Big Picture-Macro View

What the greatest technology investors say about the Big Picture-Macro View

 

BIG PICTURE–MACRO VIEW POSTS (52 posts)

Immediately following is a list of the post titles by author under this topic.  Scroll further down this page to find the actual blog post by your selected author.   Author’s posts appear in reverse alphabetical order except for the “Big Picture-Macro View: What It Means” post which appears towards the beginning of the blog page.  For the others for example, following this list, Fred Wilson’s posts appear towards the beginning of this blog page, and Boston Millennia Partners' post appears towards the end of this blog page.   

BOSTON MILLENNIA PARTNERS  (1 post)

Boston Millennia Partners:   Early Stage Investing is Far from an Exact Science

 JEFFREY BUSSGANG  (1 post)

Jeffrey Bussgang:  How to Select a Venture Capitalist

 DAVID COHEN & BRAD FELD  (1 post)

David Cohen & Brad Feld:  The Number One Startup Killer 

 DAVID COHEN (1 post)

David Cohen:  Many Successful People are Deliberate about Randomness 

 RON CONWAY  (1 post)

Ron Conway:    What Ron Conway Looks For in a Deal 

 BRAD FELD   (3 posts)

Brad Feld:  Brad Feld:  3 Types of Angel Investors  

Brad Feld:   Brad Feld's Investment Criteria  

Brad Feld:   How Entrepreneurs can Increase the Chance of Success  

BILL GROSS  (3 posts)

Bill Gross:    Lessons from Flops

Bill Gross:   Harness your User's Passion  

Bill Gross:   Balance Entrepreneur's Strength

 ROB HAYES  (1 post)

Rob Hayes:  Going for Growth vs. Revenue   

REID HOFFMAN &  BEN CASNOCHA  (6 posts)

Reid Hoffman & Ben Casnocha:  What Great Silicon Valley Companies Have in Common 

Reid Hoffman & Ben Casnocha:  Focus on Learning over Profitability  

 Reid Hoffman & Ben Casnocha:  Success is Fragile - Be Paranoid

Reid Hoffman & Ben Casnocha:  Curiosity

Reid Hoffman & Ben Casnocha:  Smart Adapting & Pivoting

Reid Hoffman & Ben Casnocha:   Pivot to Real Market Need

JOSH KOPELMAN  (3 posts)

Josh Kopelman:  The Unwritten Term on the Term Sheet

Josh Kopelman:  Companies are Bought, not Sold

Josh Kopelman:  High Valuations Can Limit Exit Opportunities

MIKE MAPLES JR.  (1 post)   

Mike Maples Jr.: When a Team Meets a Market

DAVE MCCLURE  (1 post)

Dave McClure:  Startup Success Often Boils Down to 2 Things

JASON MENDELSON  (2 posts)

Jason Mendelson:   Investors Only Care about Two Things

Jason Mendelson:   Investors Only Care About Returns & Control

HOWARD MORGAN  (2 posts)

Howard Morgan:  Only 2 Numbers to Know for Internet Business

Howard Morgan:   Fail Quick & Cheap

BABAK NIVI   (1 post)

Babak Nivi:   The Biggest Mistake Entrepreneurs make when Raising Money

BASIL PETERS  (5 posts)  

Basil Peters:  The Exit Strategy is the Most Important Business Plan Element

Basil Peters:   Why VC's Block an Exit

Basil Peters:   Angels Need a 20-25%/yr Return

Basil Peters:  When Can You Sell?

Basil Peters:  How to Ensure There's Alignment on Exit Strategy

NAVAL RAVIKANT   (3 posts)

Naval Ravikant:  5 Main Qualities of an Exceptional Startup

Naval Ravikant:  Valuation is Temporary, Control is Forever

Naval Ravikant:  Social Proof is Powerful

MARK SUSTER   (7 posts)

Mark Suster:     No Great Science to Determining Valuations

Mark Suster:    Early Stage Technology Investments Come Down to 4 'M's' 

Mark Suster:    Mark Suster's Financing Advice for Entrepreneurs

Mark Suster:    Be Leary of Too High a Price

Mark Suster:    Select the Highest Quality Investor Available

Mark Suster:     Successful Entrepreneurs have these Qualities

Mark Suster:   Angels vs. Series A vs. Series B Characteristics

FRED WILSON (8 posts)

Fred Wilson:  Sustainability by Fred Wilson

Fred Wilson:  Hire Slowly & Wisely, not Quickly

Fred Wilson:   What's the Magic

Fred Wilson:   Two Rules of Thumb for Early Stage Fundraising

Fred Wilson:   Building the Business First

Fred Wilson:   Sustainability:  Short Term Profits vs. Long Term Health

Fred Wilson:   There's No Science to Early Stage Valuation

Fred Wilson: An Option Pool is about Price

BIG PICTURE - MACRO VIEW:  WHAT IT MEANS  (1 post)

 

 

Big Picture-Macro View: What It Means

BIG PICTURE - MACRO VIEW

BIG PICTURE - MACRO VIEW refers to the overview of the business including its fundamentals and the economic environment in which it operates.  Business fundamentals refer to “the qualitative and quantitative information that contributes to the economic well-being []” and thus financial health and valuation of a company.  http://www.investopedia.com/terms/f/fundamentals.asp ; Definition of 'Fundamentals'

An Option Pool is about Price

Fred Wilson venture capitalist and Co-Founder Union Square Ventures

“One [] contentious [] negotiation [point] between an entrepreneur and a VC [], particularly [in] an early stage financing, is the inclusion of an option pool in the pre-money valuation. [] [The] fact [is an option pool] is simply about price.  [Example]:  [] $3.25mm pre-money with no option pool [can be equivalent to] $4mm pre-money with one. [] What an entrepreneur needs to do is find out what the market price for [his] company is with and without an option pool in the number. [Then], the negotiation over this point is [] less contentious.”

“[] [Wilson acknowledges that if] options are counted in the pre-money, entrepreneurs will want commensurately higher valuations to compensate for the additional dilution.”

“[][The] option pool request needs to be reasonable and based on [a] budget.  [Wilson looks for] enough options [in] the "pre-money pool" to fund the hiring and retention needs [] until the next financing.”  Wilson wants an option pool in the pre-money when he invests.  Fred Wilson, Valuation and Option Pool and comments, Nov. 6, 2009;  http://www.avc.com/a_vc/2009/11/valuation-and-option-pool.html#comment-22043449

There's No Science to Early Stage Valuation

Fred Wilson venture capitalist and Co-Founder Union Square Ventures

“There is no science to early stage valuation.  It’s simply a matter of supply and demand.  So generate a lot of demand and you'll get a good price.” Fred Wilson, Valuation and Option Pool comments, Nov 6, 2009;  http://www.avc.com/a_vc/2009/11/valuation-and-option-pool.html#comment-22043449

Sustainability: Short Term Profits vs. Long Term Health

Fred Wilson venture capitalist and Co-Founder Union Square Ventures

Wilson discusses sustainability within the context of “[] short term profit maximization vs. long term business health []. If you want to stay in business forever, you have to focus on the long term [] [with] a business model that [ensures customer trust to keep them returning].

[][Wilson believe[s] business is about making a profit that sustains the business and enriches the owners but is not maximized in any period (month, quarter, year). [] [The] goal of a business is sustainability so that all the stakeholders (customers, employees, owners, suppliers, etc.) can rely on [it][] long term.”

When considering investments, entrepreneurs should employ survival instincts to ensure future survival.  “[][When considering whether] to disrupt their own business [] the [] choice is [not short term profit maximization but] [] survivability” even if it likely results in lower future profits. 

“[] When you construct your business model and create the [business culture], emphasize sustainability over profit maximization in everything  you create and do. [] Profits are the essence of survivability. [] But just because you need to make a profit doesn't mean you need to maximize it.  Balancing the need for a profit with [] sustain[ing] the business is the art of what [the business leader must do to win.]”  Fred Wilson, How To Be In Business Forever: A Lesson In Sustainability, Oct. 1, 2012; http://www.avc.com/a_vc/2012/10/how-to-be-in-business-forever-a-lesson-in-sustainability.html

Building the Business First

Fred Wilson venture capitalist and Co-Founder Union Square Ventures

“[Some] founders [] suggest building the business first (even if it takes longer) and then seeking investment later after it's proven successful and has a strong growth trajectory. [] Examples [][are] StackExchange and DuckDuckGo.” Wilson responds that “[] that's a great model if you can do it.”  Fred Wilson Burn Rates: How Much? Comments section, Dec 12, 2011 ; http://www.avc.com/a_vc/2011/12/burn-rates-how-much.html

Two Rules of Thumb for Early Stage Fundraising

Fred Wilson venture capitalist and Co-Founder Union Square Ventures

“[With a fast growing company], doubling employees year over year, adding users and customers [] very rapid[ly] [], [] don’t [] raise too much money.  [] [Otherwise] [the company] will be sitting on cash [] raised [at a lower valuation] [] [which is] too dilutive to [founders] and angels.

[Wilson has] two basic rules of thumb [for the amount to raise in early stages, i.e., seed, Series A and B rounds]. First try to dilute in the 10-20% band whenever you raise money.” 10% is preferable.  More may be necessary, “[] but try [] to keep [] dilution below 20% each round.  If you do two or three rounds [exceeding] 20% each round, you’ll end up with too little [equity].

Second, raise 12-18 months of cash each time you raise money.  Less than a year is too little. [] Longer than 18 months means you may [have cash when the company had at a lower valuation].

[] When [a] company gets above 100 employees and valued at north of $50mm, things change. You may need [] more cash [] for working capital [] and [the company] may not be increasing value [as rapidly as] when [it was] smaller.”  A raise of 24+ months cash may then be appropriate.  Fred Wilson, How Much Money To Raise, Jul 3 2011;  http://www.avc.com/a_vc/2011/07/how-much-money-to-raise.html

What's the Magic

Fred Wilson venture capitalist and Co-Founder Union Square Ventures

“It’s the right person or people, with the right idea, packaged up with the right product at the right time in the right market…and  [] that’s the magic.”  Fred Wilson  #StartupStories: The Pitch @ 4.3 min into video, May 30 2012   http://nytm.org/resources/startupstories;  The Pitch: http://www.youtube.com/watch?v=0GxeVu5izLg

Hire Slowly & Wisely, not Quickly

Fred Wilson venture capitalist and Co-Founder Union Square Ventures

“[Wilson’s] strong bias on [optimal headcount] [] is that  less is more.  [Repeatedly] [he’s] seen the entrepreneur who wants to hire quickly fail and [] the entrepreneur [who’s] [] slow to hire succeed.”

In his experience with software-based consumer internet businesses, “[] [success] might be most highly correlated with a slow hiring ramp [] [during a company’s early years.]  Being resource constrained can be [good] when [] getting started.  It forces [] [a] focus on what's working and get[ting] to the rest of the vision later on. []” His advice: “[] hire slowly and wisely instead of quickly.”   Fred Wilson MBA Mondays: Optimal Headcount At Various Stages, Jun 4 2012;  http://www.avc.com/a_vc/2012/06/mba-mondays-optimal-headcount-at-various-stages.html

Sustainability by Fred Wilson

Fred Wilson venture capitalist and Co-Founder Union Square Ventures

Wilson believes the concept of sustainability needs greater consideration today in business as “[] the focus on performance and efficiency often comes at the cost of sustainability.   

[] sustainability is all about figuring out how to be in business forever.  It is about [:] [win/win] business models that [] lead to happy long term customer and supplier relationships [;] [] avoiding the temptation to overreach [] [and] maximize near term profits at the expense of long term health [;] [] adapting [] to changing market dynamics [;] [] building a team and a culture that can survive the loss of the leader and keep going[;] [and] [] many more things like this.”  Fred Wilson, Sustainability, Nov. 21, 2011  http://www.avc.com/a_vc/2011/11/sustainability.html

Angels vs. Series A vs. Series B Characteristics

Mark Suster Partner Upfront Ventures and former entrepreneur

“[] Angel investors [] [invest] at the highest risk because much less is proven in the business.  They expect and need to earn a much higher return for the risk they’re taking. 

[] When a [Series] A investor gets involved, usually product has shipped, usually [there are] the first clients and some proof points, management team is better and solutions are more thought-out.   

[] [In] Series B [investors] are looking at metrics [] like how many clients have [been] signed up, [] costs of acquisition, [] conversion rates, [] LTV (lifetime value of customer), [] churn, and they want to see data, facts and figures.

[] Check sizes grow as the risk is decreased and usually coincides with the founders themselves needing more capital.”   Mark Suster-This Week in Venture Capital #14 with Rick Smith, founder of CrossCut Ventures, Jul 15, 2010  @ 50-52 min into interview;  http://www.bothsidesofthetable.com/2010/07/15/this-week-in-vc-with-rick-smith-of-crosscut-ventures/

Successful Entrepreneurs have these Qualities

Mark Suster Partner Upfront Ventures and former entrepreneur

 Suster believes successful entrepreneurs have these qualities:  “1. tenacity, the most important [].  2. street smarts []” including “[] know[ing] [] how customers buy and how to excite them [], [an ability to] spot opportunities that aren’t being met and [] design products to meet these needs. []”. “3. ability to pivot []” which “[] might just be a totally different business model.[]”  “4. resiliency  []. 5. inspiration [].  6. perspiration [].  7. willingness to accept risk []. 8. attention to detail [].  9.  competitiveness []. 10. decisiveness []. 11. domain experience []. 12. integrity  []”.    Mark Suster, Entrepreneur DNA, December 15, 2009;http://www.bothsidesofthetable.com/entrepreneur-dna/ What Makes an Entrepreneur (2/11) – Street Smarts December 16, 2009

http://www.bothsidesofthetable.com/2009/12/16/what-makes-an-entrepreneur-210-street-smarts/

What Makes an Entrepreneur (3/11) – Ability to Pivot December 17, 2009

http://www.bothsidesofthetable.com/2009/12/17/what-makes-an-entrepreneur-310-ability-to-pivot/

Select the Highest Quality Investor Available

Mark Suster Partner Upfront Ventures and former entrepreneur

 Suster advises entrepreneurs to select the highest quality and most experienced investors available.   It’s generally better for the company long term to have the right investors vs. optimizing every last piece of equity up front.  “Worrying about giving up an extra 10% [equity] at [an early] stage can be meaningless if the ultimate outcome is either success or failure.”  Mark Suster, Raising Angel Money, July 19, 2009; http://www.bothsidesofthetable.com/2009/07/19/raising-angel-money/

Be Leary of Too High a Price

Mark Suster Partner Upfront Ventures and former entrepreneur

 “[] [Suster has] seen a destructive cycle where otherwise interesting companies have been screwed by raising too much money at too high of prices and gotten [] [trapped] when [] markets correct and they got ahead of themselves [on inherent market valuation]. []

[It’s] OK to [] shoot for the “top end of normal” for the market conditions. [] [He] caution[s] entrepreneurs from [] raising money at significantly ABOVE market valuations. []

If [entrepreneurs] haven’t figured out product / market fit and therefore still have a highly risky business [they] run great risks for getting too far ahead [] on valuation. [] [Most] investors won’t want to [][do] a “down round,” which creates tension between them and early investors.

[] [Sophisticated] investors know [a major down round] is fool’s gold.  They get a cheaper price, [] wipe out much founder stock value and [] reissue [founders] new options. [Founders] take the money []” except their incentives get eliminated.

[] He advises “[] us[ing] competition to [][ensure] a fair price [and] rais[ing] a slightly higher round than [] [otherwise for some strategic reserve]. [] [One wants] to show an uptick in valuation [] for new investor confidence and to maintain [early investor relations].”  Mark Suster  Why Startups Should Raise Money at the Top End of Normal,  June 5, 2011;  http://www.bothsidesofthetable.com/2011/06/05/why-startups-should-raise-money-at-the-top-end-of-normal/

Mark Suster's Financing Advice for Entrepreneurs

Mark Suster Partner Upfront Ventures and former entrepreneur

Financing advice for entrepreneurs:  

“[] 1. Always have a lead [investor], [] [someone] with enough skin in the game []” to mobilize other investors and help “[not] just [] [with] tough times, but for conflict resolution in general.

2. [] [Financing should be] stage appropriate [];

3. [] [Understand] where the VC is at in [his] fund [] [including] when [the] fund was raised, how much capital [] [was] raise[d], how much is allocated, when [it’s] raising [its] next fund and what [its] “reserve” strategy is. []

4. Make sure [] [investors get along] [];

5. Always pitch outsid[e] [investors] for follow-[on] [rounds] [] to [keep] [inside investors] [] honest [];

6.  Always [] [include] value-added angels. []”

Mark Suster, How Many Investors Are Too Many?  February 22, 2011; http://www.bothsidesofthetable.com/2011/02/22/how-many-investors-are-too-many/

Early Stage Technology Investments Come Down to 4 'M's'

Mark Suster Partner Upfront Ventures and former entrepreneur

“[] [Almost] all VC investments in early stage technology & Internet investments come down to just four key factors []: management, market, money [i.e., valuation] and above all else momentum [i.e., mostly product momentum]. 

[] The number one thing that investors get their checkbooks out [for is] momentum.  [Momentum has various definitions]:  user numbers, revenue, channel partners, biz dev deals, [etc.]. 

[] [Suster’s investment decision is based] 70% [on] management, 30% [on] product. 

[] [Almost] all VCs care about investing in big markets with ambitious teams.

[] Most VCs want to own between 20-25% minimum of [a] company. [] [Investors need to] own enough [equity] to make it worth their time – thus “money”. And all of this is wrapped up in forward progress that [entrepreneurs] demonstrate over time.”   Mark Suster, The Four Main Things that Investors Look for in a Startup,  October 6, 2010

http://www.bothsidesofthetable.com/2010/10/06/the-four-main-things-that-investors-look-for-in-a-startup/

No Great Science to Determining Valuations

Mark Suster Partner Upfront Ventures and former entrepreneur

 “There is no great science to [how prices (valuations) are determined].  The earlier [one] invest[s] the higher the chances the company won’t work out and thus [one] pay[s] a lower price than later-stage investors. [An investor tries] to pay the appropriate price for [his] perceived risks of the company succeeding and protect [himself  if] it isn’t quite as valuable as [he] had hoped.  As the risks [] get eliminated the higher the valuation investors are prepared to pay.”  These risks over time are “[first] product [], [then] market [], [then] growth/scale [] and [finally] monetization/competition [].”    Mark Suster, Why Startups Should Raise Money at the Top End of Normal  June  5, 2011;  http://www.bothsidesofthetable.com/2011/06/05/why-startups-should-raise-money-at-the-top-end-of-normal/

Social Proof is Powerful

Naval Ravikant angel investor, Co-Founder AngelList and Venture Hacks and former entrepreneur

“[Ravikant] measure[s] four dimensions [in startups for AngelList]:  Traction, Team, Social Proof and Product.” (AngelList is “a closed private social network [where] startups and angels [come] together.”)

“[] social proof refers to who else is involved [] as an investor and/or advisor. Which person has already given them the thumbs up is really important.  If any one of those people who is associated [with] the company is phenomenal it [the startup] passes the filter [selection criteria] [].

[] Social proof is [] powerful []. [] Get one great person to commit to your startup and you will have more control in raising your round. This is a tactic I have seen many startups use to start a bidding war or get the funding process rolling.”   Naval Ravikant, Naval Ravikant and AngelList: The Match.com of Funding [Interview] by Fatema Yasmine, February 17,   2011;   http://thenextweb.com/entrepreneur/2011/02/17/naval-ravikant-angellist-the-match-com-of-funding-interview/

 

Valuation is Temporary, Control is Forever

Naval Ravikant angel investor, Co-Founder AngelList and Venture Hacks and former entrepreneur

“Venture Hacks’ [] tagline was ‘Valuation is temporary, control is forever.’   It was all about [] mak[ing] sure [the entrepreneur] keep[s] control.  And if [the entrepreneur] ha[s] control then it’s [his] company.  And the day [the entrepreneur] loses control [] [he’s] an employee.”  Naval Ravikant, This Week in Startups: Naval Ravikant of AngelList - TWiST #244 Published on Apr 6, 2012,  @ 1:08 hrs http://www.youtube.com/watch?v=lWfGw7serN0

5 Main Qualities of an Exceptional Startup

Naval Ravikant angel investor, Co-Founder AngelList and Venture Hacks and former entrepreneur

“[Ravikant ] broke down the 5 main qualities of an ‘exceptional startup,’ in the following order:

1. Traction
2. Team
3. Product
4. Social Proof
5. Pitch/Presentation

[] [Ravikant] explained [] ‘Investors are trying to find the exceptional outcomes, so they are looking for something exceptional [],[so] do one thing exceptionally.  As a startup you have to be exceptional in at least one regard.’”

Naval Ravikant, Anatomy of an (un)fundable startup by Babak Nivi on June 22nd, 2011,  Ravikant’s keynote speech at the 7th Founder Showcase Q2 2011;  http://venturehacks.com/articles/unfundable-startup