For early-stage startups with the luxury to have this problem, a common topic that comes up in conversation lately is: “Well, how much should we raise?” I have a hard time answering that question with a specific number because everything is so case dependent and I don’t usually have a good sense of what the founders have in mind for long-term planning. And, even though I have my own experience to draw from, I’m not sure it’s applicable or proper to extrapolate from. So, in the absence of that, I end up stitching together three separate posts from investors who have way more experience than me:
“What A CEO Does.” In this post, there are three jobs for the CEO, one of which is he/she “makes sure there’s always enough cash in the bank.” Sounds obvious, but worth repeating and adds a solid foundation.
And, finally, there was a @pmarca twitter thread about this. I believe some people drew the wrong conclusion from that online discussion, getting hung up on the name of a round (seed vs A, etc.). All that crap is semantic. I tried to write about what it really means here. Essentially, if an early-stage startup has ended up raising around $3m or more, an investor like Marc Andreessen (and maybe this shifts with each person) will expect that startup to have even more evidence of usage, traction, and/or revenues. Those are the expectation of a big top tier fund, and in discussions with folks at those places, they all agreed.
I have noticed in the past few weeks that founders I’m talking to are now more aware of this. I didn’t connect these dots until a few days ago, so it was helpful to go through these conversations. One founder, for instance, wanted to raise $1.2M. He blew by that, and then decided to go up to $1.75M if high-value or strategics came in. But, he asked me, “What should I stop at?” He could’ve kept going. It can be tempting. But, I didn’t have a good answer for him…so, I wrote this post instead.
Earlier this week down in Los Angeles, I led a panel discussion as part of the Rutberg Wireless conference (agenda here). This was a fun breakout because I’m good friends with everyone on the panel and have been investing in and writing the space. On the panel we had Tri from Munchery, Kevin from Shyp, Sean from Zirx (valet parking), and Basti from Postmates. All CEO/founders who are deep into this space. Here’s a brief snapshot of the themes that came up in the hourlong discussion:
Contractor vs Employee Status: This issue has been in the news, discussed on Twitter, and reached the Supreme Court. At Munchery, drivers are brought on as part-time employees. At other companies, their contractors work with other services too, but the startups go to lengths to collect and offer benefits (like health club memberships) to their contractors. Basti from Postmates also raised a great point in highlighting that there’s a generational change as well, in that some people don’t want the trappings of a full-time job but prefer the flexibility and control of working for an on-demand startup.
Horizontal vs. Vertical Consumer Demand: Some folks seem to think eventually all of these services will consolidate under one brand (like an Uber), but I don’t believe that and the data for some of these companies proves that. The issue, of course, is — who can stay independent long enough, and this is where things get into the unit economics of each business and where they make their margins, not just how much in margin. More on this below.
Threats From Incumbents vs. From Startups: I’m sure all of these startups get asked “What if Amazon or Google do this?” Usually it’s a throwaway question but in this case, these incumbents are putting real money and resources into delivery. No one was really worried about these bigco’s, however; instead, they were more worried about startups who can come into the market with little barriers to entry and undercut prices to gain share. More on this below, too.
VC-fueled Services In NYC & Bay Area: We talked about how VC money was fueling and subsidizing this activity (and parking, and shipping, and etc.) but that it’s OK because the best execution and models win and get the chance to spread across the country.
Why So Much Activity In Food? Food is a daily active use case. On any given weekday, I can order Sprig or Spoonrocket for lunch in SF, and when I’m back home in the Valley, order dinner delivered to me by DoorDash, Instacart, OrderAhead, Postmates, and maybe even Square. Eventually, the winners here can maybe turn into platforms and/or deliver other things, too.
On-Demand Services In Unlikely Places: This is the part that surprised me the post. I live in an early stage startup bubble and don’t often interact with bigco’s. The bigco’s that were in our session were definitely interested in what types of on-demand services they could offer. This was interesting because it seemed like while we think of the space as overheated, there are more and more non-sexy opportunities out there for founders to go after that aren’t just pure consumer. Kevin had a great line to sum it up — that with mobile in today’s economy, the bar for a customer experience is so high, it creates opportunities for founders to create new experiences. In way, it’s just that simple.
The type of language we use is important, and especially so when a founder and investor are discussing a business. Lately, I’ve come across the word “customer” quite often in conversation. It’s a sign of the times today that even early-stage seed level companies are courting and retaining customers (which is the topic for another upcoming post). For now, I want to focus on the word “customer.”
When I hear most founders say it lately, it is intended as monolithic — for instance, “We have seven customers right now.” But, what I hear is something different. My ears and brain interpret the word “customer” differently and therefore, I usually stop and interrupt. I want to know more. All customers are not equal. Here’s how I segment them today — and, please, if you have a better way, please let me know and I’ll update the post.
[Alpha Customers] These are customers of any size (often not paying) who are doing the startup company a favor by testing the software or service. Founders need these customers to refine the product, collect data, etc. Over time, they may, of course, convert to real customers.
[Beta Customers] These are customers who might be paying but are limited to set a set size by the startup and, in good situations, coming off a waiting list as the founders figure out how to scale and meet more demand.
[Reference Customers] I’ve observed some founders using their networks to target bigger, brand named companies as customers and giving away their product or service for free, on the implicit agreement that the larger company would act as a future reference for the startup. For instance, a startup may have a connection to WorkDay, give them their beta mobile app across the company for free, and in return, WorkDay’s CIO (or someone) will act as a reference for future customer leads.
[Real Customers, SMB] How one classifies “small” and “medium” here is up for debate, but maybe it’s all under 1,000 employees. Who knows. The point is, they need to be distinguished from large, enterprise-scale customers.
[Real Customers, Enterprise-Scale] The toughest to get and the most sought after. Logos and scale matters, not only for business purposes, but as a signal toward how the founding team can access and sell into larger companies.
I have some personal news to share. I am going to write a book. Yes, a book that you can physically hold in your hands, or download to your Kindle. Though many people who know me came to know me through my writing on blogs, I don’t consider myself a writer — rather, it is just the way I interact with the world around me and just a byproduct of the work I’ve been doing, either at companies, in venture capital, and as an independent investor. Yet, about a month ago, on a Sunday morning tailgating before a football game with a bunch of colleagues, we had a few beers and got on the topic of an idea that turned into a longer conversation.
And, since then, I couldn’t shake the idea. The more I thought about it, and the more I socialized the idea with friends, they too agreed it would be a good idea and that my background, more diverse than deep in any one category, could provide an interesting lens with which to write this book and share the associated ideas widely. I am going to put my name on the line and use my little platform to market the book. My intention is to make the book an organic extension of this blog, with more organization, and to share the story in an authentic, civil manner and attract the proper audience for it.
“OK, OK,” you say, “What’s the book about already!?” My answer: “Uber.” For lack of a better title, for now, I’ll call it: “The Uber Effect.”
Over the past year, I noticed that I would write more and more on this blog about Uber, and then when I searched the history on the site, I noticed it came up much more than I had imagined. And, recently, it has come up in conversation more, and when people I’m talking with realize the company is a big deal but have a harder time imagining how big the company can get and what type of influence it will collect and exert, those conversations turn into debates that touch on many aspects of how we organize society today. The more and more I think about the company and its growth potential, the more I’ve come to realize it will not just be a financially powerful company, but Uber will hold all other sorts of power related to data, mobility, logistics, commerce, transportation and more. Like Amazon, Google, and Facebook before it, it is a once-in-a-lifetime company, it is on the verge of going public within the next two years, and I have made a personal decision to commit some of my time to organize and tell that story as the drumbeat gets louder.
“What will the book cover?” you ask. I am still sorting that out, but expect it to touch on how mobile devices help create the largest technology market our society has ever witnessed, how humans are migrating to cities worldwide, how centralized systems (like governments) are being challenged by decentralized networks, a citizenry more willing to pay by the mile rather than pay more taxes and the subsequent effects on public transit infrastructure, a bifurcating labor market between high-skilled and not in an age with automation on the horizon, the distribution of knowledge via cloud-based servers and mobile devices, just-in-time inventory management powered by mobile devices, and how autonomous vehicles may turn this all upside down again.
Truth is, I’m still sorting this out, talking to an agent and publishers, but I want to commit to it, so I’m publicly sharing it, and I will need to really sharpen the scope and focus. That’s what the holidays are for, I guess!
All that said, here’s what will not be covered in the book:
One, this book will not be a hit-job on the company, nor an excuse to be an academic cheerleader for the company. I am an Uber “bull” and would love to own stock in the venture, but I have no financial connection to the company and I do believe Uber will face some bumpy times ahead. Uber is also a company which has been described as “unscrupulous” by many, and I will look into those stories. I want to write a fair book.
Two, the book won’t be unnecessarily long — rather, I want to write it in a style that a smart person can dig into it for a few weeks, let it marinate and digest, and then talk about it with other people.
Three, the book won’t go into gossipy detail about the company’s formation or startup competition — nothing wrong with someone else taking up this angle, and I’m sure there’s an audience for it, but it doesn’t interest me personally.
Four, it won’t be an excuse to show off data porn — I don’t want to be reliant on getting proprietary data nor do I want to get into academic debates about how one labeled a graph and such. There will be people who disagree with the book, and that’s great — heck, right now, many smart people think the company is grossly overvalued.
Five, my goal is to not make it the typical business or strategy book — think of the brilliantly short “Holidays On Ice” book by David Sedaris that you can read every holiday season with a heavy dose of the type of writing that’s on this blog already, but much more organized.
And, Six, this won’t be an “official” account or the “official” book on Uber. I won’t have that kind of access nor would make that claim. It will simply be my point of view on the company, in greater detail than could afford on this blog, and something tuned for the more casual reader who is interested in issues like globalization, mobile technology, new business models, labor markets, and reimagining cities.
Anyway, that’s it. I’ll share more details as I organize them. Will probably start with a Table Of Contents. Also, there will be many people reading this and on Twitter with a much better grasp of the company than I have — I want to write this book both for the technology early-adopters who have seen the Uber tidal wave coming for a while, but also for a more general audience who may have not yet. I hope that I can set expectations here and write a book that will appeal to both. Thanks for reading, and thanks to friends already who have listened to my idea and offered feedback and guidance. (And, yeah, there are probably typos in this post, so I’ll have an editor and fact-checker clean up the book.)
Earlier this week in NYC, I was invited to participate on the investor panel at the SVB Marketplaces Mashup. In short, it was an outstanding event. At the bottom of this post, I’ve embedded a hashtag search from the event, and if you touch on marketplaces in your work, I’d recommend scanning the timeline. Before I dig into the meat of the event, I’d like to give a shout out to friends at SVB (like Shai) — I’ve now been to about 5 of their events, and each time, it’s outstanding. They care about the framing of each speech, panel, and cocktail hour. I learn a ton at these events and would highly recommend them as high-signal. (I know this sounds like an ad, but it’s how I feel.)
The main point of this particular event was to talk about marketplaces. And the deck was stacked. Execs from Airbnb, Uber, and the founder of oDesk all gave keynotes sharing key stats and best practices for the cutting edge of marketplace design, growth, policy, and management. The presenter who stole the show was Todd Lutwak, of eBay fame (and now at a16z) — if you can get your hands on his slides, it’s a business school course right in there. As they usually end these events with the investors up on stage, I spent the day going in and out of sessions, catching up with friends, and trying to wrap my own head around marketplace issues that matter in my line of work. And, that is, specifically, that the word “marketplace” is defined by different people differently and, moreover, used to describe specific businesses in a somewhat apt yet not precise way.
After the event, I was hanging out with Andy and we talked about how, on one hand, marketplaces are going to increase in number. Of course, they’re antifragile! And yet, on the other hand, how we don’t have a good way of classifying them. So, below is a more structured recounting of our chat. I don’t share this framework as an absolute, so I’d love your feedback and thoughts on what makes sense and what needs work. At a high-level, I see four (4) types of businesses than one could classify as a marketplace, though I do believe resiliency is a function of how pure the marketplace is:
Pure Marketplaces: Connecting buyers directly with sellers. These are the eBays of the world, using the web to find equilibrium between supply and demand of goods and services. There are very few of these that don’t need much curation or policing, but ones that get big in this category get *really* big. See: Airbnb. And if the web spawned an eBay, imagine what mobile could create — see: Uber.
Curated Marketplaces: Some marketplaces need curation. Ride share companies need to vet drivers and conduct background checks, for instance.
Other Business Models With Marketplace Dynamics: Companies I’m involved with like Instacart and DoorDash are sometimes called marketplaces, but I don’t think that’s quite right. To me, they’re e/m commerce companies that contain a marketplace dynamic, like metered pricing, and having their drivers pick times and jobs to claim.
Marketplaces Plus Subscription Services: This was brought up at the panel and I was curious to hear of these models. I asked Andy and he too hadn’t heard of them. Josh from Sigma West wrote a great post on this hybrid model (click here), and I’d love to see more of these, if anything that all investors, private to public, love the resilience of marketplace models and love the predictability of SaaS business models. (Josh is a great thinker on this subject, I’d also point out to this post he wrote about slicing marketplaces startups yet another way.)
Push notifications are awesome, right? I think so, and have for a while. Yet, recently, they’ve been on my end ever since iOS 8 reveals which apps take up battery power. And, then, a funny thing happened — my love for push notifications was called into question. As I’ve been mulling it over, I have found there are three big problems with notifications (as they are construed today). I call these “The Three Push Notification Taxes:”
 User Interface & Control Tax: The whole way Apple has dealt with user permissions and how the average person controls their notifications just doesn’t make sense to me. I find it tiring to manage all the various options (pop up vs banner, badge vs sound, etc.), so I can’t imagine what the average consumer does other than just throw up their hands and move on. The result is that we all get more notifications, usually, because competition for attention and distribution is so intense on mobile, developers live by the push notification to get users back into their app, which helps foster two more taxes…
 Cognitive Load Tax: Interruptions, galore. We all know this. Yes, “Do Not Disturb” is a great meta-OS level settings options to suppress any notification outside of a phone call from a contact marked “favorite,” but in the absence of that, notification buzzes, sounds, vibrations, and “pings” ring through the rooms and our minds, splitting our focus for even a split-millisecond. (I’ve been reading “Organized Mind” and have been lately obsessed with the author’s simple yet powerful framing — that we as humans evolved in a simple hunter-gatherer setting and had to make a normal set of simple decisions a day, but today, we have to make so many more. Given how much we look at our phones to begin with, push notifications add an extra cognitive tax on our brains.)
 Battery Tax: Yeah, but we’re not going to stop looking at notifications, right? I thought so too, until iOS 8 created a setting under “usage” to determine which apps were hogging battery power. I have been following mine over the weeks. The highest one is TweetBot, because I live inside that app. It makes sense. But, consistently, “Homescreen” has been either #2 or #3 ranked battery hog offender. Turns out, notifications sent by the device when “Do Not Disturb” is not activated essentially “wake up” the screen of the phone, which requires battery — significant battery. Even with tightly groomed controls for push rules, I may get over 100 push notifications per day, and that means my phone needs to wake up for each one and then stay lit for a while after the push, soaking up battery rays in the process. (Open this Twitter thread and see screenshots of battery usage from other people.)
Don’t get me wrong, I love the idea of push notifications and all the new interactive features that will roll out moving forward. And, most people won’t likely care about the points I’ve made above, but I found myself questioning enabling push outside of some key apps, and now a few days in (with “Do Not Disturb” on most of the times), I’ve noticed things feel calmer as I’ve minimized these taxes. I still get push, but I control which apps (about 10, most infrequent) can notify me, and I have to physically wake up the phone (which impacts battery) in order to see them. Since, I’ve experience better battery performance, better app experiences, and less of a cognitive burden to shoulder. What’s concerning for iOS, however, is the Apple Watch. Notifications become more important as people may begin to “glance” at their phones more.
Earlier this week, Fred wrote an interesting post on his reactions to a new iPhone, with the caveat that he’s been on Android for years and not a fan of Apple’s closed system. Here’s a link to the original post, and I’ve copied it below in italics and added some of my own color to it, as I found it to be a fair critique of a few iOS nits I have as well. My hope is someone at Apple on iOS plays devil’s advocate on some of these decisions to keep the OS options for users strong.
I got my new iPhone6 from T-Mobile on Thursday. I spent Thursday evening setting it up and putting all the Android apps I regularly use on it. I’ve been using it as my primary phone since Thursday night and after three full days on it, I have some early observations.
1) The TouchID service is pretty great. I secure my phone with a password and although its a little thing to simply be able to hold your thumb down instead, little things sometimes are the biggest things and TouchID is like that. I really like it.
The future potential effects of TouchID are underreported. It makes navigation, access, and confirmation much easier for users and developers. If you’re interested, I wrote some thoughts on the power of TouchID last year, see here.
2) I miss the three buttons at the bottom of an Android phone. I’m never sure how to get back to a previous screen on iOS. I’ve come to realize that by tapping at the top of the screen, I can often get back to the previous screen. But it is super nice to have a back button that works identically on every app and I miss that.
I’m too biased to iOS, but I like being stuck in an app silo. It’s not perfect, but I prefer to go home and then to a new app than a clunky deep-linked transition to another app.
3) I don’t like having two maps services on the phone. Some apps default to Apple Maps and I prefer Google Maps. Maybe its possible to change the defaults so that all the apps go to Google Maps but I’m not sure how to do that.
This is true. Apple should allow users to default set their preferred Maps in the OS itself and carry across all applications. Some apps like Sunrise let the user deep link right from its app to Google Maps, but this is more of a power user move and Apple (for obvious reasons) likely doesn’t want to do any favors here, though I think they should.
4) I don’t understand why Google doesn’t make GCal for iPhone. I really dislike the native mail and calendar programs for iOS and wish I could use the native google apps for both mail and calendar. This is probably the number one reason I will most likely go back to Android. Mail and Calendar and Maps are three huge things for me and I’m not comfortable with the Apple versions of those products.
Another mystery, I also don’t understand why Google hasn’t built a Calendar app for iOS. Maybe it’s to keep users like Fred on Android, as the integrated Google services experience on Android (Mail to maps to calendar etc.) cannot be found on iOS. Strategy tax at play.
5) Notifications on iOS works a lot like Android now. But I miss getting the notifications across the top of my home screen. Having to swipe down to see them is one step more than I’d like to have to do. I realize you get a notifications count on the app icon, but if that app is not on the home screen, I don’t see it.
So, turns out one can get notifications at the top of screens on iOS, but it drops down over the content (as opposed to over the status bar in Android), and Apple makes notification management UI nearly impossible for the average person to manage.
6) I like the “today” tab in the notifications service. Its a lot like what Google has done with Google Now. I think Google should copy Apple and put Google Now into the notifications service.
As I am writing this it occurs to me that I am trying to use iOS like I use Android. I’ve set up my iPhone home screen to be as identical to my Android home screen as I can. I’m trying to make iOS work the way I am used to working. I realize it would be better to fully embrace iOS and go with the flow. But I’m not sure I can do that. I am a creature of habit even though my move to iOS was all about getting out of my comfort zone.
It is interesting to me that the two dominant operating systems are becoming more similar as Apple copies the best parts of Android (notifications being a prime example) and Google copies the best parts of iOS. It was not that hard to move from Android to iOS (other than downloading all of those apps and configuring them). When I go back to Android in three to six months, I don’t think that change will be particularly hard either.
Will be interesting to see if Fred goes back to Android in 2015. He may find new apps he loves and then can’t get them on Android.
We have a duopoly in mobile operating systems and that seems how the mobile market will operate, at least in the near future. Both Apple and Google are spending huge sums of money to stay competitive with each other. Both make fantastic mobile operating systems that work really well. As I’ve said before, mobile has matured. Maybe if I’m looking to get outside of my comfort zone, I need to be looking somewhere else for a new and different experience.
This final paragraph presents the great conundrum in consumer investing today — all of our attention is glued to these devices, which in sum make up the largest technology market we’ve ever seen. Yet, despite that, distribution is constrained (note use of the word “mature”), so people are looking elsewhere for breakout potential.
Earlier this week, my friend Alastair Goldfisher from the Venture Capital Journal invited me to participate on a panel as part of Venture Alpha West 2014 in Half Moon Bay. I didn’t know what to expect, but randomly, I bumped into a bunch of old friends, saw Renee DiResta and Matt Withieler speak on hardware, and the topics overall touched on my two core areas of interest: investing and mobile technology. Here are some brief notes from the event:
Hardware:OATV’s DiResta gave a keynote on the rise of the hardware maker movement and what she expects to unfold over the next 3-5 years. Flybridge’s Witheiler was on a panel discussing how VCs leverage crowdfunding platforms to estimate consumer demand and then use online channels to sell goods directly to customers. Having had the luck to invest in hardware companies like Coin, Navdy, and Skylock, I see the potential though still remain scared about distribution after the Nest sale. My biggest takeaway on hardware from the event is that enterprise-focused and/or commercial grade solutions for hardware are likely a much more attractive investment category given the pain of consumer distribution and price points.
Wearables: There were many panels on wearables. I’m a bit of a Grinch here, sorry. Apple’s Watch aside, I think the idea of wearable technology is cool, but I don’t see consumers flocking for this. Yes, there will be commercial applications like Nike Golf or putting sensors on delivery-people, etc. But, so many new sensors and APIs from the iPhone replace so many of the first generation trackers. So, I’m a wearables Grinch. I know, I know. But, I need to be convinced, so I’m open to your best arguments. Send ‘em my way!
The LP View of VC Today: Feel free to stop reading here. Yes, more conversations with the LP world. What I took away from my time here was that (1) there’s a lot of money waiting on the sidelines to invest in venture and/or directly in startups; (2) many LPs are concerned about the valuations that VCs are paying right now; (3) yet they remain excited about the early stages of venture, which are not impacted by macro concerns. Innovation never stops. Most of all, LPs seem to be obsessed with either networking their way into investing in the biggest brand name funds; if they can’t, they try to find strategic value (stage, sector, geography) with the hopes of balancing their own portfolios. They’re also more and more interested in Opportunity Funds to invest in follow-on rounds and take some pro-rata, as well as investing directly into companies alongside their VC fund managers. (The issue that arises here is many of these FoF or institutions aren’t set up to conduct their own due diligence in a short period of time to vet the opportunities, but nevertheless, the existence of VCs in many cases is also being called into question. It’s the wild west!)
After my last mobile gig ended, I also took some time to reevaluate what firms I was working with. While I’ve had a bumpy ride into the world of venture, I have also been super lucky to work with friends at great firms. As Labor Day rolled around, I had the chance to deepen some of those relationships as Venture Advisors to two firms — GGV and Bullpen Capital. They’re both at very different stages of the market, so it works. And, it’s a blast. I’ll write more about the transition and experience soon.
In my work with Bullpen, we work in the early-stages of the market, right before companies are ready to talk to the larger, more traditional funds. You may have picked up people using all kinds of labels, and even I’ll admit, it’s tiring and hard to keep straight. There are folks who invest early, folks who invest a bit later, and plenty of folks who invest when things are working. Over the summer, my colleague Paul Martino had an idea — convene a conference on this very topic, and let’s discuss it, and figure it out. As is the case with many moves, Martino was right — I’m pleased to announce that on Tuesday, December 2 in San Francisco, Vator, Venture51, and Bullpen are co-hosting the first-ever “Post Seed Conference,” gathering the best and brightest minds on the current state of early-stage financing for a one-day, single-track event for investors, founders, limited partners, and members of the startup, technology, and financial press.
Learn more here and buy your tickets now: beta.postseed.co (contents in this link is evolving, but you can order tickets now; we also created a ticket for founders priced at $349.)
When I say the “best and brightest minds” with respect to early stage financing, I mean it. We have three (3) keynote 1:1 sessions lined up, and these folks are some of the best in the game: One-on-one fireside chats with Keith Rabois, Naval Ravikant, and Chris Dixon. We are going to dig into every contested aspect of the early-stage ecosystem today — notes, caps, signaling, upstream financing, syndicates, and more. (I’m going to close the event with a 1:1 with Naval, which I’m of course really excited about. We all know Keith is going to say some awesome stuff, and Chris is certainly one of the most original thinkers on financing out there. And, these are just the keynotes.)
Additionally, we’ll have a number of panels as well, and among the topics we’re set to cover (full agenda will be posted soon):
How are leading early-stage VCs thinking about the gap between seed and Series A, and navigating through it?
Crowdfunding platforms are helping to create this gap, but can they also help to fill it with capital?
What does it take to get a true Series A round done in 2015?
Will $5 million be the new $500k in the Internet of Things and Wearables Era?
Learn whether pro rata is a right or privilege.
If there’s a bubble, how do you not pay up?
I’m happy to answer any questions if you have ‘em. If you use AngelList, invest in early-stage companies, are a founder or thinking of starting a company, if you’re a limited partner in the asset class or thinking about investing in the category, or if you cover the early-stage startup world, this conference will be a great way to not only dial into today’s current issues, but also meet with a great set of speakers and panelists and press to meet face-to-face. On behalf of Bullpen, hope you can make it.
** Update: I rec’d a lot of email/DMs on this one. My takeaway from this is there’s a mismatch of expectations when founders meet VCs. The founders may perceive they’ve raised Seed and are “going for A,” while VCs may perceive that same company to have already raised an A and, therefore, expect B-level metrics.
Monday night was a night on Twitter I did not expect. It’s easy to say that all the naming of rounds (seeds vs A vs ____) is semantic and tired — that’s true. What is interesting (to me), however, is the general knowledge gap between bigger institutional funds and the seed ecosystem at large. If you open this tweet and click through the various threads, the key lesson for me is that founders at the seed stage should be aware of how a larger VC firm will evaluate them based on the amount of money they’ve raised to date.
In particular, and this is just one person’s POV, but one of the largest, most public VCs said he viewed startups that took on around $3m or more in seed funding or notes had already raised their “A round.” Yes, semantics again, but founders are obsessed with these monikers, so everyone else is, too. A step further, for seeded companies that have raised this or more, a VC firm may benchmark that opportunity against other Series B deals they’ve done and/or are evaluating at that time.
This is all important today because (1) most people who aren’t on the inside don’t understand these goalposts; and (2) founders are operating in a climate where they can raise many rounds within a set of rolling closes of notes with caps. So, lamenting about what rounds are named misses the main point: Now that this knowledge has been made public, how will it impact how much founders raise, will it impact seed investors from continuing to invest in or bridge their companies? Whether or not $3m is the right benchmark, people are searching for guidance, and in the absence of perfect information or standardized milestones for companies to hit, a discussion like tonight’s helps shine a spotlight on companies who raise too much in the seed round.
It is not about the semantics. That may be obvious to some, but it’s great to have a leader in the world of VC just come out and say it so clearly. Not many people would.