The typical equity stake of US venture-backed post-Series A CEO has increased from 15% to 21%, a 40% increase in five years. This trend is also manifested in Series Bs, but as the chart above shows, post-Series C and D, total founder/CEO equity positions have remained constant.
What a difference a few quarters make! In the past nine months, Series A valuations have skyrocketed. In fact, 2014 Series A pre-money valuations have surpassed Series B valuations from 10 years ago, accounting for inflation. The same is true for Series B valuations exceeding median Series C valuations a decade before.
It's Q3 earnings season and about half of the major public tech companies and recent startup IPOs have reported their figures. I keep track of earnings to get a sense for how these companies perceive their markets. Meeting or exceeding earnings indicates companies can forecast their growth and demonstrates how predictable these businesses are. The more predictable, the more stable the business environment and consequently, the fund raising environment for startups.
The real promise of the Internet of Things isn't simply linking millions of devices together, just like the real innovation of the web wasn't networking a bunch of computers. Instead, the true and still unrealized potential of IoT is to transform business models; it’s enabling companies to sell products in entirely new and better ways that benefit both the company and the customer.
At some point, most startups will begin to measure their customers' happiness. Customer satisfaction is an important predictor of loyalty and can foster fantastically efficient word-of-mouth growth. Many companies employ Net Promoter Score, a metric pioneered by Bain & Company, to quantify customer satisfaction. NPS estimates customer loyalty by measuring the fraction of a customer base which are promoters and detractors of a company's product. I've been told that NPS scores greater than 50 are impressive, but this is simply a rule of thumb. So what's the right way to evaluate a company's NPS report?
When we analyzed the impact of location on a startup's ability to raise capital, we found no statistically significant difference. Startups in San Francisco, Seattle, Pittsburgh, Austin and many other cities all demonstrated similar ability to raise follow-on rounds. But is the same true for investors of various locations? Do investors across the US invest similarly across Seed, Series A and Series B? They do not. In fact, there is a statistically significant difference in investment patterns of investors depending on their location.
I met a really smart vice president of sales a few weeks ago working in a company with mid-market customer values in the $10-100k per year range. When I asked her about her sales process, she described how her team employs statements of work (SOW), which isn't something I hear about very frequently in startups, despite the fact they are very powerful sales tools.
Startups struggle to set the right price for their products because pricing dynamics in the field don't obey the laws taught in the classroom. The standard supply and demand curves, drawn above, imply that as price increases demand decreases; that buyers act rationally and that this law is immutable. But this simply isn't the case. Buyers in the market place violate the traditional supply and demand model all the time. For example, Veblen goods defy the traditional pricing theory.
Bill Macaitis, the former CMO of ZenDesk, articulates how a SaaS marketing team should operate better than anybody else I've met. At a recent conference, Bill outlined the 9 marketing disciplines of great SaaS companies and how they fit together to create a marketing powerhouse. I've copied my notes from Bill's talk below.
Of the ten most important metrics on a startup's financial statements, revenue might seem to be the most important. But it isn't. Gross margin matters more because it is directly tied to a company's ability spend to grow and achieve profitability.