Competition

What the greatest technology investors say about Competition

COMPETITION POSTS (14 posts)

The 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 Peter Thiel’s post which appears towards the beginning of the page.  For the others for example, following this list, Fred Wilson’s posts appear towards the beginning of the blog page, and Chris Dixon’s  post appears towards the end of the blog page.   

 

CHRIS DIXON (1 post)

Chris Dixon:  Problems Taking Seed Money from Big VCs

REID HOFFMAN & BEN CASNOCHA (3 posts)

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

Reid Hoffman & Ben Casnocha:  Entrepreneurial Hustle: Get Resourceful or Die

Reid Hoffman & Ben Casnocha: Achieve Big Success:  Be Contrarian and Right

BABAK NIVI  (1 post)

Babak Nivi:  The Biggest Mistake Entrepreneurs make when Raising Money

BASIL PETERS (1 post)

Basil Peters:  Strategic Value Increases Valuation

NAVAL RAVIKANT (1 post)

Naval Ravikant:  Social Proof is Powerful

MARK SUSTER  (4 posts)

Mark Suster:  No Great Science to Determining Valuations

Mark Suster:  Be Leary of Too High a Price

Mark Suster:  Dilution Benchmarks & Fundraising

Mark Suster:  Successful Entrepreneurs have these Qualities

PETER THIEL (1 post)

Peter Thiel:  How to Create and Capture Lasting Value

FRED WILSON (2 posts)

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

Fred Wilson:  Where & How to Find Great Talent

 

Where & How to Find Great Talent

Fred Wilson venture capitalist  and Co-Founder Union Square Ventures

Wilson offers entrepreneurs suggestions on where to find strong talent:  “1) People [they] know and people [their] team knows.  This is [] often the most fruitful source of talent.  I know an entrepreneur who asks everyone he hires [], “who is the most talented person you have ever worked with and whom you would love to work with again?” [] 2) People [working] for [competitors]. [] 3) [Recently purchased companies]. [] 4) Other parts of the country and the world. []  5) Colleges. []  6) The big companies in [their] market. [] 7) [Their] investors.” An investor’s major job is recruiting talent.

Entrepreneurs “must work on [recruiting daily] and [think about it continuously].  [Entrepreneurs] need a strategy, a process, and a commitment to the [recruiting] process. It will bear fruit over time [].”  Fred Wilson  MBA Mondays: Where To Find Strong Talent, May 28, 2012;  http://www.avc.com/a_vc/2012/05/mba-mondays-where-to-find-strong-talent.html

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

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/

 

 

Dilution Benchmarks & Fundraising

Mark Suster Partner Upfront Ventures and former entrepreneur

Negotiations between entrepreneurs and investors include dilution and other fundraising terms.  “[] the “fairway” of [investor’s equity] is 25-33% per round [i.e., entrepreneurs’ dilution]. [] If [the entrepreneur is] “super hot” or “super experienced”, [he] can end up with much less dilution –in some cases 12-15%.  But this is the exception, not the rule.”

“[] [These] dilution numbers don't take an option pool into account [].  Options are additional dilution.”

“[] [Valuation can be driven up] ONLY if there’s [] competition [for] a deal.  [Investors stay honest when entrepreneurs] talk with multiple parties.”

Fundraising also requires considering how many future rounds are needed and expected total future dilution.  It’s not an arbitrary spreadsheet-driven exercise reflecting attaining profitability.  It requires “understanding [industry norms necessary] to build a successful Internet business and where [the company falls] on that spectrum given [its business type].”  Mark Suster,  8 Questions to Help Decide if You Should be Raising Money Now, February 17, 2011 and comments;  http://www.bothsidesofthetable.com/2011/02/17/8-questions-to-help-decide-if-you-should-be-raising-money-now/

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/

 

 

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/

 

Strategic Value Increases Valuation

Basil Peters angel investor and Principal Strategic Exits Corporation

Illuminating strategic value of an acquisition target can increase valuation.  “The only reason any company buys another company is because [it believes it] can increase the value of the company being acquired, and/or the acquired company will increase [its own value]. [] The most successful company sales [result in] the combination of the two businesses increas[ing] the total business valuation faster than either company could achieve alone. []

[Strategic value increases business valuation by] reducing competition [] [and/or cross selling or promotion of] complementary products or services. [] [Also an acquirer] that would like to develop a similar product or service [] will [often] pay to reduce []‘time to market’, [] [so] being fast is often better than being good.”  Incremental strategic value can show why “the business is worth more to [the prospective buyer] than to another bidder”, which drives why he’ll often pay more.  Basil Peters,  Illuminating Strategic Value When You Sell a Business,  August 1, 2009; http://www.exits.com/blog/illuminating-strategic-value-when-you-sell-a-business/

The Biggest Mistake Entrepreneurs make when Raising Money

Babak Nivi Co-Founder AngelList and Venture Hacks and angel investor

Nivi says “the biggest mistake entrepreneurs make when [] raising money” is that “[they] focus on valuation when they should be focusing on controlling the company through board control and limited protective provisions.   (Protective provisions let preferred shareholders veto certain actions, such as selling the company or raising capital.)

Valuation is temporary, control is forever.  For example, the valuation of [a] company is irrelevant if the board terminates [the founder] and [he] [loses his] unvested stock.

The easiest way to maintain control of a startup is to create good alternatives while [] raising money. If [the founder is] not willing to walk away from a deal, [he] won’t get a good deal.  Great alternatives make it easy to walk away.

Create alternatives by focusing on fund-raising: pitch and negotiate with all [] prospective investors at once. This may seem obvious but entrepreneurs often meet investors one-after-another, instead of all-at-once.

Focusing on fund-raising creates the scarcity and social proof that close deals.  Focus also yields a quick yes or no from investors so entrepreneurs can avoid perpetually raising capital.”  Babak Nivi, What’s the biggest mistake entrepreneurs make? , October 14th, 2007  http://venturehacks.com/articles/biggest-mistake; Why do investors want protective provisions? August 2nd, 2007;  http://venturehacks.com/articles/understand-protective-provisions

Achieve Big Success: Be Contrarian and Right

Reid Hoffman angel investor, Co-Founder & Executive Chairman LinkedIn and Partner Greylock & Ben Casnocha entrepreneur

 “Warren Buffett [the acclaimed investor] has a mantra:  “Be fearful when others are greedy and greedy when others are fearful.”  It’s a competitive edge for him. [] In public market investing, as in many things, you achieve big success when you’re both contrarian and right.”  Reid Hoffman and Ben Casnocha; The Start-up of You book,  pg 183

Entrepreneurial Hustle: Get Resourceful or Die

Reid Hoffman angel investor, Co-Founder & Executive Chairman LinkedIn and Partner Greylock & Ben Casnocha entrepreneur

“[Entrepreneurs’] ability to [hustle] well can comprise a competitive advantage.  Entrepreneurs, forever operating with constraints, are the kings and queens of hustle []”. You can’t study in a textbook the “[] entrepreneurial opportunity-generating strategy of [] hustle.”

The founders of Airbnb a short-term property rental marketplace hustled to raise cash by selling cereal, while determining how to scale the business.  “[Investors were impressed with their resourcefulness, enabling them] to raise outside financing, including a Series A investment [Hoffman led at Greylock].”

When Internet radio service Pandora’s business model was threatened with federally-mandated unsustainable cost increases, it organized a lobbying campaign in Congress to buy time to renegotiate royalty payments.  Despite almost 10 years of “lawsuits, unfavorable legislation and [bankruptcy threat], [] resilience [] kept them [alive].” Pandora eventually raised additional Greylock-led financing and completed an IPO in 2011. 

“Both [Airbnb and Pandora] were [] at one point operating with severe resource constraints, [lacking] money,[] know-how, [] connections, [] employees, advisors [and] partners.[] When you have no resources, you create them. [] Caterina Fake the co- founder of Flickr says that the “less money you have, the fewer people and resources you have, the more creative you have to become”.  Get resourceful or die.”  Reid Hoffman and Ben Casnocha; The Start-up of You book (pg 162-167)

Success is Fragile - Be Paranoid

Reid Hoffman angel investor, Co-Founder & Executive Chairman LinkedIn and Partner Greylock & Ben Casnocha entrepreneur

 “[] the overriding problem [for the U.S. auto industry’s decline] was [that it] got too comfortable.  As Intel cofounder Andy Grove once famously proclaimed, “Only the paranoid survive”. Success, he meant, is fragile- and perfection, fleeting.  The moment you begin to take success for granted is the moment a competitor lunges for your jugular.  Auto industry executives, to say the least, were not paranoid.”  Reid Hoffman & Ben Casnocha, The Start-up of You (book), pg 15

Problems Taking Seed Money from Big VCs

Chris Dixon General Partner Andreessen Horowitz, angel investor and former entrepreneur

When entrepreneurs raise seed money (under $1 million) from big VC firms’ seed programs, potential investors typically ask ““is the big venture firm following on [with financing]?”” If not, entrepreneurs will likely have difficulty raising more money because potential investors will question why they should invest if the big VC firm doesn’t.  “[When entrepreneurs take big VC’s seed money], [] effectively [they’re] giving [the VC a non-contractual] option on the next round, [acting as a VC lead generator.]  And, somewhat counterintuitively, the more well respected the VC is, the stronger the negative signal will be when they don’t follow on.

[When] the VC does [] follow on, [the company will likely] get a lower valuation than [had it] taken money from other sources” because new investors often offer to co-invest at a lower valuation, keeping an artificially low valuation or “hesitate to [bid] for fear of being used as [leverage to get a higher priced deal]. [] [Having] a big VC [] as a seed investor [] prevent[s] [the entrepreneur] from getting a competitive dynamic going that [generates] a true market valuation.  

[][Dixon] sometimes compete[s] with big VC’s for investments so [he’s] not disinterested here.”  Chris Dixon, The problem with taking seed money from big VCs, August 14, 2009; http://cdixon.org/2009/08/14/the-problem-with-taking-seed-money-from-big-vcs/