Getting Funded in a
Frothy Market
Mark Suster
Founder Showcase, June 2011
@msuster
Accenture (software dev)
BuildOnline (’99)
Koral (’05)
VP Product Mgmt,
BothSid.es Salesforce.com
This Week in VC
GRP Partners - Largest
VC in Southern California
I Hate Funding Discussions in a Frothy Market
We All Know How It Ends
Nobody Wants to Hear it While Music Still Playing
I Might As Well Deal with Elephant in the Room
Of Course There’s a Bubble. Duh.
There is a Separation from Price & Underlying Value
Today’s
Market
$
Historic
Value
Time
People are Paying Growth Prices for Market Risk
Valuation
Monetization /
Competition Risk
Growth / Scale
Risk
Market Risk
Product Risk
Time
And This is Pretty Normal Market Behavior
Valuation
C
B Hot Companies
/ Booms
A
Seed Average Companies
/ Busts
Time
Just Because You Disagree Doesn’t Mean You’re Right
Sure, It Seems to be Localized
But It Does Have a Rippling Effect
What Does This Mean For You?
WHOM should you raise from?
WHAT is the right amount to raise?
WHEN should you raise?
HOW can you get it done?
WHERE is the market heading?
WHOM
There is no right or wrong
answers. Each type of investor
has positives & negatives
1. The Three F’s
(Friends, Family & Fools)
2. Angels
Angels Are Just Fine with a Triple
In Tougher Markets, For Rational Reasons,
They’re Often First to Run For the Door
3. VCs
VCs Are Expecting Rocket Ships
In For a Penny, In For a Pound
4. Seed Investors (Micro VCs)
In Tough Times They Can’t Save Everybody
There’s No Such Thing as a “Super” Angel
Your Own Money Somebody Else’s
Money
WHAT AMOUNT?
People Are Throwing Money Around These Days
Shoot for 18-24 Months of Runway
Are You On the Local or the Express Train?
Lean vs. Fat?
I Ask You …
Actually, I Recommend You Go Lean then Fat
Fat
Progress
Keep Options
Open
Time
Inflection Point
There Aren’t Many Exits > $100 million
WHEN
Too Many Entrepreneurs Try to Optimize
Company
Progress /
$ Valuation
Dilution
Time
When Markets Turn, Progress Might Not = Valuation
Company
Progress
$
Valuation
Time
And Some Good Companies Simply Don’t Get Funded
Company
Progress
$
Valuation Time
So When The Hors D’oeuvres Tray is Passed
Take Two
And Put One in Your Pocket
Don’t Take the Whole Tray!
HOW TO GET IT DONE
If Raising Angel / Seed, You Need an Anchor
If you show proof the rest usually follow
Don’t Cold Call VCs
In Era of Social Media if You Can’t Get an
Intro to a VC, Hang Up Your Cleats Now
Intros from Portfolio, Entrepreneurs,
Lawyers, Angels, etc
VCs want Management, Market Size,
Money and ….
Momentum
You Need to Create a Sense of Urgency
And We All Still Act Like We Did in High School
All Too Often FOMO (Fear of Missing Out)
Drives Deals
Run a Process & Beware of Gym Salesman VCs
If it doesn’t feel good when you’re
courting, imagine after you’re married
WHERE ARE WE HEADED?
On the Positive Side, Much Has Improved
2001 2011
• 100 million online • Billions online
• Connected at PC in • Always Connected
office
• PC, Mobile, Tablet,
• Dial up TV, Game Devices
• Distribution hard • Broadband
• Social distribution
No Crystal Ball, But There are Some Worries
• Unemployment
• State / City Cutbacks
• Housing stock overhang
• Stagflation
• Political Malaise in DC
• Middle East Unrest
The Market is Flowing Right Now
When the Market Turns South, the Whole
Industry Gets Instantly Constipated
VC Deals (IT) & VC Amount ($bn)
VCs Go Into Triage
Huge Explosion in Early Stage Deals
• 90% reduction in cost
• Faster time-to-market
• Great ability to experiment
But Decreasing Number of Active VCs is a
Ticking Time Bomb
Or More Like a Brick Wall
Angel /
Seed
Deals
Active
VCs
Just Because You Disagree Doesn’t Mean You’re Right
Don’t Believe the Hype
Don’t Drink Your Own Kool Aid
Go Get Yourself Funded
Cuz in the End It’s a Binary Outcome
And When the Party’s Over, The Party’s Over