65% of entrepreneurs believe that fundraising in 2016 will be more difficult than in 2015, according to First Round's survey. The volatility in the stock market, the steady erosion of public multiples, and the broad decline of seed, venture and growth investment in Q4 2015 seem to portend a repricing of the startup market. In light of those changing circumstances, entrepreneurs should prepare a few different analyses for 2016.
Suppose you’ve been selected to participate in a game show. The game show host asks you to pick one of three doors. Behind one, the grand prize awaits. Behind the other two are goats. You choose Door 1. Then the hosts opens Door 3, revealing a goat. The host prompts you again, “Would you like to select Door 2?” Should you choose it?
2015 is the end of an era, the era of startup growth at any cost. In 2016, the question that will immediately follow, "What is your annual growth rate?" will be "What are your unit economics?" This change in investor mentality is catalyzed by the increasing cost of startup capital.
How have public SaaS companies fared in the public markets over the past few years? It's been mixed. Over this three year period, 32 of 50 companies are worth more today than they were either at IPO or at their trading price three years ago. Of the remaining 18, 7 of those companies went public in 2015. It was a tough year for SaaS companies to go public.
For all the talk about late stage rounds, megarounds and unicorns, early stage startups are benefitting disproportionately from near-record years of venture capital investment. Of the $42B invested in startups in 2015, 34% or about $14B was raised in series A and seed rounds. That figure is up from 18% in 2005. The 35% attained in 2013 share for early investment ties the 1996 record.
At its essence, a product is a combination of different funnels bringing the user from one state to another. How many funnels does your startup's product have? How many are you measuring? How many are you optimizing?
In his book describing Google's People Operations called Work Rules!, Laszlo Bock presents this chart to describe the difference between the way many companies think about talent today, as a normal or Gaussian distribution, and how Google thinks about it, as a power law. It's the most provocative idea about employee compensation I've found.
Which of the 16 major start of categories in information technology will reap disproportionate share of investment dollars in 2016? And which sectors are closely guarded secrets shielded by seed investors, that may have their breakout year this year?
When I was at Google, we worked with a user experience team frequently to help us design changes to the AdWords front end. After having reviewed our designs within our product team for weeks, we often thought the design was complete and foolproof. But we were consistently proven wrong by the UX team whose work surfaced face-slapping oversights.
The fundraising markets have infused more cash into startups in 2015 than in any year since 2001. But, the venture backed IPO markets touched five year lows and whispers of a bubble have become a meme in the past six months. What's really going on? And should that impact when founders start companies?