Category: entrepreneurship

Reset the Internal Valuation and Focus on Value Creation from a New Starting Point



Lately, one of the big challenges I’ve been discussing with entrepreneurs is the massive reset in valuations. The huge ARR multiples are gone for all but the most exceptional of business models. If the last funding round valued the business at X, and the public markets value businesses with similar metrics at 1/2 to 1/4th the value, the reality is that the business is considerably less valuable now. Human nature is to ignore the data and try hard to grow into the valuation so that the next round is at least flat, if possible.

The better solution is to make the hard call and reset the valuation and mental anchoring internally.

Internal valuations, for stock options, can be set at any amount equal to or higher than the 409a valuation from a third-party. The 409a looks at the landscape of similar company valuations, does a variety of calculations, and comes up with a valuation for the startup. A recent 409a will reflect the latest data, and likely a lower valuation than the last round.

Now for the tough part: what to do with the existing stock options that are underwater (the strike price is significantly higher than the the company’s valuation)? It’s time to make a plan and roll out new options to employees. As the company valuation is likely lower, this will result in more dilution to achieve a similar level of equity ownership for employees. My favorite methodology for equity grants is from Fred Wilson’s post: Employee Equity: (Read more...)

The Calculated Marathon to $10M ARR



Last week I was talking to an entrepreneur about his latest progress and growth plans. After a few minutes into the conversation it was clear the main issue to be discussed was the dilemma between selling future investors on a grand vision of becoming a unicorn vs the personal desire to build a solid business and have the optionality to sell for high eight figures and set up his family financially for life. With the news stories over the last few years, it’s easy to get sucked into the hype that the only path forward is a billion or bust. In reality, most tech entrepreneurs want to work on cool things, make an impact, and get fairly compensated for the value created.

My advice to this entrepreneur based on his personal goals: think of it as a calculated marathon to $10M ARR. To have financial optionality for a full or partial sale, the SaaS startup typically needs to get to $10M in annual recurring revenue growing >30% per year to be valued in the $50M – $100M range based on gross margins, net dollar retention, addressable market, capital efficiency, etc. Now, working back from this $10M ARR target, we know the yearly milestones:

Year 8 – $10M ARR @ 35% growth

Year 7 – $7M ARR @ 45% growth

Year 6 – $4.5M ARR @ 55% growth

Year 5 – $2.8M ARR @ 65% growth

Year 4 – $1.6M ARR @ 75% growth

Year 3 – $900k ARR @ 85% (Read more...)

Think Dolphin Strategy for More Measured SaaS Growth



Todd Gardner has an excellent post up titled Use the Dolphin Strategy for Efficient SaaS Growth (with Lowered Risk) where he shares a strategy many entrepreneurs, SaaS or otherwise, would do well to consider, especially in uncertain times. Much like dolphins can stay underwater for long periods of time, they do need to come up for air regularly before heading back down. For investor-backed entrepreneurs, venture or debt financed, the default approach is losing money perpetually until the sale of the company. Instead of constantly losing money — being underwater — the entrepreneur would achieve a quarter of profitability — coming up for air — every 18-24 months. This is profoundly different from today’s standard playbook of growing as fast as the growth metrics and capital markets allow.

Here are a few quick thoughts on the dolphin strategy:

  • Less capital will be burned and, correspondingly, the business won’t grow as fast
  • If capital markets change quickly, as they have this calendar year, the business will always be on a plan to control their destiny — profitability — and isn’t as subject to market timing
  • Employees actively looking for a more measured approach to the startup playbook will appreciate this while others that want the go-big-or-go-home approach will be repelled
  • Profitability, even if only for a quarter on occasion, provides clarity to future investors and acquirers, especially private equity, what the business actually looks like when operated for cash flows, even if operating income is modest

The dolphin strategy will appeal (Read more...)

The Type of Business Every Country Wants to Start


This post is by Carmen Ang from Visual Capitalist


View a higher resolution version of this map.

Map of the most searched businesses by region

The Type of Business Every Country Wants to Start

View a higher resolution version of this map.

Every year, millions of new businesses are started across the world—in 2021, nearly 5.4 million new business applications were filed in the U.S. alone.

And since startups and new businesses play a significant role in shaping a country’s economic growth, encouraging entrepreneurship is vital. But what types of businesses around the world are people most interested in starting?

These maps by ZenBusiness show the most popular types of businesses that entrepreneurs in nearly every country want to start, based on analyzing relevant internet search results.

Most Searched Businesses Around the World

To source the data, ZenBusiness analyzed searches from Ahrefs, specifically looking for the term “start a business” and its equivalents in local languages as of February 2022.

They then found the relevant topic or keyword with the highest search volume, and organized the results into 11 different industries:

  • Beauty & Cosmetics
  • Food & Drink
  • Logistics & Infrastructure
  • Personal Services
  • Recycling
  • Software Development
  • Business & Financial
  • Leisure & Tourism
  • Marketing
  • Real Estate
  • Retail & E-Commerce

The data showed that the industries entrepreneurs are most attracted to vary greatly from country to country, depending on a variety of factors such as infrastructure, business climate, and culture.

Here’s a breakdown of the most searched businesses around the world, broken down by region.

Africa

Map of the most searched businesses in Africa

From cooking gas refills in South Africa to supplements in the Gambia, entrepreneurs across (Read more...)

Doing Good Can Make You Money with Tensie Whelan, Director of NYU Stern Center for Sustainable…


This post is by MPD from @MPD - Medium


Doing Good Can Make You Money with Tensie Whelan, Director of NYU Stern Center for Sustainable Business

On this week’s guest episode I chat with Tensie Whelan, a Clinical Professor of Business and Society and the Director of NYU Stern Center for Sustainable Business.

Many people think that sustainability and profits don’t align, but Tensie takes us through how they can by connecting the financial sustainability of a business to the social and environmental sustainability of a business’s core focus. She believes companies should make money by doing better.

She also runs through the flaws of the broader ESG framework, suggesting ways to improve it.

Before she built the Center for Sustainable Business at NYU Stern, Tensie ran the Rainforest Alliance — a multinational non-profit designed to help conserve rainforests. We dive into that issue and touch on ways to tackle it as well.

These are some fascinating and important topics that I think every entrepreneur should think about. I hope you enjoy it.

Listen via your preferred platform here.

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Doing Good Can Make You Money with Tensie Whelan, Director of NYU Stern Center for Sustainable… was originally published in @MPD on Medium, where people are continuing the conversation by highlighting and responding to this story.

Why Grow the Startup Community



One of the conversations we’ve been having over the last few months is about more intentionally growing the startup and entrepreneurial community in our metro region. This is a meaty topic that comes and goes regularly. While it’s an important topic, and one I’m focused on, there’s a “why” component of it that needs to be addressed more directly. Yes, we want to grow our community but what are some of the benefits of a larger startup community?

Here are a few ideas:

  • Regional Dynamism
    Cities and metro regions that are growing are more dynamic. Infrastructure investments, quality of life improvements, and other livability factors get emphasized when there’s optimism and growth in an area. People want to be part of a winning movement, and growth, both population and investment, is the strongest indicator good things are happening.
  • Job Growth
    By definition, a startup is a business focused on growth. Growth creates jobs. More jobs provide more opportunities for both existing residents and for people to relocate to the area. While remote work has changed this equation slightly, it’s still easier and more fun to work with people face-to-face, at least some of the time.
  • Local Headquarters
    When the business is headquartered locally, a number of secondary benefits emerge like stronger engagement with community issues, more donations to local non-profits, and general caring about their city. A company that’s locally headquartered will have a greater impact than a company that has a regional office, everything else held constant.
  • High Quality (Read more...)