[This article was originally published on Techcrunch]
I’ve been hearing a lot lately about “The New Normal” for VC-backed technology companies. It’s not just in the popular press headlines. Nearly every conversation I have with co-investors, founders and LPs these days involves some discussion of current “new normal” market conditions and what they mean.
There’s clearly change in the air. Fundraising has become harder, with 18 percent fewer early-stage startups funded in Q1 2016 from the prior quarter, and down 39 percent from the peak in Q2 2014. Exits are less frequent: 155 VC-backed companies exited in Q1 2016, down 42 percent from the peak in Q2 of 2014 (source: Pitchbook).
On the other hand, seed and Series A valuations are actually up, which means that high-quality companies are still raising money at full valuations and (perceived) lower-quality opportunities are not getting funded at all. These changes are profound, but not surprising. We’ve had seven years of a bull market in public equities, one of the longest in history. It was bound to end.
Bill Gurley just wrote an excellent essay on the state of the unicorn market. Gurley covers the financial and emotional forces at play and offers great advice for founders of these highly valued billion-dollar-plus companies.
So how does The New Normal affect the remaining 30,000+ VC-backed startups that aren’t unicorns? More…
If you’re in the enterprise software / SaaS business, then you know that the sales process almost always includes a conversation with the CIO. This is a conversation you want to nail for obvious reasons.
Pitching to CIOs has its nuances, as I was reminded during two recent CIO events, a series that I host every few months.
Guests at these events comprise large enterprise CIOs, as well as founders of enterprise software and SaaS companies. The CIO attendees are a combination of IDG Venture’s CIO Advisory Board and selected senior IT executives from prominent enterprises. The startup attendees are from IDG’s portfolio companies, and more so, the founders of other interesting startups. Founders have the opportunity to present their solutions to the CIO audience. These events are relatively small by design, in order to foster intimate conversations and candid feedback. More…
Last week, I participated in a panel at CITE (Consumerization of IT in the Enterprise) with fellow VCs Arif Janmohamed of Lightspeed Venture Partners and Aaref Hilaly of Sequoia Capital. Aside from the humor we found in the trifecta of our first initials (the AAA panel!), our discussion on innovation and trends in consumer technologies for enterprises yielded some interesting insights.
Here are the highlights:
- Big data analytics: it’s no revelation that big data is big. But plenty more innovation is required to make sense of big data, which by definition is too “big” for companies to tackle on their own. ETL systems that extract, transform, and load data from disparate applications are still limited, particularly vis-a-vis data in legacy databases.
- Mobile CRM: it’s the holy grail of next-generation enterprise applications. There’s been a lot of start-up innovation in this space, but the market is very early. The biggest challenge is in creating a mobile CRM platform for salespeople that is truly easy-to-use and robust. The panelists agreed that the opportunity is big and that this problem will be solved.
The social networking sector has seen over 10 great successes from an investment standpoint: MySpace ($580 million), Beebo ($850 million), Instagram ($1 billion), Tumblr ($1.1 billion), Yammer ($1.2 billion), Facebook ($150 billion market cap), Twitter ($35 billion market cap), LinkedIn ($25 billion market cap), Pinterest (valued at $3.8 billion), Snapchat (reportedly valued at $3 billion), and most recently WhatsApp ($19 billion). Add to that Weibo, Vkontakte, Renren, and many other huge social networks that are popular overseas.
Given these successes, are there opportunities for more winners in this space? Absolutely. More…
Pat McGovern pictured in the front row center with the IDG team
Pat McGovern, founder and chairman of IDG, passed away last Thursday at the age of 76. Much has already been written about his remarkable accomplishments as a businessman and philanthropist. Instead of adding to that outpouring, I want to write a few words about my personal experience with Pat.
To say that I knew Pat McGovern well would be an overstatement. My partner, Pat Kenealy, and my China colleagues, Quan Zhou and Hugo Shong, knew him substantially better. But I was fortunate to know McGovern for 15 years, starting in the late 1990s, when he and other IDG Ventures partners were kind enough to invite me to join IDG Ventures. In a youthful mistake, I declined initially but eventually made the right decision by co-founding our current firm, IDG Ventures USA, in 2007, with strategic backing from IDG.
Over the past seven years, I interacted with Pat McGovern every couple of months, as he reviewed the performance of our fund, helped with introductions to various parts of IDG, reached out to multiple founders on our behalf, and committed increasing amounts of capital to our funds. Before too much time passes and I forget, I want to write down the distinguishing characteristics of Pat’s personality, which I believe hold important lessons for all of us, and particularly to anyone who is a founder of his/her own firm.
The extended IDG Ventures team: Alex, Pat, Phil, some of our advisors (Gil and Tom), CEOs and founders from our companies: Minted, Krux, Smartling, ParkMe, and Vidible.
As a venture capitalist, I have been privileged to work with some truly great entrepreneurial teams. Running a high-tech startup is one of the hardest jobs on the planet. I applaud entrepreneurs who are doing it and love that I get paid to spend my time helping them.
One of the most critical tasks for a founder is assembling the right team. The collective qualities of the executive team are a huge determinant of a startup’s success or failure. So what makes a great startup management team? Below I’ve listed what I consider to be the most important components.
Recently, we hosted an IDG Ventures CIO Tech Demo Day to bring together founders, CEOs, and CIOs for discussions on technology and emerging trends. Attendees comprised a combination of founders from our portfolio companies, CEOs with whom we’ve had long-term relationships, and other VCs with whom we have co-invested. The founders and CEOs delivered presentations to CIOs from Akamai, Cox Communications, Credit Suisse, Hess, Gartner, IDG, Paypal, Vail Resorts, and Vertex. All that experience, leadership, and vision in the room made for engrossing and spirited conversations that led to some valuable insights.
In the last two decades as a venture capitalist, I’ve seen three primary styles of VCs working with startup founders. I found that one of them works best for me, and want to share the alternatives:
1. Mentor: This is a classic “old school” venture capital model. Think John Doerr and Michael Moritz working with Larry Page and Sergei Brin in the early days of Google. The VC is often older, sometimes a repeat entrepreneur, sometimes not. The VC provides lots of hands-on advice and coaching. The interactions between the VC and founder are frequent, and the VC spends much time regularly at the company.
I’ve heard too much hyperbolic talk in the valley of a “Series A Crunch,” meaning startups are currently hard-pressed to raise funding following a seed round. As the blog title suggests, I do not believe there is a Series A crunch.
It’s important to understand the data before being swayed by anecdotal information, on any topic. So let’s take a look at the data here.
The startup world — like any field — has its own lexicon. Living in this world, I am guilty of overusing industry jargon myself. But there are several buzzwords that have become overused and misused to the point they are useless.
Here are three of the most annoying terms I hope will disappear from the startup lexicon soon.