Investors from Shasta, Javelin, Intel, IVP, and Lowercase discuss unicorns at the Series A
Today, there are 145 private companies valued at $1 billion and above. But they all started somewhere.
Identifying a startup that will eventually be a success is hard enough, but an even harder task—identifying the attributes of a baby unicorn—was the topic for a session at this week’s Post Seed (#postseedconf) event in San Francisco.
Interviewed by Alex Konrad (Staff Writer, Forbes), five investors—Tod Francis (Managing Director, Shasta Ventures), Jed Katz (Managing Director, Javelin Venture Partners), Christine Herron (Director, Intel Capital), Tom Loverro (Vice President, Institutional Venture Partners), and Matt Mazeo (Managing Director, Lowercase Capital)—shared their diverse perspectives.
Konrad opened up the session with the obvious question: are there any patterns or attributes you can easily spot in a baby unicorn?
Ironically, Francis argues that unicorns seem insignificant and easy to dismiss at the Series A stage. With Airbnb, nobody thought “couchsurfing would be a big deal, and with Uber, black cars seemed small too.
On the other hand, he continued, they usually focus on a single customer need, and they do that piece really well. That’s important because they’re often going into a competitive market to vastly improve upon a behavior people are already doing, like booking rooms or taxis. Herron would echo this later in the conversation by arguing that “the unwritten rule is you must have a market nemesis” (like the monster hotel or taxi industries) in order to end up a unicorn.
An evangelist-founder is also crucial to the success of a unicorn. Though it’s hard to define what exactly makes a “good” founder, Francis says “you know it when you see it. They have a way of making everyone in the room believe what they’re saying.”
Even at the Series A stage, when the data is still lacking, these founders pitch a big vision and have mastered the art of storytelling. Mazeo agreed, saying that all founders leading $1 billion companies use the future perfect tense: “This will happen.” “When this happens, we will…” Nothing is just “possible,” but rather there is an underlying assumption that things will progress according to a plan of execution.
Put another way, it sounds like future unicorn founders are cocky and great bullshitters. But does an investor really want to hear an entrepreneur at the Series A stage saying, “My company will be a unicorn”?
“No,” said Herron flatly. “It’s like a guy on a date saying, ‘I’m going to marry you.’”
The fact of the matter is that you can’t get from A to Z until you hit B, C, D, etc. Founders have to be intellectually honest, data-driven, and able to iterate. They do not live in an ego vacuum with their own great ideas, but listen closely to the market and respond accordingly.
All the investors on stage echoed this sentiment, with Mazeo offering an example of how they filter out the BS. He always asks entrepreneurs what success looks like to them. Great founders say they’re going to solve or improve upon a problem, while “mercenary” founders bring up valuations, exits, and returns.
This goes hand in hand with the idea that an early unicorn founder won’t be the most polished. Mazeo joked about how early interviews with Facebook’s Mark Zuckerberg show a kid in a hoodie, sweating everywhere, not selling a beautiful machine but a product with duct tape holding everything together. And yet he, like other founders of today's successful companies, had a “visceral understanding of the solution they were bringing to market.”
Indeed, inexperience might be an important ingredient, since some great entrepreneurs don’t understand why certain businesses are completely broken. They haven’t seen it from the inside; they just want to make it better.
While founders are part of the formula, there must be a reason why there are so many unicorns today. Though an over-exuberant VC climate has something to do with it, there’s also something to the fact that the market is prime for new businesses.
As Herron put it, you don’t have Uber until you have a critical mass of smartphones.
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Whether you're seed stage or ready for growth, Intel Capital can help take it to the next level. Since 1991, we have invested more than US$10.8 billion in over 1,250 companies in 54 countries. Our company building focus has resulted in more than 200 of our portfolio companies going public on exchanges all over the world and over 300 being acquired or participating in a merger.
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With $7 billion of committed capital, IVP is one of the premier later-stage venture capital and growth equity firms in the United States. Founded in 1980, IVP has invested in over 300 companies, 106 of which have gone public. IVP is one of the top-performing firms in the industry and has a 36-year IRR of 43.2%. IVP specializes in venture growth investments, industry rollups, founder liquidity transactions, and select public market investments. IVP investments include such notable companies as AppDynamics (CSCO), Business Insider (Axel Springer), Buddy Media (CRM), Casper, Compass, Datalogix (ORCL), Domo, Dropbox, Dropcam (GOOG), Fleetmatics (FLTX), GitHub, HomeAway (AWAY), The Honest Company, Kayak (PCLN), Klarna, LegalZoom, LifeLock (LOCK), Marketo (MKTO), Mindbody (MB), MySQL (ORCL), Netflix (NFLX), Omniture (ADBE), Personal Capital, Pure Storage (PSTG), Slack, Snap (SNAP), SoFi, Supercell (SoftBank), Tanium, Twitter (TWTR), Yext (YEXT), ZipRecruiter, and Zynga (ZNGA). For more information, visit www.ivp.com or follow IVP on Twitter: @ivp.
Joined Vator onJed Katz is the Managing Director of Javelin Venture Partners. One of the pioneers of online commerce, Jed has spent his 20 year career developing, advising & investing in early stage tech ventures.
Joined Vator onTom is a Vice President at IVP. He focuses on investing in later-stage, high-growth consumer and enterprise companies. Tom currently serves on the Board of NerdWallet and actively worked on IVP's investments in GitHub, OnDeck (ONDK) and Tanium.