“User Experience”) often used by design-challenged entrepreneurs when referring to the aesthetics and usability of their product when actual understanding of good design principles is fundamentally lacking. Used in a sentence: “Our Push for Pizza for Nickelodeon VHS tapes app is crushing it because of our design wizard is slinging some hella dope UI/UX.”

“We’re a design-centric organization.” – We don’t know how to code.

Non-GAAP Profitable — What companies that are very unprofitable like to claim. The idea that non-cash costs don’t count is usually the sort of sickness you see here.

“I’m the business guy.” – (See: Free-rider problem, Growth Hacker.)

Gravity — We don’t have that in Silicon Valley.

$32 Million Series A Round – Something that is doomed to failure.

Growth Hacking – Sales, marketing and associated activities, but with a label that incorporates the word “hacking,” because nontechnical people want to call themselves “hackers” too.

“We’re seeing great gross margins, and so are investing in growth given our strong, SaaS unit-economics.” — We lose money.

“We’re stomping on the gas pedal, given our strong SaaS unit-economics, and are actively seeking additional capital to power our sector-leading growth.” — We have lost all our money and need some of yours, please.

“We’re Crushing It!” – Your dreams and investors’ dollars are probably being crushed. First rule of Fight Club, bro.

We hope this helps.

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Marc Kneepkens's insight:

Every 'culture' has its lingo. Startupspeak... Like in many other languages they often say the opposite of what they mean... sounds like politics, advertising, or government talk?

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The Fatal Pinch

The Fatal Pinch | Venture Capital Stories |

Many startups go through a point a few months before they die where although they have a significant amount of money in the bank, they're also losing a lot each month, and revenue growth is either nonexistent or mediocre. The company has, say, 6 months of runway. Or to put it more brutally, 6 months before they're out of business. They expect to avoid that by raising more from investors. [1]

That last sentence is the fatal one.

There may be nothing founders are so prone to delude themselves about as how interested investors will be in giving them additional funding. It's hard to convince investors the first time too, but founders expect that. What bites them the second time is a confluence of three forces:

  1. The company is spending more now than it did the first time it raised money.

  2. Investors have much higher standards for companies that have already raised money.

  3. The company is now starting to read as a failure. The first time it raised money, it was neither a success nor a failure; it was too early to ask. Now it's possible to ask that question, and the default answer is failure, because that is at this point the default outcome.

I'm going to call the situation I described in the first paragraph "the fatal pinch." I try to resist coining phrases, but making up a name for this situation may snap founders into realizing when they're in it.

One of the things that makes the fatal pinch so dangerous is that it's self-reinforcing. Founders overestimate their chances of raising more money, and so are slack about reaching profitability, which further decreases their chances of raising money.

Now that you know about the fatal pinch, what do you do about it? Obviously the best thing to do is avoid it. Y Combinator tells founders who raise money to act as if it's the last they'll ever get. Because the self-reinforcing nature of this situation works the other way too: the less you need further investment, the easier it is to get.

What do you do if you're already in the fatal pinch? The first step is to re-evaluate the probability of raising more money. I will now, by an amazing feat of clairvoyance, do this for you: the probability is zero. [2]

Three options remain: you can shut down the company, you can increase how much you make, and you can decrease how much you spend.

You should shut down the company if you're certain it will fail no matter what you do. Then at least you can give back the money you have left, and save yourself however many months you would have spent riding it down.

Companies rarely have to fail though. What I'm really doing here is giving you the option of admitting you've already given up.

If you don't want to shut down the company, that leaves increasing revenues and decreasing expenses. In most startups, expenses = people and decreasing expenses = firing people. [3] Deciding to fire people is usually hard, but there's one case in which it shouldn't be: when there are people you already know you should fire but you're in denial about it. If so, now's the time.

If that makes you profitable, or will enable you to make it to profitability on the money you have left, you've avoided the immediate danger.

Otherwise you have three options: you either have to fire good people, get some or all of the employees to take less salary for a while, or increase revenues.

Getting people to take less salary is a weak solution that will only work when the problem isn't too bad. If your current trajectory won't quite get you to profitability but you can get over the threshold by cutting salaries a little, you might be able to make the case to everyone for doing it. Otherwise you're probably just postponing the problem, and that will be obvious to the people whose salaries you're proposing to cut. [4]

Which leaves two options, firing good people and making more money. While trying to balance them, keep in mind the eventual goal: to be a successful product company in the sense of having a single thing lots of people use.

You should lean more toward firing people if the source of your trouble is overhiring. If you went out and hired 15 people before you even knew what you were building, you've created a broken company. You need to figure out what you're building, and it will probably be easier to do that with a handful of people than 15. Plus those 15 people might not even be the ones you need for whatever you end up building. So the solution may be to shrink and then figure out what direction to grow in. After all, you're not doing those 15 people any favors if you fly the company into ground with them aboard. They'll all lose their jobs eventually, along with all the time they expended on this doomed company.

Whereas if you only have a handful of people, it may be better to focus on trying to make more money. It may seem facile to suggest a startup make more money, as if that could be done for the asking. Usually a startup is already trying as hard as it can to sell whatever it sells. What I'm suggesting here is not so much to try harder to make money but to try to make money in a different way. For example, if you have only one person selling while the rest are writing code, consider having everyone work on selling. What good will more code do you when you're out of business? If you have to write code to close a certain deal, go ahead; that follows from everyone working on selling. But only work on whatever will get you the most revenue the soonest.

Another way to make money differently is to sell different things, and in particular to do more consultingish work. I say consultingish because there is a long slippery slope from making products to pure consulting, and you don't have to go far down it before you start to offer something really attractive to customers. Although your product may not be very appealing yet, if you're a startup your programmers will often be way better than the ones your customers have or can hire. Or you may have expertise in some new field they don't understand. So if you change your sales conversations just a little from "do you want to buy our product?" to "what do you need that you'd pay a lot for?" you may find it's suddenly a lot easier to extract money from customers.

Be ruthlessly mercenary when you start doing this though: you're trying to save your company from death here, so make customers pay a lot, quickly. And to the extent you can, try to avoid the worst pitfalls of consulting. The ideal thing might be if you built a precisely defined derivative version of your product for the customer, and it was otherwise a straight product sale. You keep the IP and no billing by the hour.

In the best case, this consultingish work may not be just something you do to survive, but may turn out to be the thing-that-doesn't-scale that defines your company. Don't expect it to be, but as you dive into individual users' needs, keep your eyes open for narrow openings that have wide vistas beyond.

There is usually so much demand for custom work that unless you're really incompetent there has to be some point down the slope of consulting at which you can survive. But I didn't use the term slippery slope by accident; customers' insatiable demand for custom work will always be pushing you toward the bottom. So while you'll probably survive, the problem now becomes to survive with the least damage and distraction.

The good news is, plenty of successful startups have passed through near-death experiences and gone on to flourish. You just have to realize in time that you're near death. And if you're in the fatal pinch, you are.


[1] There are a handful of companies that can't reasonably expect to make money for the first year or two, because what they're building takes so long. For these companies substitute "progress" for "revenue growth." You're not one of these companies unless your initial investors agreed in advance that you were. And frankly even these companies wish they weren't, because the illiquidity of "progress" puts them at the mercy of investors.

[2] There's a variant of the fatal pinch where your existing investors help you along by promising to invest more. Or rather, where you read them as promising to invest more, while they think they're just mentioning the possibility. The way to solve this problem, if you have 8 months of runway or less, is to try to get the money right now. Then you'll either get the money, in which case (immediate) problem solved, or at least prevent your investors from helping you to remain in denial about your fundraising prospects.

[3] Obviously, if you have significant expenses other than salaries that you can eliminate, do it now.

[4] Unless of course the source of the problem is that you're paying yourselves high salaries. If by cutting the founders' salaries to the minimum you need, you can make it to profitability, you should. But it's a bad sign if you needed to read this to realize that.

Thanks to Sam Altman, Paul Buchheit, Jessica Livingston, and Geoff Ralston for reading drafts of this.

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Marc Kneepkens's insight:

How do you handle the money after getting funded? Here is a good article from Paul Graham to help startups see reality looming...

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These 4 tech IPOs will raise more than $1B next week | VentureBeat | Business | by Jordan Novet

These 4 tech IPOs will raise more than $1B next week | VentureBeat | Business | by Jordan Novet | Venture Capital Stories |

At some point, this year became a long-running waiting game for those looking out for technology companies that are going public.

Several fast-growing privately held tech companies, from Box to Dropbox, from Cloudera to Uber, have postponed the rush to public markets by taking on huge funding rounds this year, surprising observers again and again. But those people can take a sigh of relief next week, when four tech companies will finally hold initial public offerings.

These companies might not be the most profitable ones around at the moment, but it might be a good idea to give them some time. As investor Tom Tunguz pointed out in a blog post this week, cloud-software companies that have gone public this year “pop” once they become publicly traded.

Here’s some information on the expected tech IPOs coming up this week.

New Relic

Description: Cloud-based application performance management and software analytics company.
Stock symbol: NEWR on the New York Stock Exchange
Proposed maximum aggregate offering price: $115 million
Proposed maximum offering price per share: $20
Most recent annual revenue: $63.1 million (for year ending on March 31)
Most recent annual net loss: $40.2 million (for year ending on March 31)
Headquarters: San Francisco
Employees: 534 (as of Sept. 30)
Most recent regulatory filing: Dec. 1


Description: A seller of a distribution of the Hadoop open-source software for storing and processing lots of different types of data.
Stock symbol: HDP on the Nasdaq
Proposed maximum aggregate offering price: $96.6 million
Proposed maximum offering price per share: $14
Most recent annual revenue: $10.9 million (for year ending on April 30, 2013)
Most recent annual net loss: $36.6 million (for year ending on April 30, 2013)
Headquarters: Palo Alto, Calif.
Employees: 524 (as of Sept. 30)
Most recent regulatory filing: Dec. 1

Lending Club

Description: A marketplace for borrowers and investors that facilitates peer-to-peer loans.
Stock symbol: LC on the New York Stock Exchange
Proposed maximum aggregate offering price: $796.2 million
Proposed maximum offering price per share: $12
Most recent annual revenue: $98 million (for year ending on Dec. 31, 2013)
Most recent annual net income: $7.3 million (for year ending on Dec. 31, 2013)
Headquarters: San Francisco
Employees: 742 (as of Sept. 30, including contractors)
Most recent regulatory filing: Dec. 1


Description: A provider of cloud-based software for creating and collaborating on several types of business reports.
Stock symbol: WK on the New York Stock Exchange
Proposed maximum aggregate offering price: $124.2 million
Proposed maximum offering price per share: $15
Most recent annual revenue: $85.1 million (for year ending on Dec. 31, 2013)
Most recent annual net loss: $25.7 million (for year ending on Dec. 31, 2013)
Headquarters: Ames, Iowa
Employees: more than 940 (as of Sept. 30)
Most recent regulatory filing: Dec. 1

If these four aren’t enough for you, don’t worry. Several more tech companies should be hitting the IPO button in 2015. Stay tuned.

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Venture Capital Fundraising - The Barbell'ization of VC Continues

Venture Capital Fundraising - The Barbell'ization of VC Continues | Venture Capital Stories |
The number of funds closed in 2014 was nearly 100% more than 2013, with nearly 100 funds under $50M being closed this year. Large mega-funds also are raising at a higher rate.

A couple of months ago, Samir Kaji from First Republic Bank wrote a great guest post on CB Insights about where the Micro-VC market is going. We wanted to use CB Insights data to see the actual growth in the Micro-VC arena, and how funds of other sizes are comparing.

Across the board, more funds than ever are being raised in the US. Compared to 2013, this year has already seen nearly 200 VC funds form. The data shows that there has already been a 180% increase from 2013 in funds being raised under $50M as many new firms enter the very popular Micro-VC space.

But the growth is not only at micro VC stage.

The increase in funds between $51M and $150M has been even more drastic with more than 50 funds being raised so far in 2014. Many of these funds had previous funds that were in the <$50M range. But several of these funds have gone onto raise larger funds including Data Collective, Lerer Hippeau Ventures, and Forerunner Ventures.

This a common trend we’re observing and we hear from our LP clients. While small funds talk a good game about staying small and the benefits of their micro-VC size, those that can raise larger funds generally go upmarket if they can.

And the growth continued even at the larger end with those larger than $450M also growing significantly. There have been 8 separate billion-dollar funds already raised (not including Khosla Ventures or New Enterprise Associates, which are in the process of fundraising).  This is often referred to as a venture capital fund barbell where the growth is at the lower fund sizes and at the larger end thereby leading to a thin middle (funds with several hundred million under management).

Overall, there’s a lot more capital ready to be deployed. This, of course, doesn’t consider all the investment capital rushing into the private markets from corporate VCs, hedge funds and mutual funds. More VC funds, however, does not mean that the power law of venture capital is going to change. But we can be sure to see many more early stage deals across the board thanks to the growth in Micro VCs.

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Marc Kneepkens's insight:

Certainly not a lack of funding. Point is, get your stuff together, team lined up and business plan right.

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How Arizona (yes, Arizona) is becoming a hotbed for tech startups | VentureBeat | Entrepreneur | by Mo Marshall

How Arizona (yes, Arizona) is becoming a hotbed for tech startups | VentureBeat | Entrepreneur | by Mo Marshall | Venture Capital Stories |
GuestArizona isn’t going to suddenly usurp California or Texas any time soon when it comes to things like venture funding, but the sleeping giant out in the Southwest is starting to make some noise.

Let’s be blunt. The technology startup scene in Arizona was essentially non-existent for a long time. In a state economy traditionally dominated by real estate and tourism, technology has always been a tough sell.

Sure, Motorola once employed tens of thousands of people in the Phoenix area and Intel still has major operations in Chandler, but from a startup perspective, Arizona has never been the most friendly place. Frankly, not a lot of people really cared about technology.

But a lot has changed in the past decade, and as the founder of two Phoenix-area tech startups during that time, I’ve seen firsthand why Arizona — yes, Arizona — is becoming the next hotbed for startups.

First off, let’s talk Arizona perceptions. They include, but are not limited to, sunshine, golf, retirees, sprawl, a boom-and-bust real estate market and that loudmouth sheriff of ours. To a degree, all these outside perceptions of the Grand Canyon state still hold true. However, what people in Arizona’s tech sector have known for a few years now is how much more there is than that.

Back around 2007, when I was getting my Phoenix tech startup Flypaper off the ground, there had been relatively few successful tech companies started in Arizona, and tech wasn’t on most people’s radar. Raising capital was a huge issue as there were a couple of established angel organizations, but mostly it was a person-by-person effort.

Silicon Valley funds weren’t interested in investing outside of their own backyard, and they didn’t have to because of all the opportunities in California. In Arizona, the people with money often had made a significant amount of it by investing in real estate, and that was all they knew. When real estate was riding high, people wanted to continue to invest in it. When it as faltering, they felt less wealthy and wanted to protect themselves. Investing in technology didn’t even enter the picture.

This was a tough climate to change, but gradually there were successes that made a big difference. The housing crash and the Great Recession came along at a time in Arizona history when the tech community was finally getting itself together. There was a lot of new energy, and people really wanted to make an effort to change the climate for tech companies. The Arizona Technology Investor Forum (rebranding to: Arizona Tech Investors) is a great example. It was just getting off the ground, and the initial members were all people who were really trying to make a difference in the community by fostering a better climate for investment in technology.

The energy around Arizona State University has also jumpstarted the state’s startup scene in recent years. The massive school put an emphasis on tech transfer that it never had in the past, and it also has built up its biosciences programs to help spur local R&D efforts. ASU’s SkySong Innovation Center in Scottsdale opened in 2008 and has since grown to serve as a top incubator for local tech startups.

Piggybacking on ASU’s efforts, handfuls of other local tech incubators and startup competitions have emerged in Arizona in the past few years. For the first time I can remember, there is a real energy behind supporting startups here. It can be felt across the local economy as more leaders realize the value of the startup community as a job-creating force that’s a heck of a lot more dependable than population growth and building more homes.

Now that I’m in the throes of my next startup, SpotlightSales, it’s amazing how different the climate is this time around. There are many more sophisticated investors than there were five or 10 years ago, and I think the organizations in Arizona have become more organized in their approach. There’s more local talent now than there’s ever been. There have been enough successes, and just as importantly, failures, that there’s a broader pool to draw real talent from.

Arizona isn’t going to suddenly usurp California or Texas any time soon when it comes to things like venture funding, but the sleeping giant out in the Southwest is starting to make some noise. Don’t be surprised to hear a lot more about high-tech companies coming out of Arizona in the next several years. The work done on the ground there in recent years all but guarantees it.

Don Pierson has been an entrepreneur in Phoenix for over 25 years. After his previous tech startup Flypaper was acquired by Trivantis in 2012, he joined on as CEO of the startup company SpotlightSales, a performance software platform for virtual and geographically-dispersed sales teams.

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Another startup hub growing with leaps and bounds.

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Why 'Arrogant Jerks' Become Rich And Successful In Silicon Valley

Why 'Arrogant Jerks' Become Rich And Successful In Silicon Valley | Venture Capital Stories |

There's a notion that some people become successful company founders because they have the right "Startup DNA."

The DNA is comprised of characteristics like "resilience" and "ability to accept risk."

Another characteristic many top entrepreneurs share is arrogance. Or worse, just being a huge jerk. 

While reporting a long profile of Travis Kalanick last winter, Business Insider found a lot of people who thought Kalanick was a legendary CEO.

Friends compared him to Steve Jobs and Larry Ellison. 

But some who were in awe of Kalanick also said he was a jerk. 

"Sometimes," one acquaintance said of Kalanick, "a--holes create great businesses."

Inside Silicon Valley, arrogance runs rampant and investors seem to reward ruthless behavior with piles of cash.

There are numerous examples of founders who have had moments of terrible behavior that later became infamous. The founders might not be jerks all the time, of course. Everyone has moments when they behave boorishly. But sometimes the stories are so unbelievable, it can leave a lasting negative impressive of the person — that whether criticism is deserved or not.

For instance, Mark Zuckerberg, who is now worth tens of billions, famously ousted his friend Eduardo Saverin from Facebook. He also stole his business idea from the Winklevoss twins. "Yah, I'm going to fuck them," he told a friend over IM about the pair. "Probably in the ear."

Snapchat CEO Evan Spiegel wrote a number of misogynistic-sounding emails when he was in college to his fraternity brothers. Once, Spiegel was so angry with his parents, he reportedly cut himself out of family photos. 

Twitter's co-founders back-stabbed each other repeatedly: Founder Noah Glass was booted out of the company. Ev Williams and Jack Dorsey were both given, and then stripped of, the CEO title. And Jeff Bezos, who runs Amazon, wreaks havoc in his organization by sending a single-character email: "?"

Even Steve Jobs, one of the world's most-praised entrepreneurs, was said to have two sides. Jobs' biographer, Walter Isaacson, portrayed the late Apple CEO as "Good Steve" and "Bad Steve." An example: Jobs once stormed into a meeting and called everyone "f---ing dickless a--holes."

Robert Sutton spent a lot of time conducting research for his book, "No a--hole Rule: Building a Civilized Workplace and Surviving One that Isn't," What he found was disappointing.

"Even people who worked with Jobs told me that they'd seen him make people cry many times, but that 80 percent of the time he was right, " Sutton said. "It is troubling that there's this notion in our culture that if you're a winner, it's okay to be an a--hole."

The Atlantic's Tom McNichol agrees. He wrote an article titled: "Be a Jerk: The Worst Business Lesson from the Steve Jobs biography."

Here's an excerpt:

The ease with which people can possess astonishingly contradictory qualities is one of the mysteries of human nature; indeed, it's one of the things that separates humans from, say, an Apple computer. Every one of the components that makes up an iPad is essential to the work it produces. Remove one part and the machine no longer performs its job, and not even the Genius Bar can fix it. But humans are full of qualities that are in no way integral to their functioning in the world. Some aspects of personality have little or no bearing on whether a person performs well, and not a few people succeed in spite of their darker qualities.

So, is it possible to be nice and to be wildly successful in business? And in Silicon Valley, where people praise Steve Jobs' bad habits and founders rag on the homeless, can you be financially rewarded if you're nice? 

One venture capitalist whose firm implemented a "no a--holes policy" passed on an investment in Uber. This person said Kalanick didn't click with any of the partners and that he acted like he was "God's gift."

Other investors struggle with the decision to invest in personalities over returns.

"I want not to invest in jerks," says former Silicon Valley investor, Eileen Burbidge. Burbidge is now a VC at London's Passion Capital, which has invested in startups like Lulu and Go Cardless.  "Personally I believe life is too short. [But] I have wondered if this is actually a bad philosophy as an investor. I'd like to think not but I'm supposed to back founders for the best ROI, not personality."

I want not to invest in jerks ...But I have wondered if this is actually a bad philosophy as an investor. I'm supposed to back founders for the best ROI.

Mark Suster, a Los Angeles-based investor, also isn't sure what to make of jerks in business. He lists "integrity" as a bonus characteristic when it comes to top entrepreneurs' DNA.

"I believe that integrity and honesty are very important to most venture capital investors," he wrote on his blog, Both Sides of the Table. " Unfortunately, I don’t believe that they are required to make a lot of money."

Many agree that being an overly-aggressive entrepreneur tends to pan out.

"As much as [Travis] is inspirational, he is controversial," a former colleague of Kalanick's said. "If he were less brash, I don't think he would get half as far as he did." 

Adds another Kalanick acquaintance: "There is absolutely no way [Uber] would have gotten where it is without Travis and his arrogance. Not without him being like, 'I'm going to take over the world.' He has the Steve Jobs mentality that 'It's my way or the highway.'"

One person who firmly believes you can be nice and succeed is Paul Graham. He runs top startup accelerator Y Combinator and he's made Sutton's "no a--hole" rule popular in tech. He has backed billion-dollar startups such as Dropbox and Airbnb.

Paul Graham has a "no a--hole" policy for his startup accelerator, Y Combinator.

Graham says well-known founders like Jobs and Bezos can't be judged by their terror tales. "Famous founders who seem to be a--holes might not be," Graham told Business Insider via email. "I'm not saying they are or they aren't, just that it is extremely hard to tell what a famous person is really like. You can't judge them based on anecdotal evidence, which is all you ever have."

Graham chooses not to invest in jerks because he doesn't want to be around them. Investors and founders end up spending a lot of time together. Getting rid of one or the other can be more difficult than getting a divorce from a spouse. 

"The reason we tried not to invest in jerks initially was sheer self-indulgence," says Graham. "We were going to have to spend a lot of time with whoever we funded, and we didn't want to have to spend time with people we couldn't stand. Later we realized it had been a clever move to filter out jerks, because it made the alumni network really tight. We've funded over 630 startups now, and when founders of different startups meet there is an automatic level of trust and willingness to help one another. Much more than alumni of the same college for example."

His take: Be nice and you can find success.

"It's certainly possible to build a multi-billion dollar startup without being a jerk," Graham says. "We've funded several, and the founders are all good people.  In fact, based on what I've seen so far, the good people have the advantage over the jerks. Probably because to get really big, a company has to have a sense of mission, and the good people are more likely to have an authentic one, rather than just being motivated by money or power."

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Marc Kneepkens's insight:

I'm on Paul Graham's side in this. Stay away from the jerks. It's about the quality of your life, not just the profits.

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The Real Reason 'Stupid' Startups Raise So Much Money

The Real Reason 'Stupid' Startups Raise So Much Money | Venture Capital Stories |

Have you noticed all the startups raising massive sums of money recently?

Perhaps you’ve scratched your head wondering how a company like BuzzFeed, known for its website full of animated gifs, listicles and quizzes, just raised $50 million dollars, valuing the company at a reported $850 million. Snapchat, the messaging app known for helping teenagers sext one another, reportedly received a $10 billion valuation from its investors. Has the world gone mad?

Some industry watchers see the recent boom in seemingly trivial apps and websites as foretelling tech bubble 2.0. However, there’s much more to the story.

Our knee-jerk reaction to classify innovation as either important or frivolous is exactly why many are left aghast when previously dismissed companies reveal shocking valuations in ridiculous investment rounds.

Vitamins and painkillers

Most people, including many professional investors, tend to put new products into one of two categories: vitamins or painkillers.

Painkillers tackle important problems. They solve an obvious need, relieving a customer’s specific pain and addressing a quantifiable market. Think Tylenol, the brand name version of acetaminophen, and the product’s promise of reliable relief. It’s the kind of ready-made solution for which people are happy to pay.

Innovators in companies big and small are constantly asked to prove their idea is important enough to merit the time and money needed to build it. Gatekeepers such as division heads and managers want to invest in solving real problems — or, meeting immediate needs — by backing painkillers.

In contrast, vitamins do not necessarily solve an obvious pain-point. Instead they appeal to users’ emotional rather than functional needs. When we take our multivitamin each morning, we don’t really know if it is actually making us healthier.

Efficacy is not why we take vitamins. Taking a vitamin is a “check it off your list” behavior we measure in terms of psychological, rather than physical, relief. We feel satisfied that we are doing something good for our bodies — even if we can’t tell how much good it is actually doing us.

Unlike a painkiller, which we can not function without, missing a few days of vitamin popping, say while on vacation, is no big deal. Likewise, people tend to dismiss innovations like BuzzFeed as vitamins believing it’s a nice-to-have product, not a must-have — and for the most part, they’re right.

However, what we often fail to realize is that over time, vitamins can become painkillers. As BuzzFeed investor Chris Dixon wrote, “the next big thing will start out looking like a toy.”

Becoming a habit

Let’s consider a few of today’s hottest consumer technology products — say Facebook, Twitter, Instagram, and Pinterest. What are they selling — vitamins or painkillers?

Most people would guess vitamins, thinking users aren’t doing much of anything important other than perhaps seeking a quick boost of social validation. Before making up your mind on the vitamin or painkiller debate for some of the world’s most successful tech companies, consider this idea: a habit is when not doing an action causes a bit of pain.

Think back to before you first started using these services. No one ever woke up in the middle of the night screaming, “I need something to help me update my status!” Like so many innovations, people did not know they needed Facebook until it became part of their everyday lives — until it became a habit.

It is important to clarify that the term “painpoint,” as it is frequently used in business school and marketing books, is somewhat hyperbolic. In reality, the experience we are talking about is more similar to an “itch,” a feeling that manifests within the mind and causes discomfort until it is satisfied.

The habit-forming products we use are simply there to provide some sort of relief. Using a technology or product to scratch the itch provides faster satisfaction than ignoring it. Once we come to depend on a tool, nothing else will do.

Seeking pleasure and avoiding pain are two key motivators in all species. When we feel discomfort, we seek to escape the uncomfortable sensation. Over time, the solution to the user’s pain is found in the product’s use.

Habit-forming technologies seem, at first, to be offering nice-to-have vitamins, but once the habit is established, they provide an ongoing pain remedy. It is easy to dismiss these seemingly frivolous technologies when we don’t understand the deeper psychology compelling users to come back again and again.

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Marc Kneepkens's insight:

I suppose we're all part of these huge valuations by feeding these cravings.

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More big companies are partnering with startups. Here's how your startup can fit in | VentureBeat | Entrepreneur | by Jordan Novet

More big companies are partnering with startups. Here's how your startup can fit in | VentureBeat | Entrepreneur | by Jordan Novet | Venture Capital Stories |

The U.S. is a “Shark Tank” nation, the United Kingdom is in a “Dragon’s Den,” and India is an entrepreneur heaven. The recent uptick in entrepreneurship is more than a trend but a global spirit of innovation.

The spirit of creating your own business is not new but has escalated in today’s market. The first quarter of this year was the biggest funding quarter for startups in five years, representing more than $2 billion in capital. Being a successful entrepreneur is no longer just a hope and a dream. There is real funding backing up the multitude of new businesses and great opportunity.

Innovators are creators and coders, entrepreneurs are doers. Startups consist of both entrepreneurs and innovators, and it is those developers-turned-innovators inside of startups that are the most influential. They are the technological experts, and when combined with an intense entrepreneurial drive, are forces to be reckoned with.

This is why this special group of entrepreneurial developers packs such a mighty punch in the market. According to Evans Data, while only 11 percent of developers are from entrepreneurs, these 11 percent are the most influential across entire businesses. This is why we’re currently seeing a migration of Fortune 500 companies moving to Silicon Valley and other startup hotbeds such as New York, Berlin, London, and Singapore to be in the heart of where entrepreneurs live.

Even consumer brands like Campbell’s Soup and PepsiCo are embracing developer entrepreneurs, with programs like “Hack the Kitchen” and the PepsiCo10 incubator program.

Take the Target Accelerator Program at Target India. Acknowledging that innovation can come from anywhere, not just in-house, this global retailer incubates tech start-ups for six months in their own campus in Bangalore. Working alongside the Target development team, these startups are innovating the future of shopping experiences.

In IBM’s recent Business Tech Trends study of over 1,500 companies, it was revealed that pacesetters, or those who excel in their business goals, partnered more creatively with outside organizations, recruiting less traditional partners for their efforts.

These types of creative partnerships aren’t just about skills; it’s much deeper and more pervasive. Truly creative business leaders engage less-conventional partners, such as citizen developers, and entrepreneurs to help drive innovation. They’re also 70 percent more likely to use startups for project execution. And they’re remarkably inclusive when it comes to steering their IT direction — these leaders are about 2.5 times more likely to turn to startups and citizen developers for help with IT decisions.

Entrepreneurship plays a critical role to the ecosystem of economic success. So what are the top three characteristics that are integral for entrepreneurs to become part of a win-win situation with larger enterprises?

  • Beat the odds. I was just in Milan and learned that over 66 percent of startups fail in the first year. Beat the odds. Ensure that you have a community of entrepreneurs and business leaders who can assist you. Everyone knows a great team of passionate and hard-working people who are cohesive and possess complementary skills is a secret of success. But make sure that you also surround yourself with mentors and create an advisory board of knowledgeable and reliable business professionals. I also recently visited TalentGarden, which is not just a space for startups to work, but home to a collective group of entrepreneurs who share their expertise. A key takeaway from the TalentGarden community: You can beat the odds through strong partnering.
  • Make bank, don’t break it. Entrepreneurs need to raise enough money to get off the ground by gaining access to top accelerators and venture capitalists. They also have to budget carefully and find the most efficient, cost-effective ways to go to market. Being featured on the home page of Digital.NYC, which was recently launched as a hub for entrepreneurs, is one way that start-ups can be noticed and “get funding”. Jim Deters, the chief executive of Galvanize, a leading collaborative hub for startups, always gives this advice to entrepreneurs: “Show the investor evidence, commitment, and traction that you are creating a business. Don’t show up with just an idea.” This is reinforced by the legendary Guy Kawasaki, who says, “Show me a prototype and not a PPT!”
  • Understand the opportunities. Focus on clients and their needs. Tap into new markets like cloud, analytics, mobile and social. Go global with a vast network of partners. Grush, an IBM SmartCamp winner, transforms the chore of brushing into a fun and interactive game. They’ve developed an advanced Bluetooth motion-sensing toothbrush, coupled with interactive and instructive mobile games, to guide kids’ brushing and let parents track the results. But, they quickly realized that their big advantage was actually in the big data they were collecting around what spurs kids to get excited about normally mundane activities.

The success of India-based entrepreneurs in the e-commerce business is a classic example of the “David and Goliath” success laid out by these three characteristics. Entrepreneurs in India’s booming telecom space have reacted much faster to changing customer needs. They understand the market, its dynamics and because of their agility, they are in a better position to turn things around. And because of the unique flexibility these entrepreneurs possess, big enterprises are not competing with them, but rather embracing this innovation to help the ecosystem as a whole.

Finally, to truly showcase to larger companies the value of your idea and what it can do for their customer base – make sure you understand where the potential is in your business, and be ready to explain it in three minutes or less. Make it memorable by explaining the problems you want to solve, how you’re going to solve them, why your team is the best option for solving them, and the value you’re bringing to the market.

The opportunity for entrepreneurs exists now and will continue grow. As James Dyson, founder of Dyson, said, “We are all looking for the magic formula. Here it is: Creativity + Iterative Development = Innovation.”

Sandy Carter is general manager of ecosystem development at IBM.

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Marc Kneepkens's insight:

There are more and more initiatives for startups to break through. If not direct funding by VC's or Angel Investors, there is also the opportunity to partner with corporations. They offer what the startup does not have: infrastructure, money, connections, clientele... Startups offer innovation. Win/win? Hopefully.

The Business Plan Team's curator insight, November 20, 5:32 AM

If going this route make sure you research your potential partners in depth for your business plan well and ensure the "Fit" is good with any proposed company.....

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Meet Your New Boss, Mr. Algorithm | TechCrunch

Meet Your New Boss, Mr. Algorithm  |  TechCrunch | Venture Capital Stories |

Meet Algo, your new boss. It’s flexible, willing to change work schedules so you can work when you want, and not when you don’t. It’s reasonable, providing you honest feedback without the politics of your last human boss. And Algo will find new projects for you to complete, so you always have something interesting to work on while receiving a paycheck.

The best part is, “Algo” is pretty much here.

We all know the story about algorithms and work the past few years. Service jobs across the country are increasingly being managed with the help of mathematical models of customer demand, revolutionizing everything from taxi driving to food delivery, home cleaning, and laundromats. I have argued that the increased autonomy and flexibility of these jobs means that algorithms are taking over unions as the primary driver of workers’ rights in the 21st century.

But now, startups are starting to move up the corporate ladder, using algorithms to improve and disrupt professions that up until recently have seemed almost completely insulated from the efficiencies of computation.

Two Boston-based startups, HourlyNerd and Quantopian, are using sophisticated algorithms to compete with some of the most-well known firms in consulting and quantitative finance, respectively. As they begin to disrupt these two industries, both hope to expand and democratize their professions to anyone with the talent and desire to work.

If they are successful in their ambitions, we may start to see a world where elite and inaccessible credentials are replaced by performance-based reviews, creating a much more meritocratic workforce than we have today. It will also provide workers with far more flexibility in their daily lives, something that is heavily demanded by today’s workforce. And while flexibility does often come at the cost of job security, this new wave of startups promises to provide great livelihoods to a wider number of people.

More at

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Algorithms are everywhere. How about looking over your shoulder and telling you what to do?

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Dylan's Desk: Venture capital is changing, and that's giving tech entrepreneurs a big advantage

Dylan's Desk: Venture capital is changing, and that's giving tech entrepreneurs a big advantage | Venture Capital Stories |

You might not think investors with huge piles of money would have much to worry about, but that’s increasingly the case in the competitive world of tech venture capital.

There is so much money chasing so few good deals that VCs need to work hard to get the choicest opportunities.

One way is by offering ridiculously huge valuations, such as the $1.12 billion that Slack is now worth — even though it has only 268,000 daily active users. (It’s important to note that, thanks to Slack’s freemium business model, these are not all paying customers.) That means Google Ventures and Kleiner Perkins Caufield & Byers, the lead investors, are valuing each Slack user at about $4,180. If Facebook got a similar valuation for its billion-plus users, it would have a market capitalization over $4 trillion.

For Slack’s founders, that’s a great deal — they got $120 million in operating capital and only had to give up about 10 percent of the company. For other VCs, it’s probably causing sticker shock and making them wonder how they can ever compete.

So if you’re a VC and you don’t want to pay top dollar just to get in on a promising new startup, you need to get creative.

“The venture model is evolving to a value-add [proposition],” Intel Capital president Arvind Sodhani told me this week at his company’s annual conference for portfolio companies and partners.

Intel Capital — the venture arm of the semiconductor giant — has pockets just as deep as Google’s or Kleiner’s. It has invested $300 million to $400 million every year for the past decade, making it one of the largest funders of startups in the tech world. In 2014 so far, Intel Capital has made 55 investments totaling $344 million. It has also seen three IPOs and 19 acquisitions among its portfolio companies.

But it’s not just cash that Intel Capital offers: For the past decade or more, Intel has offered a powerful “ecosystem” in addition to its capital. Taking an investment from this fund means gaining access to a powerful network of potential customers, partners, advisors, and peers. This week’s Intel Capital Global Summit, here in sunny Southern California, is the capstone.

About 1,000 people attend the event, roughly half of them the CEOs and executives of “I-Cap companies,” as the portfolio companies call themselves. The rest are Intel employees or representatives of Intel partners — plus a smattering of journalists. A lot of dealmaking gets done in the hallways.

(Intel even brought Beastie Boy DJ Mix Master Mike to put on a private show in the evening — another amazing perk that, curiously, most attendees seemed not to appreciate.)

In short, an investment from Intel means admission to an elite club of companies, with access to many other companies that can purchase your products, invest in you, or help you in other ways. It really is an ecosystem, with Intel at the heart of it.

“Here I can meet lots of CEOs from completely different fields — but they have the same problems,” Idan Tendler, the CEO and founder of security analytics startup FortScale told me. (FortScale took $10 million from Intel Capital and Blumberg Capital in June 2014.) “It’s great networking. If I want to reach a customer or a partner, I can do it here.”

Other funds are taking a different tack. Eden Shochat is the founder of Aleph, an Israeli VC firm that has raised its first fund, with $150 million committed. In other words, Aleph’s entire fund is about half of what Intel invests in a single year — and the network of Israeli entrepreneurs and investors, while powerful, is much smaller than Intel’s ecosystem.

So Aleph is differentiating through software. It has built an app, which it calls Karma, to help connect Israeli entrepreneurs with one another. It’s an open network, so it’s not just for Aleph portfolio companies. Using the app, people can ask questions, receive or give advice, and make referrals to other people in their network.

Karma now has 2,100 entrepreneurs using it, Shochat says, which is a substantial fraction of the Israeli tech startup world. Shochat says that this app provides real value to entrepreneurs — but it also gives Aleph unprecedented visibility into where the talent lies. For instance, it’s easy for him to see which users are continually receiving referrals, which provide the best answers to startup questions, and which have the best reputations as engineers, designers, or what have you.

It also provides a way to funnel deals into Aleph’s pipeline.

“You will always have too few partners — so you need software to get the right deals to the right partners as quickly as possible,” Shochat told me.

But for startups, that software is an added value that, he believes, will make his firm more attractive than others. And, Shochat believes, VC firms have moved too slowly to embrace the power of the software that they ostensibly believe in.

“It’s interesting to see that the industry tasked with identifying innovation is still working with IT systems from the Stone Age,” Shochat said.

That might be a bit harsh. But one thing is clear: As long as valuations are this high, and the market remains this optimistic, most VCs are going to have to work quite a bit harder to keep (or win) their places at the table.

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A corporation like Intel is a blg player in the VC world. Read why and why it is a huge advantage to be funded by such a company.

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The Founder's Guide To Selling Your Company • Justin Kan

The Founder's Guide To Selling Your Company • Justin Kan | Venture Capital Stories |

For most founders, selling a company is a life changing event that they have had no training for. At Y Combinator, one big thing we help our startups with is navigating questions around the acquisition process.

Originally, , I wrote this guide for YC startups outlining what I’ve learned in my last ten years as an entrepreneur about selling startups. If you are going through an acquisition, hopefully this will be useful to you.

When to Sell

Similar to raising money, the best time to sell your startup is when you don’t need to or want to. Paradoxically, you are probably thinking about selling your startup as you are experiencing a lack of traction, tough competition, or difficult time fundraising. However, this is a bad time to sell your startup: you will have few bidders and be more likely to acquiesce to the demands of anyone who does show up.

The best time to sell your startup is when you have many options. These options don’t all have to be acquisition offers, they can also be venture term sheets for your next round. You might even be operating profitably and find yourself in the enviable position of confidently being able to turn down an offer. Usually, you will have these options because your startup is actually experiencing great traction; counterintuitively, the best way to “build to flip” is actually the same as building a successful company.

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Everything you ever wanted to know about exits, directly from Y-combinator

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