Atomization of Seed Rounds Part I: An Explanation

When we first started NextView Ventures in 2010, we did so because we recognized that there was an underserved need for seed-stage capital particularly along the east coast between Boston and New York.  And during that time, the venture market has evolved to a point where “Seed is the New Series A.”  However, not only has the Seed round established itself as the first round of institutional capital prior to product-market fit, but recently it’s being smashed into pieces… into little atoms… the sizes and shapes of which each look and feel different from each other. Over a quick series of two posts, my plan is to explain of why this atomization is happening, share a roadmap for entrepreneurs and VCs to navigate this landscape in flux, and identify where I believe there are currently unique opportunities for founders, other VCs, and NextView. My partner Rob Go previously
atomization of seed round nextview
Continue reading "Atomization of Seed Rounds Part I: An Explanation"

VC Decisions: Eye of the Beholder or a Different Lens?

An intangible and qualitative judgement process is the core of a VC firm’s decision to invest in one startup vs another. My partner Rob Go has tried to deconstruct and demystify this effort and has even created a VC decision tree outlining our thought-process at NextView Ventures for making seed stage investments. Fundamentally, all early stage venture firms look at team, market, product, and traction. Internally here at NextView we always talk about those four categories ourselves – and those four categories in that order of importance – when exploring a new investment idea. There isn’t magic or “secret sauce.” It feels almost “of course” when you describe it… after all, those are four inputs into what makes a company great. However, recently in watching our own investment decisions and those co-investors, and I’ve observed different VCs deliberately employ different lenses for investment selection beyond the categories above. Although Continue reading "VC Decisions: Eye of the Beholder or a Different Lens?"

7 Golden Rules for High Consideration Commerce Startups

Consumers are increasingly purchasing goods and services online which take more than a few minutes of reflection. Items like cars, clothes, jewelry, mattresses, eyeglasses, and even small home renovations are given more consideration because the absolute costs are higher. They also take up more space in a person’s life and home, can often be unique or bespoke, and they’re experienced over a longer duration of time. Facilitating “high consideration commerce purchases” is not just about publishing a web product catalog with features, specs, and as with vending simple goods like books or electronics. Rather, it’s about helping foster consumers through a rich buying experience. While a trend towards these types of purchases by consumers has been emerging over the past decade, it has accelerated even more recently, driven by a new wave of startups attacking existing and entirely new categories. The innovation happening in this space now is centered on Continue reading "7 Golden Rules for High Consideration Commerce Startups"

Using the NextView Offices to Support Pre-Seed Startups

The NextView Ventures offices have changed a lot since we switched locations two and a half years ago. The only real physical change between the two, aside from basic layout, is our entrance, where we added a showcase of our portfolio (as seen below) that matches our firm’s focus on being craft-like in our work. IMG_1730 What has changed, however, is the people working from our office. Of course, since the beginning of NextView, the firm has included Rob, Lee, and me. We’ve since added Jay Acunzo to our team here in Boston, first as director and now VP of platform, as well as Tim Devane who, while based in NYC on the investment team, spends a few days a month up in our Boston office. Both have made a tremendous impact during their tenure, and their presence around the office is now integral to who we are at NextView.

Standing Continue reading "Using the NextView Offices to Support Pre-Seed Startups"

Boston’s WebInno Is Now BIG

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webinno logo

Back in June, the local Boston tech community together celebrated the ten year anniversary of the Web Innovators Group, affectionately known as “WebInno.”  Now Boston’s largest regular tech conference, every few months it draws hundreds of attendees from the entrepreneurial ecosystem – including founders, software engineers, startup executives, and investors. Each gathering showcases early stage startups in their infancy, not as a capital-raising pitch, but rather as a way to show off their product to peers for both exposure and feedback.

The origins of WebInno are humble. Originally, I had invited a dozen or so internet entrepreneurs to a Cambridge bar where we crammed into the back room wearing hand-drawn nametags. My intent wasn’t to create an organization, let alone an “institution,” but rather just react to the readily apparent desire for those in the local community to have a venue for connecting and sharing ideas. In the mid-2000’s,

boston innovators group logo med
Continue reading "Boston’s WebInno Is Now BIG"

Boston’s WebInno Is Now BIG

< p dir="ltr">

webinno logo

Back in June, the local Boston tech community together celebrated the ten year anniversary of the Web Innovators Group, affectionately known as “WebInno.”  Now Boston’s largest regular tech conference, every few months it draws hundreds of attendees from the entrepreneurial ecosystem – including founders, software engineers, startup executives, and investors. Each gathering showcases early stage startups in their infancy, not as a capital-raising pitch, but rather as a way to show off their product to peers for both exposure and feedback.

The origins of WebInno are humble. Originally, I had invited a dozen or so internet entrepreneurs to a Cambridge bar where we crammed into the back room wearing hand-drawn nametags. My intent wasn’t to create an organization, let alone an “institution,” but rather just react to the readily apparent desire for those in the local community to have a venue for connecting and sharing ideas. In the mid-2000’s,

boston innovators group logo med
Continue reading "Boston’s WebInno Is Now BIG"

Announcing Our Investment in Renoviso

A few years ago I replaced all of the decades-old windows in our home with new ones.  The entire process was horrible.  I used home service lead-gen and recommendation-review sites to identify a half-dozen installers to set up initial in-person consultation appointments.  Only half of them even showed up.  For those who did, I was offered a set of confusing options with opaque pricing without any relative understanding of the quality of the service or the product itself.  After finally making a selection, the installation took longer the one-day quoted plan and we were left overnight with gaping hole in our house!  To top it off, there was a dispute about the final cost given the scope of work.  Eventually everything was completed and resolved, but not after an extremely frustrating and delayed process.  In a world of consumer-centric on-demand services, it Continue reading "Announcing Our Investment in Renoviso"

Announcing Our Investment in Renoviso

A few years ago I replaced all of the decades-old windows in our home with new ones.  The entire process was horrible.  I used home service lead-gen and recommendation-review sites to identify a half-dozen installers to set up initial in-person consultation appointments.  Only half of them even showed up.  For those who did, I was offered a set of confusing options with opaque pricing without any relative understanding of the quality of the service or the product itself.  After finally making a selection, the installation took longer the one-day quoted plan and we were left overnight with gaping hole in our house!  To top it off, there was a dispute about the final cost given the scope of work.  Eventually everything was completed and resolved, but not after an extremely frustrating and delayed process.  In a world of consumer-centric on-demand services, it Continue reading "Announcing Our Investment in Renoviso"

Seeking Nonconsensus

Tales become legends about founders of exceptionally transformative companies who truly struggled to get any investors’ attention early on.  These rejection emails to the founder of Airbnb represent just one of the most recent example of this familiar theme. If a startup were obvious, then everybody would be doing it.  And it wouldn’t be an opportunity. My partner Lee likes to talk about successful fundraising as “finding the believers, not convincing the skeptics.”  When I think to the best performing companies in our NextView portfolio, the investment process was driven by (at least) one of the three of us who became a true believer.  It wasn’t obvious.  In fact, some of these investments were initially not unanimous in perspective and perhaps controversial decisions internally.  That’s not to say that all of our strong portfolio companies were nonconsensus among the three of us – Continue reading "Seeking Nonconsensus"

Introducing the NextView Talent Exchange: Connecting Top Talent to Startups

Today, I’m thrilled to publicly announce NextView’s Talent Exchange, a program helping both top talent and NextView-backed startups connect with each other more easily, beginning with Boston companies (which make up just over half our portfolio).

Below, I’ll quickly explain the genesis of this initiative and share a few more key details.

One of my first mentors in venture capital explained to me that the key role of a VC is to “aggregate talent.” Nothing is more important than seeking out extremely talented individuals and connecting them with other similarly talented and driven individuals. To me, the whole VC job is about bringing together great people since, together, they will inevitably and collectively do something great.

At NextView Ventures, we’re hyper-focused on the seed stage, and since starting the firm, we’ve heard repeatedly and consistently from founders that a primary challenge they face during that stage is hiring. And their feedback Continue reading "Introducing the NextView Talent Exchange: Connecting Top Talent to Startups"

Fellow VCs: Here’s Where to Invest $1B+

A couple weeks ago my colleague Dimitri Dadiomov published a post on NextView’s “View From Seed” blog which answered the question “Should we take Harvard MBAs Seriously as Startup Founders?”  The (obvious) answer of “yes” he supported with comprehensive research about the entrepreneurial activity coming out of Harvard’s business school.

We knew that it was formidable, but the sheer number of founders, companies founded, dollars raised, and (early) exits from HBS founders over the past six years impressed us.  From the group, over 260 founders have launched around 90 startups, raising more than $2.5B in capital.  Notable names like BirchBox, Blue Apron, Cloudflare, and Rent the Runway were launched by these MBA grads.  Successful exits include Wildfire (to Google for $350M), Behance (to Adobe, $150M), and RentJuice (a NextView-backed company co-founded by David Viveroto Zillow for $40M).  It wasn’t a complete surprise to my partners and me at NextView, though, as in addition to our RentJuice investment, we have backed a number of other Harvard MBAs who started companies straight out of school including InsightSquared (co-founded by Fred Shilmover, raising $27M to date) and ThredUp (co-founded by James Reinhart and Chris Homer, raising $50M to date).

But what was surprising, at least initially, was the apparent downturn in the graph after a peak of activity in 2011.  Has something gone wrong in the past couple years?

 HBS1

Quite the contrary.  Rather, as Dimitri noted, we’re at the beginning of the cycle for these recent classes.  On the number of founders and companies:

  • Some people are likely in stealth mode, and haven’t self-identified themselves currently as founders, which is merely a known bias in the study.
  • Some alums will work a couple years prior to starting their companies, rather than doing so right out of school. These individuals and companies are just being started now or will be shortly, and will likely bring up the count for these years if looked retrospectively a couple years from now.
  • The class of 2014 shows no sign of slowing down, at least when you see that 41 founders have already self-identified. It’s just one data point, but it certainly makes the classes of 2012, 2013, and 2014 feel anything but dormant.

On the metric of capital raised, the rationale for the smaller figures is the same as the two points above, coupled with a more important fact that earlier in a company’s life-cycle it’s almost by definition likely to have raised smaller amounts.  Pursuing the underlying data, it’s as you’d expect that most of the rounds raised so far are Seeds and Series As, and many haven’t even raised any meaningful capital at all.  And, of course, the larger growth rounds just haven’t happened yet since the startups aren’t mature enough to warrant 8-figure capital raises.

And therein lies the $1B investment opportunity: funding Harvard Business School startup founders from 2012-2014 and beyond.

HBS2

Even Continue reading "Fellow VCs: Here’s Where to Invest $1B+"

VC Ground Game

Conventional wisdom says that the best way to meet with a venture capitalist is to get a warm introduction.  (While it’s a good rule of thumb, it’s not entirely true, which I’ve blogged about previously.)

However, there’s another way that I’ve seen entrepreneurs use mutual connections that’s even more impactful than a warm introduction: a proactive inbound reference.  Rather than wait for a VC to ask for references later in the diligence process, savvy entrepreneurs have had people in our mutual network lob in an email or phone call as a vote of confidence and support.  If a person is merely on a reference list after the first couple meetings, the standard expectation of course is that she is going to say good things about the entrepreneur.  But a strong inbound reference from the same person can be even more productive.  Inside our partnership here at NextView, we informally and affectionately refer to it as “playing the ground game.”  When executed well, it can successfully get us to pay particular attention to and instill additional confidence in a Founder.

Tactical thoughts to having good ground game:

  • The person lobbing in support needs to not only be a mutual connection, but rather be truly trusted by the VC… a much higher bar. Again, otherwise, there’s risk in having the opposite effect, from merely noise to a negative signal on how you judged the relationship’s effect.
  • The inbound reference must say superlative things, not just positive ones. It’s a subtle, but impactful difference.  “He’s good – I’ve worked with him” isn’t as effective.  Because it’s going further than merely offering to be a reference, and instead they’re inbound, it’s incumbent that entrepreneurs absolutely believe that they’re going to be over-the-top good.
  • One or two inbound calls of support can make a positive impression, but more than that can have the opposite effect. Too many can come off that an entrepreneur is trying too hard, signaling that there isn’t enough substance to their pitch itself to stand on its own.
  • There’s an art to the timing of these calls and/or emails. The best strategy is a Goldilocks one timing: not too early (overwhelming) and not too late (less influential to outcome).  This point is especially true if the inbound reference is directed towards another partner at the firm who isn’t the primary point person on the potential investment.

If, as an entrepreneur, you have more than one strong mutual connection with a VC, don’t overlook an arrow in your quiver which you may not have realized that you already have.  Good ground game can be the subtle edge that pushes the financing process forward faster because an especially strong opinion from a trusted contact is a meaningful signal.  But at the end of the day, it’s merely a minor tactic which shouldn’t distract from the fundamental key to a successful fundraising process – clearly communicating the opportunity of the business.

The post VC Ground Game appeared first on GenuineVC.

The “Come-from-Behind” Lead Investor

As an entrepreneur, if you’re running a venture capital fundraise effectively, you’re treating the process like a sale process: identifying a set of prospects to fill the top of the funnel, cultivating those relationships over a series of meetings, then narrowing down to a handful of contender firms who will ultimately make an offer to invest with a term sheet. Of key importance, which we emphasize with our NextView portfolio companies when they’re out raising their Series A, is to run the conversations in parallel rather than serially. In other words, as much as feasible, to gate all of the VC discussions so that they’re progressing along essentially the same pace – with the goal to receive multiple terms sheets near simultaneously in order to best select the best offer and best partner, with full information.

But reality doesn’t always play out as neatly. Often for a myriad of often idiosyncratic reasons, an entrepreneur is introduced to an attractive new potential VC partner late in the game. The founder CEO is already a couple meetings deep into the process with others, at or nearing the final partner meeting decision, and somebody new is all of a sudden interested. Really interested. Is it worth paying attention to this potential “come-from-behind” VC investor?

The risk with engaging with an investor who isn’t as up to speed is a waste of the most valuable limited resource – time – when a CEO is concentrating on figuring out the best fit among the remaining candidates AND while simultaneously running a company, after all. There is also risk that the supposedly strong interest isn’t as sincere and the VC is merely “hanging around the hoop” and maintaining optionality to see if/what the contour of the round looks like, so that they can jump in front of the train at the last minute if validated by another fancier VC.

However, in my personal experience, the come-from-behind lead investor is worth incorporating into the process, as it turns out more often than you’d expect that they end up leading the round. This situation happens because a genuine come-from-behind lead investor is:

  • Self-selecting in because they’re really interested, not just going through the motions of whatever the most intriguing investment opportunity currently on their plate. If they’re fully aware of their initial position in the running, and despite that fact, they’ve decided to still push forward, they’re more likely to get to yes than the average firm in the process.
  • Driving their own internal decisioning process quickly, forgoing the unnecessary (internal political) steps, in an effort to reach a definitive yes-or-no sooner rather than later.
  • Cognizant of their position, they tend to be overly aggressive on company-attractive terms to win the deal.

The best litmus test to suss out whether or not a potential come-from-behind investor is worth paying attention to is if they’re “doing work.” And a lot of it in a short period of time: making diligence calls, using the product, striving Continue reading "The “Come-from-Behind” Lead Investor"

The Unique but Powerful Way the HubSpot Mafia is Impacting Boston Startups

It’s official: now two months after the IPO, HubSpot has surpassed the $1B market cap threshold and has become that “pillar” company that the tech ecosystem long anticipated. The benefits have been touted previously: an anchor for attracting and retaining talent in Boston, as well as a breeding ground for the next set of great Boston entrepreneurs and founders.

Already, a handful of groups have spun out to start new ventures, like the teams at Driftt, Bedrock Data, Grokky, and NextView-backed InsightSquared. As HubSpot co-founder and CTO Dharmesh Shah recently told BostInno, “We’ve wanted to not just build a great company, but also build some great entrepreneurs.”

Talk with my fellow venture capitalists, and they’ll no doubt confess how they’re “tracking” a potential founder or a given team set at the company in order to be ready with funding when it’s time for them to spin out. This entrepreneurial HubSpot spirit has — and will continue to have — a ripple effect throughout the Boston early stage startup ecosystem.

 

The HubSpot “Mafia” Will Have a Bigger Contribution Than Founders

In addition to these founding teams, there’s an even bigger contribution which HubSpot is already making to this same landscape: the proliferation of skilled marketing talent into a broader set of startup companies.

Historically, one of the (admittedly fair) critiques of Boston as a tech ecosystem is that the community is just that: a very tech-focused ecosystem, often at the expense of good marketing. “Build it and they will come” has been the philosophy. The focus is on creating some awesome technology, which is critical, except that the sales and marketing piece has been an afterthought in many cases. I can’t tell you how many pitch decks from local startups I’ve received over the past decade that barely even touch upon the key subject of distribution. And that thinking has carried out into the companies as they were being built.

But all of that is quickly changing. HubSpot has trained everyone in the company incredibly well (not just future founders), and many will eventually move on to other roles and be oriented towards distribution first.  The marketing training ground that is HubSpot creates a local DNA which will begin to pervade all companies in the area.

In a world which is increasingly won by startups who reach and then accelerate their product-market fit, not technology-market fit, this matters. A lot. I’m not just talking about B2B SaaS companies that feel similar to HubSpot either. This culture of being noisy about what you’re doing and implementing the right tactical techniques to get noticed will spread to consumer-facing startups as well.

I’ve begun to notice this effect first hand. With Jay Acunzo, HubSpot’s former head of content marketing, joining our team at NextView from HubSpot to support our investments in a platform role, he’s pushed the thinking about marketing across the entire portfolio. Former HubSpot marketing leader Rick Burnes also recently left for consumer-facing BookBub,

Continue reading "The Unique but Powerful Way the HubSpot Mafia is Impacting Boston Startups"

The Market Is Hot for Code Climate, NextView’s Newest Investment

When Chad Pytel introduced me to Bryan Helmkamp, CEO/Co-founder of Code Climate, I knew that I had to pay attention.  Chad is the CEO of thoughtbot, a consulting firm that makes web + mobile apps for early-stage startups.  The two companies had been working together for a while, especially as both are deeply embedded within the Ruby on Rails developer community, with a strong following for their respective offerings.  As an Advisor to thoughtbot the past couple years, I’ve come to place a lot of weight and trust in Chad’s opinion.

So I chatted with Bryan about Code Climate’s service, which provides automated code review (originally Ruby, but also JavaScript and now PHP).  It essentially gives developers another set of eyes on every commit. Their platform leverages data and algorithms to help developers make their code faster, secure, maintainable, and bug-free.

The stats behind what Bryan and the team had accomplished while bootstrapping the business were incredible, including signing up over 1,000 paying accounts and analyzing over 30,000 code repositories EVERY DAY. In the three years since launching the business, they’ve become the clear market leader in SaaS static analysis.

But what impressed me most is what happened next.

I shared a link to Code Climate with a number of CTOs/VPs of Engineering in my network, both inside and outside the NextView portfolio, just asking for their quick opinion.  I expected to hear a balanced set of positive and negative feedback, after which it’s my job to sort through it as part of our diligence process.  Instead, the response was overwhelmingly positive. Their teams were either already customers or they had immediately become customers after learning about it.  Just a sampling of quotes from these responses:

  • “I think it’s a great service for developers. I consider it a must-have default for most projects.”
  • “I’m quite bullish.”
  • “I can definitely see it being pretty big.”
  • “I really like CC, and we’ve integrated it nicely into our workflow.”
  • “It’s indispensable.”

Today Code Climate is announcing that they’ve raised a $2M round of financing, led by us at NextView Ventures.  Joining us in the syndicate are Lerer Ventures, Trinity Ventures, and Fuel Capital.

Code Climate talks about a world where static analysis is as critical to every developer as GitHub and their text editor/IDE… and this new capital will help make that vision a reality. Chad Pytel at thoughtbot, many of the NextView portfolio companies, tens of thousands of developers, and I are already believers.

The post The Market Is Hot for Code Climate, NextView’s Newest Investment appeared first on GenuineVC.

The Road to Our Investment in Bridj

Mass transportation is the largest single source of travel within metropolitan areas across the globe, but our current fixed infrastructure approach hasn’t changed since the 19th century.  Here in our innovation hub of Boston, the country’s oldest subway tunnel built in 1897 is still in use as part of the MBTA Green Line.  Each day thousands of people commute to work on a system that is literally over a hundred years old.

This year, though, a local startup called Bridj has been making headlines by taking a fundamentally new approach to thinking about mass transportation.  On the surface, the company is running mini-busses between popular commuter pickup and drop-off locations.  More fundamentally, however, Bridj is leveraging layers of technology including mobile connectivity + big data coupled with flexible vehicle assets to create a dynamic transportation network.  The startup utilizes machine learning algorithms to become smarter as more users enter the system, striving towards the goal of a “living, breathing, and thinking” transportation system.

Today Bridj announced that it has raised $4M from our team at NextView Ventures, alongside Atlas Ventures, Suffolk Equity, and many of the original ZipCar investors like Jill Preotle, Andy Ross, and Peter Aldrich.

Coming straight out of my first meeting with Bridj’s Founder, Matthew George, I called both of my partners to share my excitement about what I had been immediately convinced was our next investment.  Not only did Matt share a crisp and articulate vision about transforming the future of transportation, he was an extremely authentic founder who had discovered the opportunity through operating his own profitable bus shuttle business which he had started literally out of his own college dorm room.  And it is clear given the reception that the company has received since launching the beta service that it has struck a chord with consumers – I see it daily in the feedback tweets of riders using the service.

All investments which we make become a journey along with the Founders.  I know that this one is going to be particularly special because of Matt, his vision, and the real impact he’s going have on the lives of people living in cities around the world.

The post The Road to Our Investment in Bridj appeared first on GenuineVC.

Unusual Rounds of Early-Stage Funding & What to Know

This is an excerpt from the original post, found on NextView’s blog, The View From Seed, launched this week. Find the original post here.

As the VC seed market has institutionalized, especially over the past five years, there has emerged a prototypical seed round profile: $1M-$1.5M raised, the first non-friends-and-family capital, comprised of one to three institutional seed investors or larger VC funds, on a priced equity structure (though sometimes convertible note), with a valuation mechanism in place priced in the single digit millions.

While there has been much discussion about the variances on syndicate composition and structure, and of course pricing variance, but essentially the “deal” is becoming fairly standard for all parties. The standard seed round will buy the company 12 to 18 months of runway as it looks to prove out early-stage milestones to raise a Series A before running out of cash.

However, also occurring are a set Continue reading "Unusual Rounds of Early-Stage Funding & What to Know"

What I Learned from the TapCommerce Founders

In every single venture investment I’m involved with here at NextView Ventures, I learn a lot from the Founders of their company.  But in the particular case of our portfolio company TapCommerce, which yesterday announced its acquisition by Twitter a mere two years after the company’s founding (more details), there have been some key lessons which I’ll meaningfully take away from my experience in working with Brian Long, Samir Mirza, and Andrew JonesFirst and most importantly, a huge congratulations goes to the three of them, as well as the entire TapCommerce team, in creating something truly special with a meaningful, asymmetric outcome is such a short amount of time.

So I thought that on the day after the announcement, it would be useful to share these lessons which they taught me that I believe have broader applicability to other startups:

  1. Find a team who really gels together.  Of course you want the founding team to get along.  That’s a given.  But what bonds Brian, Samir, and Andrew is pretty awesome.   Classmates at NYU B-school, these guys started with a friendship which served as the foundation for a strong working relationship and truly equal partnership in all ways.  This inclusiveness and orientation toward collaboration carried into the whole company.  I specifically recall one of the first post-board meeting dinners, when nearly the whole company at the time decided to join investors for barbeque and beers… we spanned the restaurant’s whole long picnic table with everyone eating together.  This closeness of the entire team allowed for the company to rapidly react (see next point) in fast moving ad-tech space, empowering them to hone on product-market fit and begin scaling much more quickly than I’d ever seen before.
  2. Listen to the market while being “authentic.”  The company’s first pre-product website promoted a broad sweeping vision to “make it easier for people to shop on mobile phones and tablets” through a “suite of products help[ing] etailers at every step in the mobile shopping funnel.”  We at NextView invested behind the strong team going after this big idea, and that was certainly a big idea.  Subsequently, through learning first-hand via their own experimental shopping app called TapSave -and- attending to conferences to specifically speak to potential customers about painpoints, they focused in on an initial offering which was true to their ad-tech backgrounds.  Within a matter of months, a retention marketing service, namely mobile retargeting, was launched.
  3. Prioritize the right customers.  Over the past year and half with a product in the market, the customer demand has been insane.  Along the with the sales team headed by Tim Geisenheimer, the TapCommerce Founders had foresight to implement a formal program to deliberately prioritize the customers who had the potential to be the biggest down the road, instead of the natural tendency to prioritize those who were the squeakiest or showed up with Continue reading "What I Learned from the TapCommerce Founders"

Seed Round Signaling Revisited: Myths, Truths, & Half-Lies

It’s been five years now since large VC ‘signaling’ entered the seed stage entrepreneur’s lexicon.  Yet even today, whether or not to take a (relatively) small check in a seed round syndicate from a multi-hundred million or even billion dollar fund is still a decision which takes quite a bit of consideration and sometimes consternation.  It seems as though it’s been talked about ad nauseum in the blogosphere, but we see first-hand as entrepreneurs we’re investing in at NextView Ventures work through building their seed round syndicates, it really is a tough issue.

And although the new conventional wisdom became that it’s best to avoid a larger firm’s seed investment dollars as it depresses the ability to raise a Series A, entrepreneurs (often wisely) did so anyway.  Moreover, research firms like CBInsights have recently debunked this rule of thumb with rigorous analysis.  Looking at a smaller dataset of our NextView portfolio companies, we too see a higher “graduation-rate” of Seed to A when there is a larger VC which participates in the seed round.

In my own anecdotal observation, the reasons that startups which include larger VCs in a seed round syndicate are successful raising a Series A are twofold:

  1. There isn’t such a thing as being half-pregnant; you either are or you aren’t.  It’s human nature for it to be more difficult for a VC firm (as disciplined as they may be) to completely cut off an investment after one round of funding.  Or, to flip it around, a VC firm is more likely to invest more dollars if they’re already investors in the company than if they weren’t.  There’s a reason that they wanted to become investors in the first place.
  2. There is a high correlation between the best (i.e. more likely to succeed) entrepreneurs having the opportunity to take a larger VC’s capital at the seed round.  The best entrepreneurs can attract the widest options for their initial round of funding, including larger VCs.  So there is an element of (positive) selection bias in the larger VC syndicate cohort companies.

Does that mean that entrepreneurs should ignore signaling risk and seek to include larger VCs in their initial rounds of capital if they can?  Follow the larger VCs argument that it’s best to have accesses to capital with “deeper pockets” than exclusively seed-stage VCs?  Not necessarily:

  1. Not all large VC seed round checks are the same.  Many in the blogosphere including my partner Rob have drawn the distinction between large VCs making low-velocity high-conviction investments and large VCs writing machine-gun velocity option bets.  So prevalent is this understanding that this large VC spray approach has waned (though not disappeared) in the past couple years.
  2. Not all startups are the same.  “Seed stage” startups raising $1M-$2M rounds of pre-Series A capital come in very different flavors.  Some are pre-product, while all the way on the other side of the spectrum, some have Continue reading "Seed Round Signaling Revisited: Myths, Truths, & Half-Lies"

Getting Back the Band Together for NextView’s Investment in BookBub

Just about fifteen years ago, Josh Schanker and I, along with our co-founders Elliot Shmukler and Tammy O’Neil Bolduc started Sombasa Media together.  Our company offered a series of consumer-facing properties, including our flagship property BargainDog, which was an early e-commerce daily deals email newsletter.  Over the course of a couple short years, we grew that property to more than 5 million members and 250 retailer relationships, profitably selling the company to About.com.  Back in those Web 1.0 days, we quickly learned the power of email in driving real consumer engagement and purchasing events.

In the intervening years while I pursued a career investing in startups rather than creating them, Josh continued as an entrepreneur starting a handful of companies including early social networking site Sconex, successfully sold to Alloy Media.  Fast forward to today, and Josh and his current co-founder Nick Ciarelli (ex-Daily Beaster and more well-known as the mastermind behind Think Secret) have created another business which very much “rhymes” with what we had built together Sombasa, as it leverages the direct influence which email fosters in a buying process.  On the surface, BookBub is an ebook discovery service for consumer readers, featuring acclaimed ebooks in categories matching readers’ interests.  They have relationships with over 3,000 publisher and author partners, including all of the Big Five publishers and hundreds of small-to-midsize presses.  And what Nick and Josh plus the team (including many with strong backgrounds from major publishing houses and traditional agencies coupled with rockstar web marketing and engineering talent) have built without a dime of outside capital has been astounding – the service is rapidly approaching 3 million members (tripling since the beginning of last year), with members purchasing 1 million ebooks through their service per month, driving millions of dollars of ebooks sales, and running profitable on top of it all.

Taking a step back and looking at the big picture, and BookBub is forging a new road in a book publishing market which is still transitioning in the wake of ebooks’ arrival.  It’s no secret that the way that people find, read, and purchase books is increasingly digital.  With the discovery of new titles taking place less in book stores, it becomes challenging for readers to sift through new options and for publishers & authors to get their works noticed.  The result is that publishers are shifting strategies, transitioning to investing in direct-to-consumer marketing, which represents a shift in the $10B per year globally spent on sales and marketing for books.  And BookBub is in the pole position to help readers and publishers through this industry disruption — today already, (outside of retailers) BookBub is the largest community of readers purchasing ebooks.

Today BookBub is announcing its $3.8M Series A financing.  This funding will empower the company to hire more aggressively, expand internationally, and unveil some new products beyond its current core which will allow it to take an even bigger role in an industry in transition… more to Continue reading "Getting Back the Band Together for NextView’s Investment in BookBub"