VatorNews' top contributor stories in 2011

VC's are not your friends; Why I quit Stanford B-school; The fundraising process

Did you make the top 10 list?

VatorNews now has up to some 450 contributors, from venture capitalists, to academics, to start-up CEOs, media executives, to bankers. Our newsroom is partially made up of these "expert" voices that span the Web. While the contributor numbers are in the hundreds, only a small handful get significant readership. That's because of the type of stories our readers are looking for. Based on the top 10 list of the top contributor stories for 2011, the type of stories that grab our readers are about fundraising and venture capital. 

Enjoy this year's list. And, to our contributors - Thank you for sharing your voice! 

VCs are not your friends

While the best VC’s treat entrepreneurs like you are their most important customer, and they add tremendous value to your startup (recruiting, strategy, coaching, connections, etc.) they are not doing it out of the goodness of their hearts. Entrepreneurs need to understand that VC’s are simply a sophisticated form of financial investors who in turn need to satisfy their own investors. At the end of the day VC’s have to provide their limited partners with great returns or they aren’t going to be able to raise another fund.

If you succeed so do they. Great VC’s do everything they can to make you successful. But just like your bank, credit card company, mortgage holder, etc. they are not confused where their long term loyalty lies. Read more

Reinventing the boardroom

A revolution has taken hold as customer development and agile engineering reinvent the Startup process. It’s time to ask why startup board governance has failed to keep pace with innovation. Board meetings that guide startups haven’t changed since the early 1900’s. It’s time for a change.

Reinventing the board meeting may allow venture-backed startups a more efficient, productive way to direct and measure their search for a profitable business model. Reinventing the board meeting may offer angel-funded startups that don’t have formal boards or directors (because of geography or size of investment) to attract experienced advice and investment outside of technology clusters (i.e. Silicon Valley, New York).  Read more

New rules for the new Internet bubble

Carpe Diem

We’re now in the second Internet bubble. The signals are loud and clear: seed and late stage valuations are getting frothy and wacky, and hiring talent in Silicon Valley is the toughest it has been since the dot.com bubble. The rules for making money are different in a bubble than in normal times. What are they, how do they differ and what can startup do to take advantage of them?

First, to understand where we’re going, it’s important to know where we’ve been. 

Read more

What matters most to you, and why?

The title of this post is also the first question posed to students applying to the Stanford Graduate School of Business: "What matters to you most, and why?" This question almost seems almost too personal for an MBA program, but then again, the GSB isn’t any ordinary MBA program. I was one of the lucky students who made it through that rigorous application process, and even survived 96% of my 2-year deferral period. But last week, I decided to decline Stanford’s offer of admission for the MBA class of 2013 in order to keep leading my startup company, AwesomeTouch.

For those of you who I haven’t already talked with in person, I’d like to explain why. If you’re looking for the short version, here it is:

1. I discovered that I don’t need an MBA to run a company.
2. I love what I’m doing right now, and who I’m working with. 

Read more

Tech bubbles, tides and earthquakes

Are we in a tech bubble? Yes. When will it burst?

I have no idea, and neither does anyone else. Mike Arrington, founder of Techcrunch, has a great story today "We're In A Terrible Blubble". It is insightful and entertaining. My view is that tech bubbles are a little like tides in the ocean, and a lot like earthquakes in California. You know they are going to happen like the cycle of tides, but like earthquakes you just don't know when.

Rich valuations for market leaders do not constitute a bubble. Bubble valuations happen when investors extrapolate the current state of growth to infinity. Or, when they extrapolate the valuation of the market leader to a tiny startup. For example, if Groupon is worth $6B, then my Copypon.com is worth at least 1% or $60M. Sorry, but that is not the way it works. The market leader has huge market share, higher margins, and much higher vaulation than the 2nd, 3rd, or 4th place player. Typically the top four companies in any market own 95% of the market. Everyone else fights for the remaining 5% of the market and loses; boat loads of money. Read more

How much money to raise

I spent some time yesterday talking to an entrepreneur about this topic and I thought I'd share what I told him with everyone.  When your company is growing really fast, doubling employees year over year, adding users and customers at a very rapid rate, you don't want to raise too much money. If you raise three or four years of cash, there is a very good chance that by your second year, you will be sitting on cash that you raised when your company was worth considerably less. That's not a good thing. It's too dilutive to you and your co-founders and angels. I've got two basic rules of thumb. First, try to dilute in the 10-20% band whenever you raise money. If you can keep it to 10%, that is great. You might have to do more, but try hard to keep your dilution below 20% each round. If you do two or three rounds at north of 20% each round, you'll end up with too little of the company. Read more

Ad shift to social media

Major advertisers, those who buy display ads, are finally beginning to figure out how to reach audiences through social networks, and have begun to shift significant dollars into Facebook. Research firm eMarketer estimates that Facebook display advertising revenues will grow 80.9% this year to $2.19 billion, giving Facebook 21.6% of all online display advertising – up from 13.6% in 2010.

Yahoo!’s US display ad revenues will increase by double digits each year from 2010 through 2012. Despite that, not only will Facebook’s display revenues surpass Yahoo!’s this year, Google’s revenues will exceed Yahoo!’s next year,” said David Hallerman, principal analyst at eMarketer. “What that leapfrogging trend confirms is the strong demand among brand marketers for online display ad placements.” Yahoo is expected to grow from 16.1% of the market to 16.4% this year.  Read more

Super angels - it's just the beginning

I’m moderating a panel at the upcoming Venture Shift event, titled "How angels and super angels/micro-cap VC funds are changing the stakes and making a new ecosystem."

This is a terrific topic. By way of background, you can see my comprehensive thoughts on launching new media ventures in a presentation I gave at the Haas >Play conference, called The Three Million Dollar Startup.

In the context of this panel, I believe the discussion will be generally focused on the internet and other digital businesses. It’s probably still tough to launch a new biotech company on a few hundred thousand (plus I don’t really know anything about biotech, so I’ll probably direct the panel elsewhere!).

If you have any thoughts or comments about how the proliferation of sources of early-stage capital has changed the startup game, please feel free to share below. I intend to use a lot of the feedback as questions I can pose to the panelists.  For my part, I start with what I feel are the three contributing factors to the emergence of the current angel investor ecosystem. Read more

Start-up suicide

The benefits of customer and agile development and minimum features set are continuous customer feedback, rapid iteration and little wasted code. But over time if developers aren’t careful, code written to find early customers can become unwieldy, difficult to maintain and incapable of scaling. Ironically it becomes the antithesis of agile. And the magnitude of the problem increases exponentially with the success of the company. The logical solution? “Re-architect and re-write” the product.

For a company in a rapidly changing market, that’s usually the beginning of the end.  I just had lunch (at my favorite Greek restaurant in Palo Alto forgetting it looked like a VC meetup) with a friend who was technical founder of his company and is now its chairman. He hired an operating exec as the CEO a few years ago. We caught up on how the company was doing (“very well, thank you, after five years, the company is now at a $50M run rate,”) but he wanted to talk about a problem that was on his mind. “As we’ve grown we’ve become less and less responsive to changing market and customer needs. Read more

The fascinating process of fundraising

Based on this experience, here are some observations on the fundraising climate of the last quarter:

1. Seed is the new A: Rounds are larger, caps are higher – This should not be a surprise to anyone. However, to assume that every company is priced at 5M or more is a mistake. Many investors – especially angels – have dropped out of the market assuming the caps are out of their reach and that it is harder to make money. Very few angel investors are active in rounds north of $5M. It is however important for founders to be aware of the effects of a high cap in a seed round.
   
   
2. VCs invest earlier: Most VCs are active at seed stage. Almost 50% of all AngelPad Winter 2011 fundraising meetings were with VCs, so anyone who says VCs are not investing at seed stage is not up to date. The majority of rounds in AngelPad companies have at least two VCs involved. This creates a unique challenge: VCs do not operate like angels and Micro VCs, they have a partnership process that takes time and effort. The average fundraising time has been considerably longer in rounds with multiple VCs.  Even the firms who claim that any partner can invest $ xxx without the partnership are slower to commit than angels and Micro VCs. One notable exception was Google Ventures - making offers to several AngelPad companies within 24 hours of Demo day.

Read more 

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