The Market

What the greatest technology investors say about the Market

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;  The Pitch:

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

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

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;

How to Get a Second Meeting with Howard Morgan

Howard Morgan Partner First Round Capital

 When asked “How [an entrepreneur gets] from first meeting to second meeting [with him]”, Morgan said, “Personal qualities are the first filter:  integrity, intelligence, and not too dogmatic.  Then [he considers] if it is a big enough market. [] [Morgan said the most common mistake in the] first pitch is to say something that is not credible [like] wildly overstating a market size.   Chemistry with the entrepreneur is also important considering you will be working together for the next few years.”   Howard Morgan, Want to Know How First Round Capital was Started? by Mark Suster, April 20, 2011;

Mike Maples Jr.: What I Look For

Mike Maples Jr. Founding Partner Floodgate and former entrepreneur

“We just love the companies where the entrepreneurs have a really authentic, passionate understanding of the area and they want to just do something massive.

[] [The] first thing that we look for [in people] is authenticity.[] [The] term serial entrepreneur is not always a positive virtue. We like people who say to us, This is the only company I ever want to do.

The second thing that we look for is completeness in the team. Experience and completeness aren’t necessarily the same thing.  A complete team has a combination of business and technical vision and business and technical execution. If you have all four of those bases covered, the probability that you will be stopped by something where you had a blind spot goes down [].

[The] third thing that we look for is how experienced is the team. [] [Those] first two things matter to us more. Execution can be hired; vision can’t. So, it’s that authentic voice and a team that meshes well together in a special way . . . that’s the stuff you can’t hire and fix later. If you get it right when the company starts, then you have a better chance, in our view.”  Mike Maples, Seed Capital From Angel Investors: Mike Maples, Founder And Managing Partner, Floodgate, July, 2010;


Must Have Massively Huge Markets to be Great

Mike Maples Jr. Founding Partner Floodgate and former entrepreneur

“[It’s] important to have massively huge markets and that without a great market, a startup has almost no chance of being great.

[] [We] don’t talk in terms of available markets. The reason is when I can analyze the total available market, the market’s too obvious, and if the market’s obvious, then big companies are probably already going after it.

So, we like to talk about the total potential market. [] [The] market is ambiguous, but it’s potentially huge.

[That’s] the hardest challenge for us as investors, evaluating a market’s potential. All the other things that we look for are pretty easy to spot early on, but assessing the market’s potential is really, really hard.  I think it’s as much black art as it is science.” Mike Maples, Seed Capital From Angel Investors: Mike Maples, Founder And Managing Partner, Floodgate, July, 2010;

When a Team Meets a Market

Mike Maples Jr. Founding Partner Floodgate and former entrepreneur

 “[] we just fundamentally believe that when a great team meets a bad market, the market wins. [] sometimes when a lousy team meets a great market, the market doesn’t win and the company does really well. [] When a great team meets a great market, that’s when everything goes right.”    Mike Maples Jr., Seed Capital From Angel Investors: Mike Maples, Founder And Managing Partner, Floodgate (Part 10);

Invest in Teams that Adapt to Change

Josh Kopelman Partner First Round Capital and former entrepreneur

“As soon as you hit print on the business plan, things change.  Competitors emerge.  Technologies shift.  Regulatory changes [affect] your marketplace.  Key employees quit.  Macro-economic factors impact customer spending.  Shit happens.  I'd much rather invest in a founding team that shows an ability to adapt to change than one that claims to accurately predict the future. I believe that teams that are nimble, market-focused, and are willing to rapidly test/iterate/shift their plans are more apt to perceive the signals that the music may be stopping.” Josh Kopelman When the music stops... March 10, 2006;

Red Flags: Signals Not to Invest

Rob Hayes Partner First Round Capital

Hayes discusses red flags, things that would make him not want to invest in a founder or entrepreneur. 

Red flag:  If he doesn’t have the best possible people as part of the initial team pre-funding.  “When someone comes to [him] who has already surrounded [himself] with people [] who have quit good jobs [to come and work with him] because they’re so passionate about [] working with this person but also what they’re working on, [] that’s a good indicator.”

Red flag: “[] [The founder] is so enamored with [the] product [to the exclusion of addressing other important business elements.] There have been very few products that have been so good that the world just beat a path to their door [like Google or Facebook]. [] If someone is so enamored with their product that they can’t think through how things might change or they’re focused on one particular slice of the market and they only know that piece of the market and not a much bigger market [], I would be concerned about [that].”

Red flag: “[The founder says] now [he] need[s] to hire a designer[]. [] [Hayes likes] a product with design built in from the very beginning. [] When [Hayes talks] about design [he’s] talking about UX [user experience], feel, everything []”.  Rob Hayes, Rob Hayes of First Round Capital - TWiST #249, (ThisWeekIn Start Ups with Jason Calacanis), Published Apr. 18, 2012 @ 25 min.;

Test your Customer Proposition

Bill Gross Founder and CEO business incubator Idealab

“Find a way to test your core proposition with your customer, then manage your resources to adapt after that. Don’t spend the money in advance. You have to test the real customer proposition. You have to make the example be the actual test.”  Bill Gross: Here Are The 12 Lessons I've Learned In My 30 Years Of Being An Entrepreneur,  Dec. 15, 2011;

Market Power Rules

Bill Gross Founder and CEO business incubator Idealab

“Market Power Rules. Try to find a rapidly growing market – it's like running a race with a strong wind at your back.
[] But Market Power is a market just taking off without your doing anything about it. [] If, as an entrepreneur, you can find a market that has that kind of dynamic going on, it's absolutely unbelievable.”  Bill Gross: Here Are The 12 Lessons I've Learned In My 30 Years Of Being An Entrepreneur, Dec. 15, 2011;

Cut Your Burn Until the Market is There

Bill Gross Founder and CEO business incubator Idealab

“If you have a great offering but the market isn’t ready for you yet, immediately cut your burn to survive until the market IS there.”  Bill Gross: Here Are The 12 Lessons I've Learned In My 30 Years Of Being An Entrepreneur Dec. 15, 2011;

How to Understand & Predict New Markets

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

“[VCs] are obsessed with market size [seeking a billion dollar + market]. []  (Smaller, venture-style investors like angels and seed funds also prioritize market size but are usually more flexible – they’ll often invest when the market is “only” ~$100M).  [] VC returns tend to be driven by a few big hits in big markets.

For early-stage companies, you should never rely on quantitative analysis to estimate market size. Venture-style startups are bets on broad, secular trends. Good VCs understand this. []

The only way to understand and predict large new markets is through narratives. Some popular current narratives include: [] social link sharing is becoming an increasingly significant source of website traffic and somehow will be monetized; mobile devices are becoming powerful enough to replace laptops for most tasks and will unleash a flood of new applications and business models.

As an entrepreneur, you shouldn’t raise VC unless you truly believe a narrative where your company is a billion dollar business.”  Chris Dixon, Size markets using narratives, not numbers, April 3, 2010;

Product/Market Fit: The Only Thing that Matters for a Startup

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

“An extremely useful concept [] popular among startup founders is what [] entrepreneur and investor Marc Andreessen calls “product/market fit”, which he defines as “being in a good market with a product that can satisfy that market”.  Andreessen argues persuasively that product/market fit is “the only thing that matters for a new startup” and that “the life of any startup can be divided into two parts: before product/market fit and after product/market fit.”

But it takes time to reach product/market fit. [] [Dixon believes that] the best predictor of whether a startup will achieve product/market fit is whether there is [] “founder/market fit” [meaning] founders have a deep understanding of [their market], and are people who “personify their product, business and ultimately their company.””  Chris Dixon,  Founder/market fit, June 19, 2011;

What Ron Conway Looks For in a Deal

Ron Conway angel investor

What Ron Conway looks for in a deal: “[] traits that good investors look for in entrepreneurs []”:

[] personal chemistry with the entrepreneur 

[] great idea

[] solving a practical and real problem

[] sectors that [grow] at thousands of percent a year

[] good elevator pitch – [ability to articulate what the company wants to do] in 5 words 

[] IP (intellectual property) [] matter[s]

[] [team’s] personal characteristics including [intangibles like passion, vision, body language, being decisive, reliable] ]

[] hire ahead of [the] needs [if possible []]

[] CEO [] [must set the example as a team builder and leader] []”.

Ron Conway, Startupatwork Interview Ron Conway: What Ron Looks For In A Deal, StartupAtWork  Feb 20, 2010;

Jeff Clavier: My Market Considerations

Jeff Clavier angel investor, Founder and Managing Partner, SoftTech VC

“I look at the three typical factors [when investing]:  the team, the product, and the market.[]”

Here are his market considerations.  

“Is it feasible in, say, three, five, or seven years to build a company that’s going to go to $50 million or $100 million in revenue and not be the only player in the market? If you own 50% of the market and you’re a $100 million company, then that’s interesting.

So, I figure out the market opportunity, is it big enough?

[] [Clavier’s ultimate question]: how can you build a team that really has a scalable product into an interesting market? []

Do I see this company being able to produce revenues of $500 million using the sort of trajectory of customer acquisition, traction, monetization, retention and so forth, based on what they do? [] If the answer is yes, and they are not the only player in the market [] you see at least a $1 billion or $2 billion market.”  Jeff Clavier, Seed Capital From Angel Investors: Jeff Clavier, Founder And Managing Partner, SoftTech VC; July-Aug. 2010;

Traction is the Only Thing that Matters to Investors

Brendan Baker Greylock Partners

“Through thousands of pitches, I've found that fewer [than] 5% tell a great traction story. [] But first, let's get one thing straight – [traction] is the only thing that matters to investors[.]  Venture investors invest in momentum. Traction is your story of momentum. It's told through quantified evidence of market demand for your product. []

Broadly, I find traction most convincing in the following order:
- Profitability
- Revenues
- Active users
- Registered users
- Engagement
- Partnerships/clients
- Traffic

But this changes depending on your product and market.”  Brendan Baker, Startups: How to Communicate Traction to Investors, Apr. 5, 2011;


What Causes Success

Marc Andreessen Co-Founder and General Partner Andreessen Horowitz, investor and Co- Founder Netscape

“[] what correlates the most to success -- team, product, or market? Or, more bluntly, what causes success?

[] I'll assert that market is the most important factor in a startup's success or failure.

Why?   In a great market -- a market with lots of real potential customers -- the market pulls product out of the startup.

The market needs to be fulfilled and the market will be fulfilled, by the first viable product that comes along.

The product doesn't need to be great; it just has to basically work. And, the market doesn't care how good the team is, as long as the team can produce that viable product.

[] Conversely, in a terrible market, you can have the best product in the world and an absolutely killer team, and it doesn't matter -- you're going to fail.

[] You can obviously screw up a great market -- and that has been done, and not infrequently -- but assuming the team is baseline competent and the product is fundamentally acceptable, a great market will tend to equal success and a poor market will tend to equal failure. Market matters most.

And neither a stellar team nor a fantastic product will redeem a bad market.”  Marc Andreessen, “The Pmarca Guide to Startups, part 4: The only thing that matters, June 25, 2007;