Crunchtime

I love NBA playoff basketball, especially when there is a highly competitive series that comes down to a final game 7. I woke up at 4am in Frankfurt to watch the end of the Warriors and Thunder series. I sure hope you watched the entire series. It was fantastic competition. With the Warriors down 3-1 games and on the brink of elimination, they fought back with two wins in a row. And ultimately the series got boiled down into a 12-minute last quarter of game 7 to determine the winner. Called Crunchtime in the world of sports and this is when superstars become legends, new stars are born, and aspiring stars get exposed (insert your own cliché). 

There is a very fine line between winning and losing. Not unlike sports, the same is true with startups that succeed and the ones that fail. I saw a few things during game 7 that ring true with young companies.

First was execution. It was a major factor, if not the defining factor, in the Warriors winning the game. They ran their plays, passed the ball around and stuck with the same formula they found to be successful throughout the entire series. Startups build a product, market and sell it, and maybe even pivot, all with the goal of finding a repeatable model. Once they do, they exploit it to their advantage and execute like crazy just like the Warriors did.

Second was fight. I was shocked how it appeared that the Thunder stopped fighting with about a minute left in the game. Its was like they accepted an outcome of losing even when the game winner was not determined. Startups have to fight for everything - first customers, the best employees, VC funding, etc. They can never give up and never stopped until the clock hit zero, no matter how bad things seem to be. So many times startups come within seconds of failure only to climb out the hole and win. 

Finally was team effort. Everyone contributed for the Warriors by making shots and key defensive plays. Because of their execution and fight, each Warrior player was empowered and expected to provide a meaningful contribution. But when it was time for the Warrior's leader to step up and take responsibility, Steph Curry took and made the big shot. No startup wins on the back of one person. It is always a team effort. And no startup will win without a leader (leadership team) to make the critical decisions at the right time to bring the win home. 

What do you believe startups can learn from sports? 

Revenue is the Best Deodorant

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With all the hype and success around venture capital, high valuations (unicorns), record number of deals, unlimited angels, etc. it seems like entrepreneurs have forgotten about the power of revenue. Constantly I talk to startups that believe getting funded is as easy as taking 'candy from a baby' and a critical measure of success vs business metrics like revenue. Unfortunately they quickly realize after a few meetings that investors are concerned with traction, repeatability, talent and go to market plans. 

This reminds me of a statement used by a partner in my VC days – Revenue is the best deodorant. Not only does revenue mask the smell of many imperfections, it also has a lot of benefits too: 

  • It's non-dilutive funding. Entrepreneurs get to grow the business without selling shares for capital. Sounds like a good business deal to me.
  • It funds new and different marketing campaigns. Flexibility to try stuff or take advantage of opportunities.
  • It helps hire great people. Expand the budget needed to land the candidate or show the company has excited customers.
  • It can be used to accelerate discussions with partners. Nothing draws a crowd like a crowd, and leverage revenue paying customers to gets others to come along as well. The fear of missing out.
  • It’s a proof point that you have a product that people are willing to pay for.
  • Oh ya it attracts investors too!

Funding never closes as fast as expected. Finding great talents takes longer than needed. Things just don’t always go according to plan.  A company with revenue can often times deal with these circumstances better than ones without. When revenue is available, take it all.

Initial Investor Lens

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Not all good businesses are fundable. Just because an investor passes on making an investment into a startup doesn't mean the company is not successful and/or going to be successful. What is means is that from the investor's lens:

  1. They have better opportunities in the pipeline
  2. They don't believe a 'venture' acceptable return is achievable
  3. They can't add value

Entrepreneurs often get this confused. There is a big difference between a startup and a 'VC startup'. Frequently I'm asked what I look for in my initial meeting with a startup to determine if it is fundable. Here they are:

  • Is the idea credible? Does it pass the laugh test? If I know a little about the industry I use that to test their assumptions? If I don't, I ask a lot of questions to learn more.
  • Is the team credible? What experience do they have in the industry? Are they entrepreneurs and/or have that spirit? Do I like them? How do they handle themselves?
  • Is there an opportunity? Are they asking for investment that fits my profile? Could I attract other investors to it as well? For example a company saying they need $5M for TV ads with v1 product does not meet that criteria :)

In summary, is there a kickass team with big ideas that can generate extraordinary value.

Usually after the first meeting I like to step away, gather my thoughts, and research the idea to determine my next steps. I don't like to make a snap judgment, especially because I know I usually can find the positives in the deal. That is, I don't want give false guidance from an emotional opinion. Now there are times I really like everyone and know exactly what I want to do next. Also there are times I know it just isn't a fit and I say that. But most case, I like to step away before deciding on the opportunity.

This is my investor lens.

Demo Day

Last week I attended Demo Day for the Batch #3 companies at MSFT Accelerator in Berlin. It was a fun, well run event and all the companies absolutely rocked their presentations. (video). Every CEO gave a quality keynote presentation, each one had a specific theme that represented the personally of the company. The slides (more like pictures) were so in sync with the entrepreneurs that it felt like you were watching a movie. Clearly a lot of effort and preparation went into the event and it showed. In addition I got to spend time with Portadi, a company in the Bolt Capital family, for an update on the business. 

The frequent question asked during the after party was which company was the most attractive. Even given my bias of Portadi, especially because I've been an addicted user of their product for about a year now, for me it was all of the startups. The CEOs exuded confidence. The businesses claimed to have working product with real customers in massive markets. An investor's initial screening criteria were all checked. Based on the night, it's hard to say that any one was not worthy of an investment. Here are all the companies: 

tripdeltaWunderAgentSkooveQDatumQuantifiedCodeTandemployIPlytics and Portadi.

There is no doubt that each company will have follow up meetings with potential investors. I wonder what they will find now that the lights are gone and they peel back the layers of the onion? 

A batch 3 mashup from the Microsoft Ventures Accelerator in Berlin.

VC Meeting Frankfurt

Yesterday I attended the VC Meeting Frankfurt, a regular lunch event hosted by Aurelia Private Equity. I didn't have any expectations because it was my first time attending one these events. It turned out to be one of the larger and more valuable lunch events I've been to in Frankfurt. A very efficient program and solid networking opportunities. Of course my limited (none) understanding of German hampered my participation in asking questions of the presentations. 

The event gives me further hope there is a growing community of resources to help startups in the Frankfurt area, although many could have attended just for the free lunch. Most importantly I wanted to share with you the informative presentation E&Y gave on The Journey from Zero to IPO.  IPO as an exit route is at an all time high for European PE companies. That being said, public companies in Germany have suffered with after market performance relative to other exchanges, especially for technology companies. In addition transparency concerns along with performance force German companies to stay private or look elsewhere. Valuations are lofty and entrepreneurs should continue to use this to their advantage while they last.

Full deck here