No matter the stage of the business, startups need to manage the size of their Employee Stock Option Pool or ESOP. The ESOP contains the shares set aside by the company for hiring and retaining employees. Like a financial budget, ESOP budgets help a startup plan how to finance its growth.
In a recent First Round Review article, former Google President of Enterprise Apps Dave Girouard voiced the importance of speed in making decisions. "Deciding on when a decision will be made from the start is a profound, powerful change that will speed everything up." I believe this statement is broadly true, and no where else is it more tangible for me than in managing daily email. After all, what is responding to email other than a thousand decisions?
When we say a startup has raised a big round, we often mean the round is big in two dimensions - total amount invested and valuation. And when we say a big valuation, more precisely we imply the round was priced at a high revenue multiple. A SaaS company that will generate $400M in revenue next year that raises $200M at $1B valuation has raised a big round, but at low valuation-to-revenue multiple of 2.5x. In contrast, most high growth SaaS startups are raising at very high multiples, somewhere between 10-20x forward revenues. What are the implications of raising at a large multiple?
Startups today are growing faster than they have in the past. US VC backed startups in 1998 grew revenue 63% per year on average. In 2014, the median startup grew at 85% CAGR before going public. These increasing growth rates are fueled by three key trends.
We all build products based on assumptions - assumptions about our users, who they are, how they think, what they expect. When the underlying assumptions underpinning product design no longer holds, new opportunities are created.
The prevailing wisdom for hiring the first VP of Sales is roughly $1M in ARR, or whenever the company has figured out some repeatable sales process. The rationale behind this advice is, at this point, the company needs someone to build recruit, incentivize, coach and manage the team that will grow to acquire more and more business. While that all makes sense, I was curious to see if startups do this in practice, and whether the timing of the VPS differs by ACV.
Founded in 1998, Netsuite is worth about $7.7B, making it the sixth largest SaaS compay behind Salesforce, LinkedIn, Workday, ServiceNow and Splunk. Netsuite began developing ERP (enterprise resource planning) tools to help companies manage their finances, expenses and supply chain. Over time, Netsuite has added a few more product lines including ECommerce platform, CRM, business intelligence and a professional services management product. In the last ten years, Netsuite has grown revenue from $18M to $556M. As the company disclosed in their last annual report, Larry Ellison, the CEO of Oracle, owns 47.4% of Netsuite common stock, implying the company is strategically important to Oracle.
In response last week's post on The Fastest Growing Areas of Startup Investment in 2015, in which Bitcoin topped the list, I received many questions about the underlying dynamics of this startup segment. Which regions? Which stages? How much is going into Bitcoin companies. Using Crunchbase data, I analyzed BTC investment patterns over the past 4 years.
Founders often ask, when is the right time to expand geographically, add a second product or pursue another customer segment? Most of the time, the answer is not yet, not until the company is quite large, perhaps in the hundreds of employees and the main challenges and questions for the business have been answered well.
If there's one notion that will define the decade early 2010s in startupland, it's the Megaround, the investments of greater than $40M in private companies. Historically, startups needed to trade on public exchanges to access sums of money from $40M to several billion. But today, the private markets are providing this capital. These billions of dollars, which amount to about half of all venture investment, skew substantially towards consumer investments.