Author: Roy Bahat

Making a financial model for your early-stage startup?

You’re not alone… and some insights on what investors look for when they ask for one…

Written with George Okpamen (Bloomberg Beta Fellow) and Mark Schulz (Bloomberg Beta CFO)

You’re a few months into your startup, and you’re meeting investors for the first time. They seem to be properly warmed by your intro, you’ve laid out the case for why your service is desperately needed by some initial customers, and they like your early progress— they even seem to like you!

Then, the dreaded moment: “Do you have a financial model you can share?” (Panic. Do I? I guess I should? I can probably make one fast enough to get it to them in time. Why are they even asking me??”) “Of course I do. I’ll send it as a follow-up.”

We know that moment. As venture investors, depending on the exact stage you’re at, we might care deeply about your financials — and we know that requesting a first financial model can be like asking a founder to recite poetry in Klingon. Financial models bedevil founders, especially those who skipped a career episode making spreadsheets — early founders are busy making real products and talking to real customers, so why exactly should they now stop and make up an imaginary numerical future for their business? (So many investors also want financial models that are far too precise or forward-looking than it’s reasonable to ask of an early founder… how can you predict revenue four years from now if you only started (Read more...)

The job training myth

“If only we could train Americans for the jobs of tomorrow, or better jobs already available to them today, we could solve Americans’ economic problems. Education and job training are the answer.” This sounds so tempting! It must be true, right?

I thought, once, that job training was the answer — I almost voted with my feet and started a vocational education company. In almost a decade of investing full time, as the founder of the first venture capital firm to focus on the future of work, I’m convinced that job training (as a solution to our economy’s failure to provide for so many people) is much less promising than all the attention it gets.

First, credit where it’s due: what’s true about the argument that we should focus government policy on education and job training?
> Education works! When people get a good education, they do better. If you can afford to go to college, chances are it will make you (much) better off.
> Companies should continue to invest in job training, for their own people and for others. Google just announced $100M more for training. Amazon’s commitment is more than $1B. Let’s encourage this!
> Startups can build wildly successful businesses by training people for new work. In fact, we’ve invested in several of them. (You can build an enormous startup without fixing all of society’s woes, clearly.)
> Individual people do have agency, and any individuals’ own efforts are likely — for them — to have a real effect. We also can’t (Read more...)

Apply for $1,800 grants to tell stories about the collective power of workers

Find the application here.

Over the last few years, I’ve worked in areas that were just starting to get attention — the future of work, artificial intelligence, universal basic income, and so on. Every time, public interest followed storytellers who helped us better understand the contours of the topics, and how they might change the future. Sometimes the storytellers were journalists exposing wrongdoing, sometimes they were novelists, sometimes they were on TikTok. Storytellers have always played this role: books like The Jungle helped us see that work in America had to be different. Stories — both reported and fictional — like Maid, Parable of the Sower, The Social Network, and An Inconvenient Truth, are the handmaidens of change.

Today, we’re seeing a new kind of labor movement emerge in America. The working conditions many have faced under Covid (and before it), the fragility of our democracy and the inability of government to meet peoples’ needs, the specter of inflation: all have combined to give worker organizing new energy. Unions have a new wind at their backs despite historically low membership, and organizers are also experimenting with different, reinvented approaches to change workplaces. What can all this do for the economic stability and dignity of all Americans? How could this work out — and what could go wrong?

A grant a month for a story about labor

Storytelling can help answer these questions. So today I’m announcing an experiment: I’m giving a $1,800 grant every month, to fund stories about organized worker power. Riffing on the (Read more...)

The anti-sell for Bloomberg Beta

Reasons to avoid working with us

The below gives prospective candidates for roles at Bloomberg Beta a window into all the reasons not to work with us. We intend to set expectations accurately, and ensure that only people who are up for the full experience choose to join our team.

The team at Bloomberg Beta have all contributed to this document over several years. (And any current member of the team is welcome to comment privately or otherwise, and we’ll continue evolving this document.)

For many candidates, venture capital can sound exciting — and it can be wonderful! This document attempts to add the (sometimes harsh) realities of doing this work at Bloomberg Beta.

Painful things about working with Roy:

  • Partial communication — he’ll often share half a thought and expect you to fill in the rest.
  • Emotional ups and downs — he cares a lot about the job, and therefore gets attached to doing a great job, and this creates a high-pressure, fast-moving environment.
  • Listening skills — it often seems like he isn’t listening, even if he is; and other times he’s just not listening. So you might have to shake him to get him to hear you.
  • Interrupts constantly — Roy is a chronic interrupter. He’s aware of it.
  • Changes his mind — from week to week, his views change. Sometimes it’s in response to new information, sometimes… not. You’ll need to push back if you want to avoid being whipsawed.
  • Quick to question — often this comes across as criticism but Roy wants to get to the root of the (Read more...)

Tenacity Brewing: What This Silicon Valley VC Learned on the “Rust Belt Safari”

What if there were a magical place where startups could grow up and to the right, without having to stockpile a lifetime supply of Odwalla to hire an engineer? Where you can get to work in under 10 minutes? Where the coffee’s still single-origin, and you don’t need a line-item in your personal budget to be sure you can afford it?

Flint, Michigan (Photo: Nick Dio, VaynerMedia.)

I’ve seen those places. They exist.

A few weeks ago, two members of Congress — Tim Ryan (OH) and Ro Khanna (CA) — pulled a reverse Mr. Smith Goes to Washington and sardined a dozen VCs into a tour bus. Our fund helped pull the trip together, visiting with leaders in “Comeback Cities” — Youngstown, Akron, Flint, Detroit, and South Bend.

We were trying to figure out how we, the “rapacious vultures,” might invest more money in these heartland cities. We both want to be part of making our country stronger, and find investment opportunities outside our little corners.

We thought we’d be seeking hidden gems — what we really found was fertile soil. Fertile for new startups, yes, and also for second offices for later-stage companies unable to squeeze one more standing desk into their SoMa open offices. For us investors, these Comeback Cities offer a chance to scale our “boutique” practice of investing in technology. There are plenty of ways for tech to play here.

The biggest funds in the world already look in these places: private equity long has, and the very biggest funds seem indifferent to geography. (Once (Read more...)

(Still) Learning from a titan of New York, Jay Kriegel (1940–2019)

A thank you could never say enough, to a man who gave, and gave… ז״ל

Jay Kriegel, (at least) three careers before I knew him

Earlier today, an institution unto himself, a New York City patriot, a mentor to generations, a titan of New York, left us.

Jay L. Kriegel, when I first met him in 2003, had already had at least four careers. Flitting around at 78 RPMs, he seemed to a 27-year-old me both impossibly old (what decade did he do that thing in again?) and immortal.

I’d heard the legend, that in his 20’s Jay was so trusted by then-Mayor Lindsay that people said Jay lived in the Mayor’s ear. I was ready to absorb the magic.

Our first day working together — a Sunday! — was excruciating.

I thought I’d come prepared. I was a workaholic. I could take a beating (these were the ancient days when people still yelled at you at work). I prided myself on being effective with the most difficult of people. And how hard could this first day be… all I had to do was edit a letter that was already mostly written (to some business leader asking for support for New York’s bid for the 2012 Olympic Games).

After four, or was it fourteen, turns of Jay editing the first sentence… and me reduced to being his phrase-by-phrase typist and fax feeder (yes, he got the drafts by fax, and the whole time I worked with him his admin printed out emails for him (Read more...)

The (common) situation where VCs actually prefer to make less money

Why do founders often own so little of the companies they create? It’s often because of the incentives of their investors, pressing them to raise evermore money.

Consider a Tale of Two Startups, VC edition:

Here’s the riddle, oversimplified:

Company #1: A VC invests $1, and 10 years later, receives $1,000. Great investment!

Company #2: A VC invests $1 in an identical company, and 10 years later, receives $800. (Still great, but an inferior return to company #1.)

Still, many VCs would prefer company #2 over company #1. Why??

Imagine Company #1 only ever raises that first funding round, and Company #2 raises more money on an ever-higher valuation every 18 months like a clock. The VC can use Company #2’s example to (a) promote their individual career within their firm, because the fundraises are the closest thing to proof of success that venture firms have prior to exit, and (b) raise additional funds for the firm during the 10 years before exit (“look at our returns!”). So, in practice, Company #2 — despite the lower return — can be more valuable to a VC (both personally and as a firm) than Company #1.

Of course in Company #1, the founders might own 80%; in Company #2, they might own 8%.

So when your investors implicitly assume that your goal should be to raise more money on a higher price as soon as possible… beware! That may be in their interest more than yours.

As Alan Warms points out, there are other advantages to founders of Company #1 — avoiding losing control of (Read more...)

Looking for (more of) a new kind of startup…

[Credit where due: this is James Cham’s spark. I’m just the typist.]

There’s a new and important kind of startup that’s become wildly successful the last few years. These startups, for which we still lack a good name, look to their customers like a direct replacement to some large, familiar incumbent, but uses technology to provide a strictly superior offering.

Bonus points if you get the reference.

Think of, as examples of this kind of startup: Compass (a real estate broker), Flexport (a freight forwarder), Doma (a real estate title company), Newfront (an insurance brokerage), Campuswire (a soon-to-come community college), Clover Health (a Medicare provider), Periscope and Empathy (home builders), etc.

What makes these startups different? Like the more general “full-stack” startup, they don’t sell software — they sell some product or service that their customers are used to buying. That said, many full-stack startups force their customers to adapt to some new way of doing things (think Warby Parker before they had stores or even Tesla).

This new kind of startup:
> Competes directly with a valuable incumbent in an industry
> Offers a “strictly superior” product to the incumbent’s (i.e., it is at least as good on every important dimension to the customer and better at least at one very important dimension) — the main reason for customers not to buy from them is fear that a startup might not deliver
> Avoids asking its customers to change their behaviors much, if at all (e.g., doesn’t ask customers to switch to buying in (Read more...)