Don’t Ask For Too Much Money

A common mistake that founders make when raising a venture round is to anchor high and ask for too much money, at too high a valuation, with the hope the VC will bid them down. This is a common failure mode that prevents people from raising money successfully when they otherwise could. Asking for too much money is driven by misunderstanding the nature of a fundraise negotiation. When fundraising, you are trying to create an auction dynamic - not a 1:1 negotiation.

In a traditional negotiation, you want to anchor high and then have people bid you down. In a venture round, you actually want to do the opposite - you want to anchor low and pull multiple VCs into an auction around the company. Once a VC is emotionally engaged in the auction they will want to win against their peers. This will drive up the dollar amount you Continue reading "Don’t Ask For Too Much Money"

Don’t Ask For Too Much Money

A common mistake that founders make when raising a venture round is to anchor high and ask for too much money, at too high a valuation, with the hope the VC will bid them down. This is a common failure mode that prevents people from raising money successfully when they otherwise could. Asking for too much money is driven by misunderstanding the nature of a fundraise negotiation. When fundraising, you are trying to create an auction dynamic - not a 1:1 negotiation.

In a traditional negotiation, you want to anchor high and then have people bid you down. In a venture round, you actually want to do the opposite - you want to anchor low and pull multiple VCs into an auction around the company. Once a VC is emotionally engaged in the auction they will want to win against their peers. This will drive up the dollar amount you Continue reading "Don’t Ask For Too Much Money"

Market Caps & The 2% Rule

One way to assess whether a startup idea is in a good market is to ask what are the market capitalizations of the biggest companies in that sector. For example in consumer internet, Google ($560 billion) and Facebook ($370 billion), and in enterprise software Microsoft ($460 billion), and Oracle, ($167 billion) are all large, high margin businesses.

Market caps in a pre-existing industry[1] tend to be proxies for the potential of the idea you are working on. There are three reasons for this:
1. The market capitalization of a set of companies reflects revenue in the market, growth rate of revenue and earnings, and the margins of the companies.
These core metrics used by wall street to value a stock are all metrics that help you understand whether a market is overall large, growing and profitable - all signs of a good market to enter.

2. Often, potential competitors Continue reading "Market Caps & The 2% Rule"

Market Caps & The 2% Rule

One way to assess whether a startup idea is in a good market is to ask what are the market capitalizations of the biggest companies in that sector. For example in consumer internet, Google ($560 billion) and Facebook ($370 billion), and in enterprise software Microsoft ($460 billion), and Oracle, ($167 billion) are all large, high margin businesses.

Market caps in a pre-existing industry[1] tend to be proxies for the potential of the idea you are working on. There are three reasons for this:
1. The market capitalization of a set of companies reflects revenue in the market, growth rate of revenue and earnings, and the margins of the companies.
These core metrics used by wall street to value a stock are all metrics that help you understand whether a market is overall large, growing and profitable - all signs of a good market to enter.

2. Often, potential competitors Continue reading "Market Caps & The 2% Rule"

Building VC Relationships

A common mistake founders make is to try to meet VCs to "build relationships" a month or two before going out for a series A or series B fundraise[1] . I explain why this is a mistake below. If you do not have strong VCs relationships and plan to fundraise in 2-3 months, wait to talk to VCs until you go out to raise. Do not do a separate "get to know you" tour. If you plan to go fundraise in 12 months, you can start to build select VC relationships early with a handful of firms.

VCs Remember Most Early Interactions As Pitches
Investors at top tier VCs are constantly deluged with a stream of companies wanting to pitch them. If an investor meets *only* 3 to 5 new companies a week, she is meeting with literally 150 to 250 companies a year. As such, it is unlikely Continue reading "Building VC Relationships"

Founder Roles

As the founder of a company, you will likely play many roles across the life of the company. The core tenet of being a founder is that you should do whatever it takes to make your company successful.

Although my title at Color for the last ~4 years was CEO, at different times I played the role of recruiter, supply chain lead, product manager, office manager, and head of sales. Similarly, my 3 other co-founders played a variety of roles across engineering, design, PR, genetics, and other areas. As Color has grown we have hired smart experienced people to take over these areas. It is always a magical moment (and a relief) when you find a smart, experienced person to take over a function from you who does the job much better then you ever will. The role of the CEO is, in part, to find amazing talent so that Continue reading "Founder Roles"