VC Funding in a Frothy Market
This is a presentation I gave about funding at Founder Showcase in SF in June 2011
Shared by: marks
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 </end>
Shared by: Mark Suster
I'm a partner in a venture capital firm based in Los Angeles. Before this I was a 2x entrepreneur having built and sold two companies from scratch. The second was bought by Salesforce.com where I became VP Product Management.
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