Tags: startup advice, Summer Program
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As a part of our Summer Fellowship Program, we bring in influential speakers from around the valley each week to share their insights, lessons learned and tips with our teams. The program has now been in place for six years, so with recent fellowship classes I have been fortunate to pull from our list of alumni when curating the speaker list. One of those alumni, Pinterest CEO Ben Silbermann, was generous enough to join us this past week for lunch with our fellows and alumni from past years.
During lunch, Ben shared details of his background and thoughtfully explained the journey of how he came to be CEO of one of the hottest startups in the consumer internet space. He also shared a number of insights and lessons which I think we can all learn from:
Hire Great People, regardless of if you have a defined role for them: Ben shared that one of the things he is thankful he did in the early days was to hire people that he thought were great people even before he knew exactly what their role would be. Great people, he explained, can add value in various roles and often provide key solutions to problems that arise throughout your lifecycle.
Learn from No: Whether you are seeking funding, making offers to potential employees or trying to build partnerships, as a startup you are going to hear the word no a lot. What makes Ben a great entrepreneur is that he recognizes that most of the time, people are saying no for a good reason. He had the patience, self-awareness and intellectual honesty to evaluate the situation and make the necessary changes. Whatever the reason for No, Ben stressed the importance of using it as opportunity to learn and to correct so that you are moving your company into a position where you can start getting some yeses.
Decide what will make you happy and commit 100% to doing it: One of the things Ben said he learned early on was that while being an entrepreneur meant that he had control over what he was building and doing, it also meant that he lost control over a number of things like a steady paycheck or the resources of a large organization. But, ultimately, the tradeoff was worth it for him to keep going. His advice to the group may seem simple and obvious, but it can be hard to follow! He was convincing – you have to find what makes you happy, because ultimately, that is the person you have to answer to first. Building a startup is really hard, but if you are doing something you love or building a product you are passionate about, it is one of life’s greatest rewards.
Foster your co-founder relationships: Like any relationship, you are going to have some ups and downs as founders so it’s important to foster a good, highly communicative relationship with your co-founder(s) so that you can make it through those rocky days. Again, it may seem fairly straightforward, but it is one of those things that requires consistent attention and can make all the difference.
Recognize what you don’t know and tackle it head on: This was less of a tip and more of an anecdote that Ben shared, but one that I thought was worth mentioning. Every weekend, he reads a different business book in an effort to hone his business, marketing or technical skills. Having a ready appetite to learn and grow as a person and a leader is no doubt a part of Pinterest’s secret sauce and something I encourage any entrepreneur to foster throughout their careers.
It was tremendous to have so many alumni back at Lightspeed and thanks again Ben for your time and thoughts.
Two is a good number of founders May 14, 2012Posted by jeremyliew in Entrepreneur, founders, start-up, startup.
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I’ve long held that two is a good number of (co)founders. One is difficult because you don’t have a true thought partner to talk to, or to tell you when you might be being crazy. To everyone else, you’re the CEO and the boss, and that power dynamic mitigates what they are willing to tell you.
Three can lead to a “two on one” situation, which can be destabilizing. It doesn’t always have to be unstable, but it is a risk.
Four or more and the equity cuts start getting pretty small for cofounders.
Douglas Merrill (CEO of Zestcash, one of our portfolio companies) has a nice post in HuffPo about how to work best with a cofounder that is well worth reading in its entirety. I paraphrase his five rules as follows:
- Be different, but not too different
- Share core values
- Compromise on work styles
- Overcommunicate to the team about your relationship, agreements and disagreements
- Find a trusted tie breaker
The Lightspeed Summer Fellowship Program Explained April 12, 2011Posted by John Vrionis in 2011, blogging, start-up, startup, startups, Summer Program, Venture Capital.
There’s been some great discussions recently about the Lightspeed Summer Program (http://news.ycombinator.com/item?id=2380567) and at several of the sessions over the weekend at the Stanford E-Boot Camp (http://bases.stanford.edu/e-bootcamp/ so I thought I’d do a quick post to help answer some of the recurring questions.
Background. I started the program at Lightspeed 6 years ago because as an undergraduate and graduate student I, as well as many of my entrepreneurial classmates, took on “real” internships during the summers in order to pay the bills (rent, gas, beer…). We worked on our startup ideas on nights and weekends out of necessity. When I joined Lightspeed in 2006 and realized that we had the resources to facilitate some number of idea-stage projects, we put together the Summer Program and opened it up to student led teams. Why did a student need to be involved? We had to draw the line somewhere. The program could not be just another entryway for entrepreneurs to pitch Lightspeed. We wanted to target young, entrepreneurial minded people and give them a viable summer alternative to taking that traditional internship.
I know from personal experience just how hard starting a company can be. It’s a BIG DECISION to tackle early in your professional career. Pieces of the program have changed over time, but the GOAL has remained constant since inception and that is simply to give young entrepreneurs the time and resources to fully experience what it is like to start a company.
Purpose. The Lightspeed Summer Program is NOT an incubator, nor was it ever intended to be. We are not looking to fund companies out of the program. Really. I promise. We want people to experience startup life fulltime and have the opportunity to learn if it is something they truly want to do. Is there benefit to Lightspeed? Yes, of course. We hope to build relationships with young, talented entrepreneurs at this stage in their careers. We are in the business of fostering entrepreneurship. We also have a very long term view on what this means. The opportunity to work with bright, energetic people who have ideas about how to change the world is exactly why we do this job in the first place.
Why don’t you ask for equity or a right to invest? It’s funny, people have asked me “What’s the catch?” Or, “It sounds too good to be true, so what am I missing?” I appreciate the genuine skepticism so I want to be as clear as I can on this one. The reasons we don’t require an obligation from the entrepreneurs we accept are simple:
First, we don’t have expectations that the teams we accept will be ready for venture capital during or after completing the program. In fact, I’ve been surprised by the number (12+) that have gone on to receive venture or angel funding.
Second, we look at the program as a way to engage with people at this stage in their careers. If we do a good job and they like working with us, they should want to come back and work together down the road if they want to pursue entrepreneurship. If we don’t do a good job, and they don’t like working with us, well, shame on us(!), but the entrepreneur shouldn’t be obligated to work with Lightspeed.
Evolution. I’ve changed the “rules” of the program over the years to try and make it a better experience. For example: I learned in Year 1 that teams without engineers didn’t accomplish much in the 10 week time frame. Without fulltime “doers” teams ended up with a lot of ideas and power point slides but very few actual results. So we adapted and started requiring that every team have at least one CS or EE major as a way to push teams to have members that could actually build stuff over the summer. Example 2: I learned that what is most helpful to the Fellowship winners in terms of guest speakers and introductions is other young founders who have successfully raised money and angel investors. So I changed our guest speaker lineup and invited fewer attorneys, CFO’s, and recruiters and went with a healthy dose of entrepreneurs, CEO’s and investors. Example 3: Entrepreneurs like lots of free food, so we added more snacks.
If I participate in the program and Lightspeed doesn’t invest, isn’t that a bad signal? This is something I didn’t think about when we first started the program. It’s a very valid concern. The LAST thing I want to do is have a program that creates friction for any entrepreneurs who want to continue to pursue their company after the program. So we made a change. Starting last year, we made a commitment to every team we accept. Lightspeed will invest a minimum of $50k in any Summer Program winner that continues on with a company and is able to pull together a round of at least $500k from other investors. It’s very important to understand that the Lightspeed investment is completely at the entrepreneur’s option. If you don’t want it, don’t take it. But this way, if any investor ever asks, “Is Lightspeed investing?” the answer is “Yes, if we want them to.”
Competition. People often ask or comment about other programs (YC, Angel Pad, etc). I’m thrilled these programs exist and are flourishing. I think the more opportunities out there for young entrepreneurs to try the startup life, the better. We’ve had teams in multiple summer programs in the past and its been great. The one requirement we ask is that teams dont participate in more than one program at the same time.
Resources. The program gives Fellows office space, some funding, VC mentorship (each winning team has a Partner from Lightspeed as a mentor), introductions to founders and angels, and a chance to work on your idea fulltime. I’ve learned that our Fellows also benefit greatly from the camaraderie that emerges from working with other entrepreneurs in a close environment and that these lasting relationships mean a great deal to people.
This program is NOT for people who want a lot of hand holding. As an entrepreneur, I learned you need to be scrappy. The program is designed to give you all the resources you need but ultimately it is best suited for entrepreneurs who just need the chance to make things happen.
Application. We one round for 2012. The deadline for is March 2, 2012 so get them in! Find the app here: http://www.lightspeedvp.com/summerfellowships/
How to measure how well an online media company is scaling. December 8, 2009Posted by jeremyliew in Consumer internet, Digital Media, Internet, media, start-up, startup, startups.
Two years ago I posted about the three ways to grow an online media business to $50 million in revenue. In this article I focused on RPM (Revenue per thousand pageviews, = CPM x sell through rate x # of ad units per page) and drew the distinction between three strategies, and the traffic needed for each strategy to get to scale:
1. Broad Reach, low RPM, traffic in the 10s of billions of pageviews/mth
2. Demographic Targeting, moderate RPM, traffic around 1 billion pageviews/mth
3. Endemic Targeting, high RPM, traffic in the 100s of millions of pageviews/mth
I think using CPM/RPM in this is a useful framework to think about strategy, but it isn’t necessarily the most useful way to think about howe well an online media business is scaling. In practice, most online media companies do not sell out their inventory through direct sales. Because direct sales generates RPMs so much higher than remnant inventory running through ad networks, the amount of direct sales is key.
Direct sales shows real economies of scale. While it is harder and more expensive to sell, support and serve a $1M insertion order than a $10k insertion order, it doesn’t cost 100 times more. Unfortunately, many media startups find that their campaigns are primarily in the 10s of thousands. This creates inefficiency and makes it difficult to scale. It is hard to get to $50M in revenue $10k at a time.
Right now, the key measure that I use to judge how well an online media company is scaling is by looking at quarterly revenue by advertiser. The more advertisers are spending over $100K per quarter the better. I like to see 10 or more advertisers spending over six figures per quarter. This shows that the site has grown beyond “experimental buys” and has become a core part of the advertising mix for a core set of advertisers. These sites are over the hump on scalability of their business as it is much easier to get repeat business from clients who are committed to the site, and to use these reference accounts to drive further sales growth.
What do readers think about this measure of how well an online media company is scaling?
Some startup CEOs’ New Years resolutions January 5, 2009Posted by jeremyliew in 2009, start-up, startup, startups.
Tags: new years resolutions
I asked my CEOs what their New Years Resolutions were. Here is what they resolved:
Jonathan Kibera of specialty ecommerce company Mercantila was alliterative in his focus on revenue:
Simplicity: Reduce the # of components necessary to generate revenue.
Stability: Be consistently excellent at each of these components.
Scale: Drive as much business as possible.
Lance Tokuda of social apps developer Rockyou is equally focused on revenue and mindful of the economy:
Optimize for revenue generation over growth to preserve cash in a weak advertising market.
Scott Albro of B2B media company Tippit knows what to worry about and what to not waste angst on:
Focus on what we can control and make sure, every day, that what we can control is more powerful than what we can’t.
Ed Baker of mobile virality company Demigo will be focused on execution in 2009:
Set realistic deadlines and meet them. While I will continue to encourage and work with the team to set aggressive milestones for each of our weekly releases, we need to do a better job of making sure we always meet these deadlines, and don’t let them slip.
Joe Greenstein of social movie site and app developer Flixster is making sure that his team feels the love:
Make sure everyone at flixster knows how much they matter. The further we get into this business, the more it is clear to me how directly responsible the talent and commitment of our team is not only for the successes we have had thus far, but for our hopes for the future and for the quality of the experience along the way. In a difficult economy especially, my 2009 new year’s resolution is to make sure everyone at Flixster knows that this is our company, to succeed or fail by our efforts and to be shaped along the way by our collective vision.
My resolution is to listen to — and learn from — what the market is telling us, and mine the unexpected opportunities that are coming our way.
In the new year, I resolve to get better at making data driven (characterize, hypothesize, predict, and test) decisions. This is an obvious point to most entrepreneurs these days, but the past year has really shown us that it isn’t as simple as just deciding to be data driven one day. Building the technology infrastructure and the engineering culture that makes this possible at scale are non-trivial projects. We’ve gotten a lot better at this in the short history of our company, but we’ve still got a long way to go, and we intend to continue to improve on this in 2009.
And finally David Scott of casual game maker Casual Collective sought more explicit communication and introspection:
Every Friday afternoon we will set aside time (away from our screens) to discuss all the things we achieved that week and list all we want to achieve in the following week. This will help keep everyone aware of what everyone else is doing, spark discussions and ideas that otherwise may not have happened, end the week with a better sense of achievement, and help us hit the ground running on Monday mornings. With such a small team we also need to better prioritize tasks.
And to lose weight of course 🙂
What are your new years resolutions for your company?
How bad is it for startups seeking financing? November 24, 2008Posted by jeremyliew in start-up, startup, startups, VC, Venture Capital.
It is difficult for startup companies to raise venture capital at the best of times. A venture capitalist might get emailed 5-10 pitches from startups each day. Over the course of a year that adds up to 2,500-5,000 pitches. Of those pitches, that venture capitalist might fund one or two companies. Not great odds for a startup. Granted, some of the other startups may raise funding from other venture capital firms, but even so, it’s a chancy proposition.
Recently, startups have been facing an even more difficult environment for raising capital. There are three factors that are contributing to this. Some of these factors will change in the short term, but others will likely continue to be a factor for a while. From longest to shortest then:
Angel financing has dried up. Often, when a company is too early to raise institutional venture capital it will raise money from angel investors – wealthy individuals. According to the Center for Venture Research, $26B was invested by angels in 2007, a marked increase compared to $15.7B in 2002. The precipitous drop in stock markets and housing markets since the beginning of the year has made many angel investors nervous about making new investments in risky and illiquid startups. Many angel investors will likely sit on the sidelines until we see a rise in stock markets and in consumer confidence. While the companies who raise angel financing would not likely have raised from venture capital firms anyway, a slowing down of angel financing will mean that less companies are ready for institutional venture capital in the next few years.
A slowing economy has reduced near term revenue growth expectations. We are in a recession. While for many startups, the micro factors (e.g. Did we hire our second sales person in Q1 or Q3? Was our VC able to introduce us to BigCo for a distribution deal?) trump the macro factors, startups still operate in the same economy as everyone else. With consumers and enterprises alike watching their spending closely, even the most promising startups are likely to see slower growth than they might have projected a year ago. Slower revenue growth usually translates into a longer period before the company gets to profitability, and hence more capital required. Strong companies will still get funded, but each financing may be a little larger than in the recent past to give the companies the additional runway to get to profitability. As a result, there may be a slight reduction in the overall number of financings (given that the pool of available capital is largely the same) and some marginal companies will not be able to raise capital. Since early stage venture capital firms by definition take a long term view, this impact is likely small, but will persist until investor expectations for consumer and enterprise spending improve. As we get additional data on the likely length and depth of this recession through 2009, this effect will likely disappear.
Venture Capitalists are focusing on their portfolio companies. The slowing economy affects not just companies raising finance, but also companies that have already been funded. VCs are currently fully engaged with their current portfolio, helping them to prepare for a tough 2009. Many entrepreneurs are first time CEOs, and some were not even in the workforce during the last recession. They are turning to their VC investors to help them think through what actions their companies need to take to adjust; cost reductions, changes in strategic direction, or otherwise. This takes time. Time spent by VCs with portfolio companies is time not spent looking at new potential investments. As a result, companies currently seeking financing may not get the same level of attention that they might have received a few months ago. The good news for startups is that this is a short term effect. 2009 planning should be completed within the next few weeks, and certainly after the holidays, venture capitalists time will once again free up to look at new deals.
Better time ahead. Although startups seeking financing right now may have a tough time, as these factors fade away they should see a relative improvement in the very short term. As the market will only improve, startups looking to raise new financing should try to defer for as long as possible. This may require cutting costs to extend the cash runway, reducing the scope of projects, prioritizing revenue over new features or looking to existing investors to provide a bridge loan. But do not lose hope! Promising companies will continue to get funded, with the pace returning to close to normal by part way through 2009.
Founders, be ready for the long haul November 10, 2008Posted by jeremyliew in exits, M&A, start-up, startup, startups.
The chart below shows the average time in years between a startup’s first equity investment (usually Series A) and its sale, for companies sold in each year from 1997 to 2007. (Source is Dow Jones Venture One/E&Y study)
As you can see, companies sold in 2007 had seen almost seven years pass since their first financing. Often they were founded up to a year before they took their first financing, so they were likely eight years old when they were sold. These numbers are averages – some companies exit faster, but some exit slower as well.
This data represents M&A exits. Usually the time to exit via IPO is even longer.
Although no data is available yet for 2008, there has been virtually no venture backed IPO activity in 2008, and the number of M&A tractions is sharply down from previous years. That means that the time to liquidity is likely getting longer.
Obviously, these are backward looking metrics (2007 numbers refer to companies that were sold in 2007, not companies that were started in 2007). However, founders of companies looking to raise venture capital should be ready for the long haul. You can’t start a company and expect a quick flip.
The Consumer Confidence Index (CCI) measures how optimistic consumers are about the state of the economy. Specifically, it measures how consumers are feeling about:
1. Current business conditions.
2. Business conditions for the next six months.
3. Current employment conditions.
4. Employment conditions for the next six months.
5. Total family income for the next six months.
In the most simplistic terms, when [CCI] is trending up, consumers spend money, indicating a healthy economy. When confidence is trending down, consumers are saving more than they are spending, indicating the economy is in trouble. The idea is that the more confident people feel about the stability of their incomes, the more likely they are to make purchases.
The Conference Board, which measures the CCI, announced yesterday that:
The Conference Board Consumer Confidence Index™, which had improved moderately in September, fell to an all-time low in October. The Index now stands at 38.0 (1985=100), down from 61.4 in September…
Says Lynn Franco, Director of The Conference Board Consumer Research Center: “The impact of the financial crisis over the last several weeks has clearly taken a toll on consumers’ confidence. The decline in the Index (-23.4 points) is the third largest in the history of the series, and the lowest reading on record. In assessing current conditions, consumers rated the labor market and business conditions much less favorably, suggesting that the fourth quarter is off to a weaker start than the third quarter. Looking ahead, consumers are extremely pessimistic, and a significantly larger proportion than last month foresees business and labor market conditions worsening. Their earnings outlook, as well as inflation outlook, is also more pessimistic, and this news does not bode well for retailers who are already bracing for what is shaping up to be a very challenging holiday season.”
As a point of comparison, the CCIs most recent peak was at 112 in July 2007. It is down by two thirds since then. The last CCI trough was at 61 in March of 2003, down from a peak of 144 in May 2000. This time around consumer are far more concerned than they were in even the depths of the last economic slowdown. Historical CCI stats are available here.
All consumer facing companies, whether ad based or commerce based, should bear these numbers in mind when planning for Q4 2008 and for 2009.
Which online media companies will survive the ad recession? October 6, 2008Posted by jeremyliew in advertising, start-up, startup, startups.
“Advertisers have pulled back in a pretty meaningful way, and display is feeling the brunt of it,” said Clay Moran, a Stanford Group analyst who recently wrote a research report called “Online Advertising: caution required.”
In recent weeks:
* Yahoo Inc. Chief Executive Jerry Yang told analysts that demand for display advertising was “softening.”
* Online publisher Tech Target Inc. lowered its third-quarter forecast, blaming “macroeconomic weakness in the U.S. and its impact on advertising spending.”
* Lending site Bankrate Inc. cut its 2008 guidance. CEO Thomas Evans explained that the company had “continued to experience softness in display advertising from several of our largest financial advertisers.”
* Ad network ValueClick Inc., based in Westlake Village, blamed the economy for a slowdown in display advertising, which led to a 6% drop in its second-quarter profit.
What does this mean for startups? When advertising budgets dry up, three things happen:
1. Advertisers buy what they know
This has two implications. The first is simply brand recognition. It is much easier to make the case to buy media on a well known site. As a result, scale matters. The leaders in both web 1.0 (AOL, Yahoo, Cnet etc) and web 2.0 (Facebook, Myspace, Rockyou*, Digg etc) will continue to see high demand for their advertising inventory.
As the web 1.0 leaders are already at scale, they may see greater negative effects from the overall market, but there will continue to be a strong core of demand. Many of the web 2.0 companies have grown out their traffic and brand in advance of their sales forces, so they may be able to ride the growth of their sales teams to better mitigate the market effects.
But being big (5m+ UU/mth), and a leader in your category, will help a lot.
The second implication is that advertisers will continue to buy advertising against targeted content. Advertisers are used to buying content adjacencies. Targeting against users (whether behavioral or demographic targeting) can’t be counted on to lift CPMs in the next couple of years.
Sites with highly targeted content that attracts endemic advertisers (Flixster*, iLike, Streetfire.net* etc) or demographic clusters (TMZ, PopSugar, AskMen etc) will be better off than broad reach sites.
2. Experimental budgets are the first to get cut.
In an ad recession, advertisers appetite for experimentation is low. They like to stick to the established ad standards. New forms of advertising are hard. Startups whose sales processes feel more like business development than selling off of a rate card may have a tougher time.
Companies selling standard ad units will weather the recession better than those that have unique ad units.
3. Marketers keep funding direct response advertising.
The brightest spot in an ad recession is direct response. As Ad Age notes:
Many analysts now agree that when marketing budgets come under pressure in a stressed economy, those sectors that can best document their connection to ROI, such as search-engine advertising, are far more attractive to corporate chiefs than other kinds of less-trackable traditional advertising.
Direct marketers will continue to spend to acquire customers if that spend can be directly tracked to a sale. Lead gen companies (Quinn Street, Tippit*, LowerMyBills etc) will hold up better, as will companies with CPC and CPA models (Google, TripAdvisor, $uperRewards, etc). However, they may also be affected if the overall number of people “in market” goes down, or prospective buyers become less likely to buy, due to the overall economy slowing down.
Who will have it toughest? Sites that are sub scale (<1m UU month), with no targeted content AND selling custom ad units are going to have to work the hardest over the next few years. Great teams always find a way, but the road may be long and hard.
What are your thoughts as to what sort of online media companies will survive the ad recession best?
UPDATE: WSJ also finds that experimental budgets are getting cut
FURTHER UPDATE: Which companies might benefit from an online ad recession?
* Rockyou, Flixster, Streetfire.net and Tippit are Lightspeed Portfolio companies.
An entrepreneur asked me recently if I was concerned about the impact the credit crunch will have on venture financing for startups. I responded:
For high quality companies, the short answer is no. The more nuanced answer is that
(i) The credit crunch will impact venture debt (already has) so people can’t count on that to extend their runway, so should raise a bit more than they would have done
(ii) If the economy indeed slips into recession (as a second order effect of the credit crunch), then this will impact sales growth for many startups, whether selling to enterprises or consumers. This will also impact timelines to profitability, and hence amount raised. It will also likely cause some angels and some venture firms (especially corporate venture firms and firms with a shorter time horizon) to become less active investors.
At Lightspeed as we take a long term view towards the companies we invest in. However, we are urging them to be conservative in their revenue projections and hence cash planning (both from amount raised and from cash burn perspective).
GigaOm weighs in on the venture debt issue in particular
Fewer, costlier loans. No way around it, money is getting more expensive. As long as banks are licking their wounded balance sheets, they won’t make loans that carry even a whiff of risk. This could raise borrowing costs and complicate growth for capital-intensive sectors, like telecom.
A more immediate problems lurks in short-term lending such as commercial paper. Interest rates in that part of the market have recently risen from 2 percent to 4.5 percent for riskier companies, according to Businessweek.
Fred Wilson has a similar perspective on the venture capital market:
All startups are going to have to batten down the hatches, get leaner, and work to get profitable, but the venture backed startups are going to get more time to get through this process than those that are not venture backed. Here’s why.
Venture capital firms are largely flush with capital from sources that are mostly rock solid. If you look back at the last market downturn, most venture capital firms did not lose their funding sources (we did at Flatiron but that’s a different story). If you are an entrepreneur that is backed by a well established venture capital firm, or ideally a syndicate of well established venture capital firms, then you have investors who have the capacity to support your business for at least 3-5 years (for most companies).
Venture capital firms will get more conservative and they will urge their portfolio companies to do everything Jason suggests (and more), but they will also be there with additional capital infusions when and if the companies are making good progress toward a growing profitable business.
If you go back and look at the 2000-2003 period (the nuclear winter in startup speak), you’ll see that venture firms continued to support most of their companies that were supportable. The companies that were clearly not working, or were burning too much money to be supportable in a down market, got shut down. But my observation of that time tells me that at least half and possibly as much as two/thirds of all venture backed companies that were funded pre-market bust got additional funding rounds done post bust.
So if you run or work in a startup company that is backed by well established venture capital firms, take a brief sigh of relief and then immediately get working on the “leaner, focused, profitable” mantra and drive toward those goals relentlessly.
If, on the other hand, you are just starting a company, or have angels backing you, or are backed by first time venture firms that are not funded by traditional sources, then I think you’ve got a bigger problem on your hands. It’s not an impossible problem to solve, but you have to start thinking about how you are going to get where you want to go without venture funding.
I say that because in down market cycles, it’s the seed and startup stage investing that dries up first. It happens every time. Seed/startup investing is most profitable early in a venture cycle and late stage investing is most profitable late in a venture cycle. It makes sense if you think of venture capital as a cyclical business and it is very cyclical. Early in a cycle you want to back young companies at bargain prices and enjoy the demand for those companies as the cycle takes hold. Late in a cycle you want to back established companies that need a “last round” to get to breakeven and you can get that at a bargain price compared to what others paid before you. I’ve been in the venture capital business since 1986 (that was a down cycle) and I’ve seen this happen at least three times, probably four times now.
There’s another important reason why seed and startup investing dries up in down cycles. Venture firms don’t need to spend as much time on their existing portfolio companies when things are going well. A rising market hides a lot of problems. But when things go south, they tend to become inwardly focused. I believe we are headed into a period where venture firms will spend more time on their existing portfolio and less time adding new names to it.