Archive: vc

Andreessen warns: don’t burn cash, or you’ll turn to ash

Cash Burn

Don’t burn cash, says Marc Andreessen. In a retweet of Fred Wilson’s Post on burning cash, losing money. Marc Andreessen warns that hyper valuations should be used by entrepreneurs to stash up on cash, not to have delusions of grandeur and spend it all until you have nothing left to spend.

 

This is an interesting and important point. Says Marc, we are not in a bubble unless the spending behaviour of entrepreneurs make it a bubble. Their companies can well create the value implied in high valuations, as has been proven by the many spectacular success cases of disruptive players from Facebook to Uber. But startups need to stay focused and not spend because they have.

 

As my early mentor Ken Morse was wont to say: the laws of gravity have not been repealed.

 

 

The Winds of Change in European Venture Capital

Lights in Europe

Recently I commented on my perception of the deficiencies of the Approach of European VCs to their investment decisions, criticizing what I perceive to be non-analytical herd investing reflexes. Startups are deemed “hot” or not, irrespective of their disruptive potential.

 

Two posts prove me a bit wrong and show that their may be a set of “new VCs” who are eating the world of the “old VCs”.

 

Ciaran O’Leary (@ciaranoleary) explains why he disregards business plan targets and focuses on the startup doing what is right to build its value proposition here: http://berlinvc.com/2014/09/19/doing-what-is-needed-to-achieve-the-plan-vs-doing-what-is-right/

 

Christian Hernandey (@christianhern) describes how a new(er) set of VCs are adressing the series A Crunch and taking a different approach, helping close the US-Europe gap in Startup Funding:

 

This is very encouraging, though understanding how Venture Capitalists decide remains the most important question LPs should ask themselves.

 

 

 

There’s something rotten in the Kingdom of Venture Capital

It’s generally a bad idea to generalize….(pun intended).

 

And criticizing VCs when you are in the process of fund raising is probably a bad idea and puts whatever you say at risk of being perceived as whining.

 

But having raised an excellent early stage round from some of the best Angel Investors and Entrepreneurs that I know, I cannot help but reflect on the contrast between the approach of the Angel Investors we have on board compared to the process and decision making that we – and others – experience with insitutional VCs.

 

The cliché of Venture Capital investments is that Angel Investors invest on a hunch, whereas insitutional VCs follow a more rational, risk-balanced and professional process.

 

Our experience has been that the really good, tough questions have been asked in detail by our Angels – to skim just the top of these questions:

- explain your metrics?

- what is the margin of error of your financial model?

- how do expect to scale?

- how much do you get out of a dollar spent?

- how big is your adressable market?

- what is your competitive moat (Buffet terminology)

- what are the strengths of your team, what do you need movong forward?

 

Too often, these were not the questions asked by VCs. It may be that in today’s market, they simply don’t have the time to parse their deal flow in depth and instead rely on market consensus that this or that startup is “hot”. This leads to herd investing, and that may explain the disappointment of portfolios largely kept alive by follow-on rounds and convenient “exits” to friend VCs portfolio companies. It even makes sense, in a way, by “pooling resources” – if, that is, the VC initially triggering the herd did actually ask and answer the hard questions.

 

What it does not do is create an environment for the type of long shot value creation that Silicon Valley excels at. Ueber, AirBnB, Twitter, Quora would not have stood a chance with how many European VCs – obviously not all – approach their deal flow.

 

Add to that the rituals of pitching, event networking, and buzzword-slinging that are endemic, and it makes you wonder whether these VCs really are following the right path to identify truly ambitious startups correctly. Today’s hot startup often gets caught up tomorrow in business model issues that were recognizable from the outset. I sometime miss an analytical response and understanding of the market, at least from VCs that do not have an industry focus.

 

It’s hard to picture a barefoot Steve Jobs convincing any of today’s European VCs to invest in Apple.

 

 

the Hamlet VC

sevenload relaunches and secures new round of financing!

We spent the past months preparing our relaunch and securing our next, series B round of funding. I am very happy today because we just received confirmation by the German Antitrust Office that our Funding round is approved.

Our relaunch brings us to the next level, where we simplify channel navigation, combine it with social features, and open our business model one step further to content owners, by letting them have a larger share in our advertising revenue. We still have a lot of optimization work ahead, but the metrics of the past weeks suggest that we are on the right track.

The round of funding we just secured will lay the groundwork for our further expansion, and I am happy and proud that we now have French, Spanish, Italian, Polish, Russian and of course Turkish localizations.

Here’s our official Press Release:

http://corporate.sevenload.com/sevenload-secures-new-round-of-financing/

Sevenload Gets Financed and a Lesson in PR

After having gone underground with a series of negotiations, I’m back withe the facts and some insights:

- Sevenload (http://www.sevenload.com) got a Financing from Burda Digital Ventures, the venture subsidiary of Burda group, a leading German Media Group

- Oneview (http://www.oneview.com) got a financing from a leading Media group as well, but that is still somewhat in stealth mode.

This introduces an exciting new phase in both ventures. Sevenload has reached new highs in usage. While competitors benefit from integration in TV channels, tend to trick somewhat on their figures, and basically are positioned as “videos generate traffic, traffic generates advertising impressions, ad impressions generate revenue”, sevenload is going for the Long Tail of content, creating a series of specialised audiences and trying to create advertising value there.

We have negotiated for months on the financing deal with a series of Venture Capitalists and strategic investors. We opted for Burda because it gave us a combination of media competence on their part and independence to pursue our own entrepreneurial course.

We closed the deal more than three weeks ago but wanted to gain some time before communicating it. We had carefully crafted a press release – only to discover that an early talk and its misinterpretation has led, a day before the release, to the faulty and undesired headline that we had been acquired. While this certainly serves the purpose of strengthening the positioning of Burda as a digital innovation leader, it is important for us to stress that we remain entirely independent and this is a pure venture financing. Lesson learned: remain on top of any and all first contacts to the press and lock in the main media with exclusives.

The other surprise was that the news generated so much response. The video market remains a very hot spot.

What Makes You A Superfounder ?

I had the pleasure to be a speaker at an OpenBC Event in Brussels, on a panel with Eric Archembeau, serial entrepreneur turned VC. The tune I was to play was the answer of the Founder to the VCs – after ING and Eric described requirements for getting a funding. Well, here goes what I said (click on Image to run the presentation).

What is a “Superfounder”?

I have been musing about what a recently befriended VC told me about his firm investing in a few “Superfounders” every year, while discarding thousands of Business Plans. First I felt flattered, assuming of course to be meant. When i asked him how he recognized a Superfounder, he said: “well, you know one when you see one”. Aha.

There is of course a very valid point in that a VC Partner known to have invested in some of the great successes in their realm of action does have the experience to recognize success in the budding. But maybe that’s just the point, “when it is [already] budding”.

Picture this:

955916_693acd2284_m.jpeg

Niklas Zenström spent some three years being laughed at for Skypester before moving to an unlikely Baltic State to rename it Skype and get rich.

When we got to know the Sevenload team, by all classic criteria of the business and VC scene I know, there was no way their imminent (and yet to be brought to full fruition) success was discernible. But i felt:

- Passion
- Nonconformism
- A dedication to User Value
- Borderless thinking
- and the proven will to bite the bullet in the face of adversity
- very low bullshit factor
- and a keen sense for the value of every single €
- and the ambition to shoot for the moon (even if you miss it, you’ll land among the stars)

…all proven in the biography, especially of Ibrahim Evsan, the Key founder – and as i know see as an observer of http://www.codingnight.de

It’s either viral or another proof that A class people attract A class people, because the whole team shows that dedication. In the myths of our time, it’s the Googleyness of Sevenload.

Which brings me back to “What is a Superfounder?”. I’m not sure there isn’t a fat danger of having a kind of simplistic Belief in the Strong Man. Where I come from,

http://www.denkwerk.com

which we founded as the idea of “A Company of Brilliant People”, dedicated to the above, to innovation, to having the guts to start new things, it is TEAMS that created the greatest success. And Team means that secret combination of personalities, talents, and experiences, that combine to bring the spice and the reality to any Grand Idea. So if being a Superfounder means dreaming that dream and creating that kind of environment, then maybe yes, I do feel like a Superfounder, Ibo certainly is, and Bill Gates, who said success is never achieved alone, damn sure is. [wow, me and Bill in one sentence]

But maybe the lesson of the picture in this blog is different: it is the teams that matter. And the less loud, less salesmany, less obvious secret toilers, the Wozniaks, the Myhrvolds, the Substance Makers are the ones that really count at least as much. In one word:

the Supernerds.

VCs are sooooo cyclical

Rumour has it VCs are downbeat again. Well, on the one hand I can’t blame them, and on the other it brings me back the structural problem of assessing innovation as an investor. I have been observing a very fashion-driven, impressionable and cyclical focus of VCs on The Things That Exit Well (TTTEW), coupled with a regularly disdainful disregard of Never Heard of That (NHoT) and Don’t Believe It Works (DBIW).

Interestingly, most acclaimed hot shots, like skype, or Social Bookmarking, or even Apple in the beginning, went through year-long phases of NHoT and DBIW before sparking real Oh God I Hope We’ll Get a Deal in That Space Epidemic (OGIHWGaDiTSE).

Now as a proponent of a few Startups That Earn Actual Money (STEAM) – I like to think of our company as having a STEAM-Engine, being STEAM-Driven, or believing in STEAM-Power, if that is not too much self-E-STEAM – I keep wondering why it is much harder for VCs to see the merits of Social Commerce models vs. simple Social Network models.

There is no logical explanation for this. And if you think of it, copying something that just exited well is about the stupidest thing you can do:

1. It has already been done
2. It has become big enough to just exit
3. It has become so big everybody actually knows about it
4. There are at least 100 other boy group founding teams and greedy-panicky Vijays (see Dilbert for who that is) funding them who are trying to do the latest GooTube thing

…doesn’t strike you as smart? It’s being done. All the time. Again. And it’s sooo 1990s, ain’t it?

So, dear entrepreneurs, stick to your guns on real innovation, don’t foray into the OGIHWGaDiTSE, avoid the Vijays, and remember MIT’s secret formula for success, as transmitted by Prof. Ken Morse:

CFIMITYM

(Cash Flow is More Important Than your Mother)

Cheers

Rocketrabbit

PS: I’m known for being a real Punster…

It’s all about Psychology

Even the smartest VCs still need an irrational exuberence moment to take their decision. The Financing of the Next Big Thing (NBT) is secured – but in the round (won’t be more specific in case one of them reads this) some of the VCs, though very smart and rational, still need the feeling of “we’ve got to rush to the bandwagon” before they really commit. And that means we have to waste some energy just to prove that we can scale fast really fast.

We believe that you have to finetune your Value Proposition. and make yourself sticky before you explode – or you wil get ephemereal and lose the audience you reach. That doesn’t mean being slow or defensive – it means spending as much energy on retaining customers / users as on winning new ones. Not an easy one. But probably the secret to success.

Now customer retention is probably achieved by the basics:

- compelling, understandable value proposition
- swift, perfect service delivery (including technology)
- simple mantra (see Guy Kawasaki on that) that’ll be told at every party

In short: gain not only a lot of contacts, but a relevant portion of mind share as well.

I’ll report more on this, because we have devised a nice little strategy to comply without wasting marketing reach. There is Gold there.

Musings on how to do the VC Round

I promised to blog my reflections on the 18-hour stint – well, here goes:

1) Provided you can choose from equal VC quality, choose a VC with an Office in your country -

2) or calculate three extra weeks on legal hassle because they just won’t understand your legal system (unless, of course, you share legal systems)

3) Be ready to bypass the lawyer of your VC at any moment (incl. @ 03h00 AM – myke sure you have a contact who will comply) – remember there may be a Principal-Agent-Problem between Vc and his Lawyer – the VC wants the deal @ good terms and low cost, but he wants the deal. A Bad Lawyer often raises his profile by being excruciating and blaming a bummed deal on you.

4) Align your Business Angels, if you have any, into your interest. If need be, point out that you can always gang up with the VC. But it is best if you don’t have to go there – that depends on the mentality of your BAs. I’ve seen both.

5) Don’t succomb to the enticements of the new. The nice great VCs who now are a tremendous success may just be your worst nightmare two years down the road, so remember to balance control power in your company. In the best of all worlds, as an entrepreneur, you get to pick who you work with on which issue because you gang up with the Business Angels if the VCs get unreasonable and you gang up with the VCs if the BAs get unprofessional or greedy. Make it clear that, while alle share the risk, you are the entrepreneur who is going to make it happen – or not.

6) Don’t overestimate yourself and consider – in your inner fort – the scenario if the company outgrows you or you get boreed. Few Entrepreneurs are as good in the 0 – 100 employees periods as the are in the 100 – 1000 or beyond periods. That was not an issue in my recent experience, but it is always worth remembering.

7) Don’t bind yourself to milestones. Business Plans are a process, not a bible. Focus on the metrics and never tie your investment capital to that. There is only one 100% sure fact about your business plan: it is not going to happen. The story will always be different, for better or for worse. So while building the structure of the company for the VC phase, make sure you have a tight-knit communication, frequent consultation infrastructure (Board) – share decision responsability. Stop selling your venture the minute the money is in the bank and all covenants are through (that’s why milestones are unwise for a VC too, because then reporting focuses on showing how milestones are met, not on the actual problems and necessary adjustments of and to the business model). Make sure you have VCs you are comfortable sharing your worse problems with.

In this sense, there is no real “stupid money” – you should always keep that communication line open so noone will feel thumped and try to get back at you (of that, the stupidest money sources are always capable). And sometimes even the worst moron will see something that you, in the Hamster wheel, won’t.

That’s a first – discussions welcome.

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