For Sunday Conversation #7, Haywire will host Keith Rabois of Khosla Ventures on Sunday evening, December 15. In addition to being an influential, early executive at seminal technology companies like PayPal, LinkedIn, and Square as well as one of the best pure angel investors in the Valley, Rabois is unabashedly candid and public with his thoughts about startups and technology on Twitter. While most investors participate in content marketing via their blog, Rabois puts his thoughts out there clearly through Tweets and Quora answers, sometimes making statements which undermine strongly-held startup beliefs others hold dear. It’s this fearlessness that makes Rabois an interesting actor in the startup world, and in this discussion, we touch upon a number of topics, such as his transition from angel investor to venture capitalist, how one filters for founders (and outliers) in venture capital versus hiring in a company, how he gained enough conviction to invest in team pre-product, a story about a cold tweet that turned into an investment, and his thoughts on AngelList, why Instagram would have beat Facebook, and why valuations today may be headed for a slight market correction. As always, the conversation will be broken into smaller bits. I’ll post the videos next Sunday evening (Dec 15), and the audio will be available on Swell through SoundCloud, as always.
I wrote this post about a year ago (Oct 2012) but came up again in conversation, so wanted to share it here…one of the few I write which is kind of evergreen.
The topic of this week’s column is time-honored when it comes to business, perhaps even overused in many cases, and in the startup world, sometimes mocked, and at others, romanticized, but usually only in hindsight: The Pivot. This is a loaded word, so I should be clear that its more to describe a business decision on a spectrum, with “slight shift” on one end and “complete reinvention” on the other.
If a startup company matures and is able to achieve some level of success, we sometimes begin to hear from the founders about how they changed course along the way, either through a slight tweak, massive reset, or something inbetween. Fab, which now drives one of the fastest-growing e-commerce properties, originally started as a gay social network called Fabulis. Before entering the daily deals space as Groupon, the founders started The Point, trying to catalyze action by using the crowd to reach a certain “tipping point.” More recently, the small team behind Instagram initially began with Burbn, a location-based mobile application which struggled to find its way.
As founders know all too well, things change between the creation of fundraising slide decks and a diminishing runway, and it’s nothing to be ashamed of. It is simply part of the struggle in creating something new, big, lasting, and meaningful. In fact, considering the stodginess in many traditional, larger workplaces, it is a luxury to re-roll the dice, the creative license to continually question direction paired with the nimbleness to optimize for a bigger opportunity.
Most of us don’t hear about all the slight tweaks or bold pivots early-stage startups make, partly because there are too many, aren’t of consequence (yet), and usually are only relayed once the move can be linked to a good outcome, in the same way that failure is discussed often only after success is in hand. In hindsight, the changes made by Fabulis, The Point, and Burbn look like strokes of genius (and they probably are), but what about all of the pivots and transformations currently unfolding, the shifts that are not too far removed from re-incubation, those gut-check moments when founders elect to rewrite their plans or come to the conclusion that while today’s opportunity looks rosy, they set their sets to change in order to address the larger markets tomorrow’s brings?
In 2012, there have been some “pivots” that, while early, show just how powerful (and risky) these moves can be. I’ll share a few recent examples, but of course cannot begin to list them all, though if you’ve encountered similar decision points, please do share in the comments.
Two years ago, a small team formed Greplin to power a new kind of search engine for people, places, and things. The service worked reasonably well, and I even used the iPhone app as a way to check up on people before meeting them in person, as sort of a quick, lightweight piece of context. At some point since 2010, Greplin’s team elected to pull back, reset, and rebuild, this time focusing on mobile with a web tie-in. The team came back reincarnated with Cue, which on the surface looks like a basic calendar utility application, but is in fact a bold attempt to collect and harmonize data between email, social networks, and your personal and professional networks, tied to your calendar and location, and all rolled into one service. While the app’s performance isn’t quite ready for prime time, it’s one that I certainly use and can see the future value in. Eventually, Cue could provide an intelligent background service that helps prepare us what we stuff our calendars with. (There is another service I’ve seen in this space is Sunrise, which emails a daily digest of your calendar, but it isn’t as deep.)
Almost four years ago, thredUp launched to be a “Netflix for used clothes.” The idea was to help facilitate peer-to-peer transactions, where customers would pay small fees to swap out the clothes in their closets that were never worn. The founders changed tack a few times, focusing on men’s shirts and women’s blouses, only to find that the real demand was in kids’ clothing. So, they brought their model to kids’ clothing, trying to facilitate those swaps. Through these iterations, the founders realized that in order to reach any meaningful revenue scale, they needed to power an extremely high number of transactions. Winding down this path, albeit one that was working and making money, wasn’t big enough. Luckily, their years of experience focusing on their market enabled them to have their potentiallybreakthrough idea — to actually physically handle used clothing, centralize operations in a warehouse, and attempt to create the largest online brand for “certified, pre-owned” clothes, which is a much larger market. Investors liked the idea, as well, recently helping the company raise a Series C financing round.
Perhaps the most notable pivot of 2012 is when Zimride launched Lyft. Originally designed to help facilitate ridesharing, mainly at college campuses and corporate partners, Zimride was founded and is run by folks who are obsessed about making transportation efficient, so it’s not all that surprising that their newest creation, Lyft, is taking San Francisco by storm. While the original Zimride is up and running, we perhaps don’t have a sense of its potential to scale, but for Lyft, it’s becoming evident in the Bay Area. While Uber certainly deserves credit for opening up the “on-the-demand” transportation market, Lyft entered the market byleveraging the team’s experience with Zimride and adding a slight twist to the model — and so far, it’s working.
Sometimes, pivots can be disorienting. Launched almost three years ago by a talented team, Blippy received significant hype (and money) for a big idea: to make credit card purchases social. No harm in taking a big swing, and while their approach may have either been off or too early, the team recently pivoted to the curated daily deals space with Heartsy, which helped the well-capitalized team with revenues, but was ultimately shut down. More recently, the folks behind Blippy tried their hand with Tophattr, a virtual auction house that unfortunately resembles the offspring of eBay, Etsy, Groupon, Zaarly and Turntable.fm. I hear that the team may be on to another idea, and while it’s easy to mock the changes and turns, it’s worth keeping in mind that they still have more shots on goals. It’s all a function of their talent retention and will power at this point, to keep stacking the deck and resetting the plans. I don’t know if they’ll shut the company down and return money to investors, or keep grinding.
Not enough time has passed for us to assess whether these were all good transitions or not. In hindsight, we’ll know, hopefully. In looking at these few examples above, what strikes me is that in most cases, it involved a close-knit team that had accumulated experience and expertise in their respective domains, accumulating knowledge by doing constantly. Making these changes are often very difficult decisions among founders and their teams, thinking through all the risks against the opportunities, reflecting on their learnings to date, and communicating those new decisions to existing users or customers, colleagues, investors, and even family and friends. I am not advocating for gambling blind, but if the experiences founders build up is truly unique, it may lead to new insights that could transform the business, if the dice is rolled properly. As a friend and former venture capitalist recently remarked, “if you’re a founder whose business doesn’t have a chance to be #1 in its market, pivot. The risk/reward question doesn’t make sense for you.” And economic incentives aside, isn’t that why we’re all here playing this beautiful game, to take big risks and constantly reinvent?
In hindsight, we marvel at the evolutions, pivots, and slight flashes of genius successful founders make. It is quintessentially American in nature, the ability for a person or business to constantly evolve and reinvent. Whether its individuals trying to pick up new programming languages or business model techniques between jobs or companies that rely on markets, platforms, or customer bases that shift, change is inevitable. But what about those business moves that are happening right now? How do we know if we’re witnessing something routine or something transformative? How could we know if Cue is going to help us to prepare for each meeting, or if Blippy can change again, or if thredUp can actually become the leader in the second-hand clothing space, or if Lyft and ridesharing takes the country by storm? The truth is, of course, we will only know in hindsight, so for a moment, let us pause and admire the changes these and scores of other founders take, often in the dark of night, setting their sights on the largest opportunities for the chance to look brilliant — in hindsight.
This weekend, Dave Lerner wrote an outstanding post on how the venture capital industry has undergone changes over the past 10-15 years. If you are interested in private technology investing, it’s a must-read — it’s not that Lerner uncovers any new angle, but he presents the changes within a narrative that captures the essence of the shift. At the end of his post, he posed the following questions (see below), and I felt compelled to log my own two cents, so here goes:
Lerner’s Questions (my answers in regular text):
What are the best investors doing to reinvent themselves right now? At the institutional level, the best firms are doing a mix of “getting smaller” and smartly attaching various sidecars to their anchor funds. Take Foundry Group, for instance. Each fund they raise is about $225M (small, relative to how big VC fattened up), and their latest was the same, but also included an “opportunity” fund (presumably with lower management fees) to be reserved for winners from the anchor fund, and paired it with FG Syndicates, their AngelList sidecar. Union Square Ventures just announced their latest fund size, a bit smaller than before, as well as their own opportunity fund, and I’d suspect a firm like USV will smartly experiment with an AngelList sidecar or syndication in 2014. At the individual level…for starters, there aren’t many true angel investors out there (investing their own money), but one example of someone who I think is outstanding as an angel is Scott Belsky. If you talk to any founder he’s backed, he has a clear filter, he takes a product approach, and he has taste. When he makes a move, people notice because he moves so rarely; rather than taking a portfolio approach, he takes the opposite approach, gliding through his network with his product sense and letting that guide him. It doesn’t scale, and that’s why it works in investing.
Who is generating the best process/manual for judging early stage investment prospects and how? I’m not sure one process will work for every investor, but one that sticks out is Nextview’s Rob Go, who earlier this year blogged “A Seed VC’s Decision Tree” and created a graphic to go along with it — click here to see it.
What will be the key to being able to form and build a great syndicate on AngelList? Right now, it appears to be social proof (as Hunter Walk blogged on this, and presented some alternatives he’d like to see). Eventually, whatever I think could matter most probably won’t matter in a few years, when people can start scoring investors on a number of dimensions. If that’s true, then there’s a window right now, for a period of time, to build up a syndicate base — though people should be aware those backers aren’t 100% committed until those first deals happen. I can only imagine some backers rushed to sign up but will have second thoughts when a deadline hits their inbox. The other path which could be powerful (but requires some real work) is for an enterprising new investor with a killer network to create a syndicate and hand-hold his/her network to get onto AngelList and publicly back him/her, to give a founder an access to a network that’s powerful yet not from central casting.
How to identify the new breed of low-life investor who uses these platforms?What’s the new camouflage they wear? I don’t know how this will work, but I’d imagine AngelList will be able to record individual accounts which ask to be referred but don’t follow up, or ask to invest but don’t wire, and so forth. It will take time for more reputation metrics to come online and standardize, but I would bet it happens.
On the other side- quality investors who didn’t have a knack for social media and blogs but were good with entrepreneurs and added massive value are now obscured from view and can only be found through the old ways, ie. practitioners who respect them “bigging-them-up” and making warm intros to them. How to find and identify them? A platform like AngelList makes it a bit easier to see cohort patterns of how investors can both pick and be helpful. For instance, asking for a referral will be commonplace, where it will just be weird if a founder doesn’t write some kind of endorsement or review for one of his/her investors.
I have speculated about two subsequent tech/software led waves (four and five above) that may further disrupt the VC industry. Where do you see it going? This won’t be a popular statement, but I don’t think the answer lies in fancy data analysis or predictive algorithms. Those sorts of tools help with some higher-level findings, but let’s be honest, the tools are in place today and all the firms rushing to find the next big thing in the fickle consumer category didn’t find Snapchat. In fact, the one firm which found it early and really put wood into the company is one of the smallest firms, in terms of partners and employees overall.
Will there be a new breed of super-angel that sucks up all the air in the room due to their huge social profiles? Will they emerge from AngelList Syndicates or elsewhere? The bottom-end of the market (I don’t mean bottom in a bad way, but meaning the angel/seed level) will remain crowded and more capital (and therefore investors) will come into the category. Crowdfunding, on the whole, is a mega-wave.
Will most funds get raised on AngelList in the future? “Most” implies at least or over 51% of total angel/seed funding and venture capital. In the “future,” perhaps we will get there, but it will take at least a few years, if not more. For now, most deals will happen the old-fashioned way, but there will be outliers and also deal leads who take deals to AngelList for syndication, which will get the flywheel going.
With SEC rules loosening how will this transform the fundraising landscape for funds? One dynamic many founders don’t pick up on with respect to investors is that investors, too, are always raising money. Always be raising.
As Thiel would put it, where are the remaining hard problems to solve in this space? Are convertible notes on their deathbed? What will the newer structures and instruments look like? My two cents…I think we’ll see more notes early-stage, but fewer and fewer companies taking money from traditional institutions — only until they reach certain milestones. In terms of instruments, the one area I’m curious about is the expansion of secondary markets to include startups who aren’t that big yet. That would be disruptive in many good and not so good ways, to provide true liquidity in such a high-risk area of finance.
This post may sound too Grinchy, at this joyous time of year, but if I have my investment hat on, one thing I worry about are startups aimed at the holiday season and specifically those that build and sell “tech toys” to kids. I feel horrible writing this, especially as a new father, but these types of ventures scare me while they should be inspiring me. When it came to these mobile “connected toys,” I became no fun at all. And, I know a whole new set of connected toys have been recently funded, which all seem incredible — startups like Ubooly, Tiggly, Tangible Play, Play-i, Anki, and many more — and all created by top-notch teams. (I had incorrectly written ToyTalk here, but was pointed out it is a software-only system. Apologies.)
A few disclaimers: (1) I’m probably going to be proven wrong; (2) some of the teams in the space I’ve gotten to know are A++ teams, so some of the best people are tackling this; and (3) it’s easy to be skeptical of a category or market because most endeavors fail, though I wouldn’t be surprised if someone or something broke through. In other words, in this case truly, I will be happy to have been proven wrong. Briefly, here’s what flies through my head when I think about the real challenge of “connected toys” today:
Where will parents hear about these toys?
Where will parents physically buy these toys?
Is the back of the Apple Store the best place for this?
How long will it take for the toys to get delivered if ordered online?
Are these one-time purchases or hits, or is a razor + razorblade model possible?
How will parents be able to distinguish between sets of connected toys?
Will it be easy for parents (or kids) to set up (beyond assembly)?
Would a startup have a better chance of creating brand awareness and distributing related hardware by building (gaming) software first? (See: Angry Birds)
Will the cost of hardware production make for unsavory early-stage financing requirements?
Do kids actually want these, or do parents want their kids to have these?
Can anything compete with MMOGs like Minecraft or iPhones, iPods, or Kindles?
Will future generations want material things or will they prefer experiences?
If the underlying technology is a platform play, who will design the showcase games?
Should kids even have “connected toys”?
This may be a post I regret in the future — who would write something anti-toy!? — but it is what I truly feel today. There is a deep desire among many (myself included) to individually support such endeavors (especially when kickstarted by passionate, exceptional people focused on using toys as educational tools) through crowd-funding or similar mechanisms, but the thought of getting institutionally committed strikes me as risky. Of course, no risk, no reward, right? Yet, these “connected toys” pose a combination of classic startup problems — the platform versus killer app problem, the (continual) cost of manufacturing hardware problem, the physical product distribution platform, and a more fundamental “are these the toys kids want?” problem.
All of this makes me conflicted. I’m reticent to invest, yet I want everyone to succeed. Every year, there are a few toy “hits” (usually just normal toys) and that’s a fun game to play, but I wonder if what ends up striking a chord with kids are things that most adults couldn’t conceive of to begin with. Adults do make the purchasing decisions for younger kids, but at a certain point, kids start to ask for what they want — or seek it out — rather than taking what is sold. Ultimately, this is just something that’s been on my mind and I wanted to share my thought-process and solicit your reactions and feedback. I’m probably missing something big here. Please tell me what that is.
Welcome to the sixth “Sunday Conversation,” this week featuring Chris Dixon of Andreessen Horowitz. Many of you reading this will already know of Chris and have read his blog many times. Dixon was the first “tech writer” I followed when I began to get interested in this stuff back at the end of 2009. Since then, Dixon has started a seed fund, built and sold a company, written some of the most influential blog posts on the investing climate and venture capital, and recently made the big move to the west coast to become a general partner at Andreessen Horowitz. When the news went down, I pinged Chris and suggested we do something, and the timing finally worked out for us to catch up and have this conversation. For those of you interested in Dixon’s writing and the transition from seed investing to venture capital, these videos are a must-watch. ♦
Part I, The Step From Angel To Institutional VC (4:15) — Dixon explains the key differences between angel investing versus institutional investing as a venture capitalist. ♦
Part II, Lessons Through Angel Investing & AngelList (5:29) — After investing for over seven years, Dixon explains how he developed a pattern recognition for companies as an angel. Separately, on AngelList, Dixon offers his views of the platform. ♦
Part III, On The Future Of AngelList (2:38) — Dixon suggest VC firms could soon bringing A-round institutional deals to AngelList to syndicate a part of the round to the marketplace for investors and other directions the platform could go. ♦
Part IV, On How VCs Approach Markets (5:31) — Dixon explains his thought-process around market analysis in the context of a venture capital investment, especially investing in markets which don’t exist today. (Looking back, this answer references this old post.) ♦
Part V, On An Old Blog Post, “Climbing The Wrong Hill” (4:06) — This is my personal favorite blog post in Dixon’s archives, so I asked him to explain his application of hill climbing to one’s career path. I’m going to write more about this topic next year. ♦
Part VI, On Twitter Conversations and New Discussion Forums (5:17) — Dixon uses Twitter less than before and argues the medium has changed, and has become more promotional and less conversational. ♦
Part VII, How Dixon Began Angel Investing (5:17). ♦
Part VIII, On The Level Of VC Engagement (3:30) — Dixon articulates his views and expectations on how he, as an investor, interacts with his portfolio, particularly through the lens as a former entrepreneur. ♦
Audio Recording, Full Conversation via SoundCloud
A special thanks to the team at Scaffold Labs for sponsoring the Sunday Conversation series on Haywire. Scaffold Labs is a boutique technology advisory firm based in Silicon Valley which designs and builds scientific and predictable talent acquisition programs that helps technology startups hire great people. Scaffold Labs has previously partnered with companies such as Cloudera, Appirio, and Nimble Storage, among others. For more information, please visit www.scaffoldlabs.com
I started this fund with the idea of investing in four areas: marketplaces, online-to-offline, all things mobile, and core infrastructure. This last category is a bit off the beaten path for me, yet I found over the years I had lots of friends who worked on enterprise-facing products and infrastructure. It all came to a head when I met the founder of Hashicorp, thought the space was out of reach, and then began talking to friends in and around the VMware community and realized something important — I didn’t need to be an expert on infrastructure in order to invest in the space.
That may seem counterintuitive, but what I found is that I had a small network of 3-4 close friends who could help me learn and evaluate investments. I had my own sense that Mitchell was a star technical talent, so I made a few calls and tried to learn more about Vagrant. After three conversations, it was clear Vagrant was great. Mitchell is great. Decision made. There is such a thing as trying to be too smart, so I went on my instincts.
From this process, I learned more about VMware and the ecosystem of technologies (and people) within and around it. So, when a good friend introduced me to the Vnera folks, I already had a good idea of the value they could create. It was a different investment for me but also one I saw as opportunistic given the caliber of the team. Now, as I’ve been writing the stories behind my investments, I wrote to the team to ask them if it’s OK. Often in core enterprise tech startups, folks have to remain quiet because initial development cycles are so long, startups can’t afford competitive leaks. As a result, the founder shared this with me, so hopefully this briefly explains what they’re up to:
In order to achieve true business agility, enterprises must be able to deploy new business critical apps quickly and eliminate any downtimes associated with them. To reach this utopia state, the underlying datacenter infrastructure, hosting those applications, needs to become more agile, efficient and predictable. A software-defined datacenter promises to deliver those benefits. At Vnera, our vision is datacenters that are software-defined and always-on. We are building a technology that will accelerate the movement towards software-defined datacenters and ensure they stay always-on. We want to make datacenter downtime a thing of the past.
Last summer, a friend had an extra ticket for the U.S. Open at the Olympic Club in SF. Wow. I grew up working the grounds on a golf course and would play every afternoon into twilight, hacking my way into a great short game (for a while). But I’d never been to a real tournament, let alone one like the U.S. Open. A few years ago, I went to one of the shoot around days before the AT&T Pebble Beach Pro-Am – that was incredible, it was February and about 82 degrees. I’ll never forget that. Anyway, my wife and I had a very important trip to take on Friday night and the tournament ticket was for Friday morning, and it was a pain to get to. I remember promising to my wife that I’d be back by 2pm so we could get ready and head to SFO.
My friend Ryan was driving there, and we caravanned with his friend, Vinny. The three of us eventually made our way to the San Bruno BART station, took the bus to the club, forfeited our phones, and then went into the tournament. Tremendous day on the course, and the three of us had a blast. (As a side story, I ran into a friend randomly on the course who introduced me to someone who has truly helped me out. That’s for another post.) Vinny needed to get back around the same time, so met up and drove back and, surprisingly, had a really good conversation. I didn’t realize who he was, how he built companies in South Africa, and what he was trying to do here, in the Valley. His viewpoints were so different from what I was used to hearing, he just sounded like an entrepreneur who learned tough lessons through the course of his previous companies. On the spot, I asked him to be on my show.
Over the next few months, I got to know Vinny better. I learned of his company Gyft and they’d just closed a seed round. I had him on TCTV with me for a fun conversation. At first, I wasn’t really interested in a mobile gift cards company. That was my mistake. At the time, I wasn’t investing, yet I didn’t really take it seriously. Nevertheless, Vinny and I became friends naturally and started meeting up in Palo Alto. From time to time, I’d help him on a few things. Then, earlier this year, we grabbed some coffee and went on a walk. I’m not sure what his goal was. I think he was trying to recruit me. I’ve been focused on a few projects this year so wasn’t in the mindset, but then he shared some details about the company that piqued my interest — I wanted to explore investing in Gyft.
Gyft has been on a hot streak and I was kind of late to the game. In addition to being on iOS and Android (with a slick cards interface), the team has launched Gyft Registry, enabled purchasing via the web, won approval to sell gift cards to mega-brands (which will be announced soon), and sold over $1M of new gift cards, not to mention other activities…and what are those?
In the beginning of 2013, I wanted to make one of my first investments in a Bitcoin company. I was introduced to the founders but couldn’t sync up by phone. For whatever reason, we never connected, and as a few months passed, Bitcoins exploded and, as one of the best companies in this space, was funded by one of the best investors. During this process, I researched Bitcoins like crazy, and bought some too (luckily). I found there were a few types of Bitcoin companies, and Gyft allowing customers to convert Bitcoins into gift cards, where the retailer would pay Gyft for selling a gift card (common practice) and where Gyft would convert the Bitcoins for the customers using a third-party exchange. The result? Margins. As soon as I heard that, I asked to invest. Vinny thought about it, and graciously made room for me. There are so many layers to what Gyft is doing beyond gift cards. I wasn’t sharp enough to see that at first. That is the case with great entrepreneurs, actually — they’re so far ahead of the market and, of course, investors. Gyft is really about mobile commerce, about payments, about giving consumers new choices, and about creating rails for new digital currencies to feed back into retail. Now I know, and am lucky to be involved.
For Sunday Conversation #6, Haywire will host Chris Dixon of Andreessen Horowitz on Sunday evening, November 10. Most readers here will already know of Dixon, have read his blog often, and seen him speak at events. For this conversation, I wanted to make sure we touched on very specific topics, such as the shift from angel investing to venture capital (including what his style of engagement is), thoughts on AngelList as a platform for individuals and venture firms, how he builds themes around markets (specifically drones, as an example), a discussion of what motivated him to write one specific blog post, why he spends less time conversing on Twitter than years ago, and career advice he’d give himself if he was starting to invest today. The conversation we had is broken into eight short segments, and I’ll post the videos this Sunday evening, and the audio will be available on Swell through SoundCloud, as always.
Congrats to friend Sam Pullara on completing one year as an investor with Sutter Hill. Sam is a great guy, technical whiz, and quietly doing interesting things over his neck of the woods. Earlier in the year, I had Sam on TCTV with me…it’s a long interview, but he has an interesting career that could be a guidepost for many technical folks out there.
At the start of 2013, as I was trying to get individuals to invest in my fund, I made a special trip to San Francisco from Palo Alto, just to meet one person. I usually try to be efficient and stack a few meetings, but for this person, I was happy to make the special trip, as I was hoping to have him in the fund. Unfortunately, he shared with me that he was precluded from future investing and focusing on his next thing. He couldn’t share what that was just yet. A few days later, the news that he and his business partner were forming a larger fund leaked. Primack scooped up the news around Homebrew, and Satya kept a good secret. In that conversation, Satya encouraged me to look at a new startup by my friend, Jacob, since I love marketplaces so much. The recommendation was, “You should talk to him.” That was all I needed.
I knew Jacob before and we have many mutual friends in common, so that part was easy. I had to dig into the marketplace a bit more. The idea for his company was to harness both the Internet and his rolodex to better match startups with the M&A departments in larger technology companies. For anyone who has been around early-stage startups and seen first-hand how laborious and drawn-out the acquisition process is, the appeal of Jacob’s solution is immediately evident. On top of this, the bankers who are hired to broker these transactions often lack the relevant context to communicate the most salient aspects of a startup’s technology and team, not to mention the fit within a larger corporation.
Jacob and I made some time to meet up, and I already knew I wanted to be involved. I only had to ask two questions.
One, could this become a larger vision than just an M&A marketplace for startups? Jacob had a great answer, explaining how Exitround could lay the foundation for a different kind of financial entity, and that is exciting. Not only was that a creative lens to apply to the problem, he showed a great deal of care and caution about setting up the company with the right privacy controls since so much of the signaling in the M&A dance can affect deal terms and prices.
Two, I needed to understand how long-term this business could be. The rate of startup formation (and capital to support it) is extremely high. How long would this last? Is this cyclical, or the new normal. I don’t know the right answer, but I had to make sure Jacob and I thought about this the same way — that is, that I do believe the economy overall and the technology sector specifically have undergone fundamental, structural changes that present a “new normal.” When I posed the question this way, Jacob immediately responded with: “Structural.” And, then after a night of sleeping on it, I requested to invest in the company. Jacob graciously invited me to do so.
Since then, quietly, Jacob and his team have been laying the groundwork for what will be an exciting 2014. There are 500+ buyers on the platform, ranging from growth-stage private companies and startups, all the way to over 25 companies on the Fortune 500 list. There are hundreds of seller companies in the marketplace, multiple transactions have occurred through Exitround, where 6% of the seller companies (and growing) have over $1M in revenue, which demonstrates the platform’s ability to move more broadly from acqui-hires. This is a chaotic time in the rate of new company formation, and with Exitround, Jacob and company are providing a much-needed service for different parts of the ecosystem, and I fully expect the company to be part of the fabric of things moving forward for many years to come.