13 Boston-focused VCs share the advice they’re giving portfolio companies


This post is by Natasha Mascarenhas from Fundings & Exits – TechCrunch

TechCrunch is focusing a bit more on the Boston-area startup and venture capital ecosystem lately, which has gone pretty well so far.

In fact, we had originally intended on releasing this regional investor survey as a single piece, but since so many VCs took part, we’re breaking it into two. The first part deals with the world we live in today, and the remainder will detail what Boston-area investors think about the future.

We broke our questions into two parts to better track investor sentiment. But, we were also curious what was going to come when things got back closer to normal. So, this first entry in our Boston investor survey covers our questions concerning what’s going on now. On Thursday we’ll have the second piece, looking at what’s ahead.

Here’s who took part:

What follows is a quick digest of what stood out from the collected answers, though there’s a lot more that we didn’t get to.

Boston VC in the COVID-19 era

Parsing through thousands of words and notes from our participating VCs, a few things stood out.

Boston startups aren’t having as bad a time — yet, at least — as area investors expected

Fewer companies than they anticipated are laying off staff for example. From our perspective, the number of Boston investors who noted that their portfolio companies were executing layoffs or furloughs (we asked for each to be precise) was very low; far more Boston-area startups are hiring than even freezing headcount. Layoffs appear somewhat rare, but as we all know cost cutting can take many forms for startups. Especially startups on the seed and early-stage side, which makes up the majority of these firm’s portfolio companies.

According to Glasswing’s Rudina Seseri, startup duress has come in “significantly under what [her firm was] expecting at the beginning of COVID-19.”

This may be due to a strong first quarter helping companies in the city and its surrounding area make it another few quarters. We might not know the full bill of COVID-19 and its related disruptions until next year.

More investors than we expected noted that their Boston portfolio companies aren’t raising this year

So what we’re gleaning from that fact is that any decline in Q2 and Q3 VC data is not because companies can’t raise, but because they don’t need to. Comments echoed a theme we wrote about in April: Boston broke records in Q1 in terms of dollars raised, but saw a dip in the number of checks cut.

Pillar VC’s Jamie Goldstein said that “about 15% of our companies are planning to raise capital this year,” which felt about average. Underscore VC’s Lily Lyman simply noted that, “Yes,” her Boston-area portfolio companies would hunt for new capital this year. Bill Geary of Flare Capital is on the other side of that coin, saying that “each of [his firm’s] Boston-based investments has successfully recently raised capital and will not be raising additional funds until 2021.”

It’s hard not to wonder if what happened to Boston unicorns Toast and EzCater was the exception and not the rule

 You see, Boston’s startup scene skews relatively early stage, so smaller companies don’t have high-profile cuts because, to be frank, there isn’t much staff to cut in the first place. It puts Boston in a unique setting to focus in on its early stage market, and investors all agreed that this is an important moment for the ecosystem.

The March-era stress tests are now months in the rearview mirror, and every startup has shaken up their spend and growth plans. Perhaps we have met the new normal, and it’s time to let the runway do the talking.

With that, let’s get into full questions and answers.

Rudina Seseri, Glasswing Ventures

What is the top-line advice you’re giving your portfolio companies right now?

This is a pivotal time, be efficient and drive execution. Cut costs where possible but at the same time don’t be afraid to spend for growth acceleration.

What percentage of your Boston-based portfolio companies are still hiring, not including those merely backfilling?

About 60%.

What percentage of your Boston-based portfolio companies have frozen new hires?

About 20%.

What percentage of your Boston-based portfolio companies have furloughed staff?

None.

What percentage of your Boston-based portfolio companies have cut staff?

One company that represents about 4% of the portfolio.

Are your Boston-based portfolio companies looking to raise new capital this year?

Most have raised recently, and consequently are not looking to raise at this time.

If not, are they often delaying due to COVID-19?

No, because of their recent raises, their fundraising considerations will take place in 2021.

Has duress amidst your Boston-based portfolio companies undershot, matched or overshot your expectations from March?

It has been significantly under what we were expecting at the beginning of COVID-19.

How has your investment appetite changed in terms of pace and location, if at all?

We have been very active and closed deals in this environment. Our expectation is that our investment appetite will remain the same going forward.

Are you making investments in Q2 into net-new founders and companies?

Yes, as a matter-of-fact we just closed a yet-to-be announced investment this month.

Are there particular sectors of startups in Boston that you expect to do well, aside from SaaS businesses that are benefiting from secular trends? Are there any sectors you have become newly bearish on?

Yes, those that are in our core focus areas — solutions that bring down the cost of cloud and data, platforms and tools leveraging AI, those that facilitate cost reduction, and intelligent solutions in cybersecurity that protect the enterprise.

How does the uncertainty of schools reopening impact the startup ecosystem?

This will further drive and institutionalize distributed teams and remote working as a go-forward mode of operating.

Cloudflare, Sprung from HBS, is Quietly Worth $5 Billion

Disclosure: I am not an investor in Cloudflare. I have no ties to the company other than a friendship with the two founders.cloudflare-co-founders-matthew-prince-and-michelle-zatlyn_750xx4522-2544-0-236

Amidst all the WeWork IPO hoopla, Cloudflare’s incredibly successful IPO was lost in the shuffle. That’s a shame because the amazing journey that these two founders have undertaken to build a business now worth $5 billion is worth studying.

As depicted in what has become a classic HBS case written by my colleague Professor Tom Eisenmann, Cloudflare founders Michelle Zatlyn and Matthew Prince met as students at Harvard Business School in 2008 and started the company as they were graduating. The two were a powerful combination:  Matthew was a hard-charging, technical visionary while Michelle was a skilled operator with an off-the-charts emotional IQ.

The company’s intense culture resulted in a rocky start. Attrition was high and morale low at the time of the case, despite the company’s Continue reading “Cloudflare, Sprung from HBS, is Quietly Worth $5 Billion”

Valuing Those Pesky Stock Options

Image result for stock options image

I receive many questions from my students and other startup joiners regarding how to evaluate the value of the stock options they are being offered. There is surprisingly little written about this topic, so this post will hopefully be useful to folks interested in answering this question.

In order to properly assess the value of your stock options, you need to know four pieces of information from the company:

  1. The number of shares they are offering to grant you
  2. The total number of fully diluted shares of the company
  3. The common stock strike price of your shares
  4. The preferred post-money valuation of the last round of financing

Many HR departments don’t know the answer to these four simple questions and get very defensive when asked by candidates, perhaps out of embarrassment or a false sense of confidentiality. Don’t be afraid to escalate the conversation to a more senior hiring manager Continue reading “Valuing Those Pesky Stock Options”

Experiments Lead to Product-Market Fit

The central theme of my Harvard Business School class, Launching Technology Ventures (LTV), is that startups are experimentation machines and the choice and design of experiments during a finite envelope of time and money is the central strategic decision that founders make. In other words, founders should test the experiments that matter most.

If done correctly, these early experiments eventually lead to finding product-market fit. But finding product-market fit in the context of a dynamic system that makes up the startup business model is complex and nuanced. Each component of the business model is linked to the other. Thus, experiments should be run that hold certain elements constant and focus on testing the most important, critical path business model elements first.

To help frame those decisions, I have developed a simple framework that builds off Professor Tom Eisenmann’s work on business model analysis for entrepreneurs to communicate the early strategic

Step One in my HBS LTV Course: figure out which are the most critical experiments to run
Step Two: figure out what organization to stand up to run those experiments in the most efficient fashion

Continue reading “Experiments Lead to Product-Market Fit”

The Rocket Ship List of Startups – 2019

New graduates should jump on board one of these high flying companies and go along for the ride

Graduating students hungry to dive into the startup community around the world (aka StartUpLand) often struggle to select the right, specific opportunity where they can productively start their career.

Each spring, I provide a comprehensive list of exciting, growing, hiring startups that are worthy of consideration as places to start or continue a career in StartUpLand. The criteria for being on the list is subjective but is a mix of fundraising (typically > $20m in the most recent round), scale (typically > 100 employees), momentum (typically growing users or revenue > 50%) and hiring (typically growing headcount > 20%, including a number of entry-level positions that would be a fit for recent college or business school graduates).

Before we get into the companies themselves, I suggest checking out two of my posts

Continue reading “The Rocket Ship List of Startups – 2019”

All About Applied AI

MITCoC-Panels-01_0

My partner, Chip Hazard, has been on a blogging tear lately on the topic of Applied AI.

We are pretty fired up about this theme here at Flybridge and Chip’s recent posts provide a nice outline as to why. His first post from a few weeks ago, Applied AI: Beyond The Algorithm, provides a description of how we think about next generation AI companies and the opportunities and challenges they face. Today’s post, the AI Paradox, gives a more detailed view on what we are internally referring to as “AAA grade” AI companies:  those that are focused on building Absorable, Applied AI. We are very bullish on this category of startups.

The kickoff last week of MIT’s billion-dollar new AI school, the Schwarzman College of Computing (pictured above), was a punctuation point in an ongoing arc of historical significance. We are entering an era where applied AI Continue reading “All About Applied AI”

How To Raise Your First Round of Capital

Every year, I do a talk at Harvard Business School regarding how to raise your first round of capital. In the past, folks have found the slides to be helpful, and so I am sharing them here. The longer version of this material is covered in my book, Mastering the VC Game (first chapter is free) and this teaching note on Raising Startup Capital. I hope they’re helpful!

 

 

Applied AI: Beyond The Algorithms

Great, thoughful post from my partner, Chip, on Applied AI.

Hazard Lights

One of the primary areas of focus for Flybridge over the years has been to be the first institutional investor behind companies looking to transform the enterprise technology landscape with modern software.  Given the explosion in the volume of data being generated globally, this theme has led to investments in companies such as MongoDB (databases) and Nasuni (storage) that operate at the data infrastructure layer of the enterprise tech stack.

More recently, we have been investing in further advances in data management, analytics, machine learning, and artificial intelligence.  While the potential for artificial intelligence has been written about extensively, what is less well understood is that the algorithms and underlying tools are only a fraction of the value and are unlikely to be a source of long-term differentiation.  Fully realizing the power of AI requires a deep understanding Continue reading “Applied AI: Beyond The Algorithms”

Don’t Abandon Lean Experimentation on the Blockchain

Image result for the hidden cost of icos

In my blockchain investment work (we have invested in six early-stage projects, including bloXroute, Enigma, FalconX, NEX and two stealth projects), I have been struck by the fact that decades of progress on applying the scientific method to entrepreneurship (e.g., experimental design, lean startup, design thinking), as well as decades of established governance modeled, are being effectively blown up by Initial Coin Offerings (ICOs).

Steve Blank and Eric Ries popularized applying the scientific method to startups in an incisive fashion with the publishing of their books, Four Steps to the Epiphany and The Lean Startup, respectively. These became canons for entrepreneurs around the world as they embarked on the journey for product-market fit.

With blockchain startups raising over $5 billion in 2017 and over $12 billion through the first three quarters of 2018, it appears that this discipline of staged experimentation and fundraising is Continue reading “Don’t Abandon Lean Experimentation on the Blockchain”

Blockchains and Communities

We are big believers in community-building. We have invested heavily in it as a firm, contributing to the ecosystem in various ways that are consistent with our values (e.g., fostering diversity in tech, supporting women entrepreneurs and immigrant entrepreneurs). And we have invested heavily in it across our portfolio companies. Our insight a decade ago that developers were becoming the kings of IT led to a fruitful investment thesis, led by my partner Chip, around developer driven adoption and community building (as exemplified by our investments in MongoDB, Codecademy, Crashlytics and Firebase).

For the last few years, we have been applying this thesis to our investments in blockchain and crypto. Blockchain-based startups share many of the same characteristics as developer-driven startups. With these companies, sustainable competitive advantage is built through a loyal community of supporters who contribute to the project and feel ownership over its Continue reading “Blockchains and Communities”

The New Financing Playbook for Blockchain Startups

When I first wrote Mastering the VC Game, Satoshi Nakamoto had just issued his seminal Bitcoin white paper. At the time, no one could have imagined the transformative impact the invention of Bitcoin and the blockchain would have on the venture capital industry.

With the invention of Ethereum and a Turing-complete platform that allowed for smart contracts, startups could suddenly raise money ahead of delivering products from a crowd of investors, not just a universe of a few hundred venture capitalists. Last summer, I wrote about the impact Initial Coin Offerings (ICOs) were having on the venture capital industry. This summer, I am amazed at how quickly the science of token-based fundraising has evolved and the hybrid of VC, crowdfunding and crypto token economics best practices that have emerged.

Last summer, one of my portfolio companies, Enigma, completed a $45 million ICO with only three employees and a Continue reading “The New Financing Playbook for Blockchain Startups”

The Search for Product Market Fit

Each year, I join my friend Ed Zimmerman (lawyer, super angel, wine enthusiast and raconteur) at his annual Venture Crush First Growth conference (fka First Growth Venture Network) to talk about product-market fit with early-stage entrepreneurs.

Each year, I try to think anew about the topic, reflecting on some of the lessons and research related to my entrepreneurship class at Harvard Business School.

Below is this year’s version, complete with a new framework for thinking about the three kinds of experiments all pre product-market fit startups must undergo: Consumer Value Proposition experiments, Go To Market experiments and Business Model experiments.

Feedback welcome!

 

The Rocket Ship Startup List: 2018

New graduate? Jump on board one of these high flying companies

Graduating students hungry to dive into the startup community (aka StartUpLand) often struggle to select the right, specific opportunity to start their career.

Each spring, I provide a comprehensive list of exciting, growing, hiring startups–both private or recently public–that are worthy of consideration as places to start or continue a career in StartupLand. The criteria for being on the list is subjective but is a mix of fundraising (typically > $10m in the most recent round), scale (typically > 50 employees), momentum (typically growing revenue or users > 50%) and hiring (typically > 10 open reqs, including a number of entry-level positions that would be a fit for recent college or business school graduates).

Before we get into the companies themselves, I suggest checking out my posts Getting Your First Startup Job and Are You Suited For A

Boston 2018 list v3
NY 2018 list v2
SF 2018 list v3
LA 2018 list v2

Continue reading “The Rocket Ship Startup List: 2018”

Dropbox S-1 Teardown

I love S-1s. I know I am weird but S-1s are loaded with great nuggets of insights about business models, company performance and have fascinating stories embedded in the sometimes turgid prose.

Dropbox has been one of my favorite startups for many years. I have taught a Stanford Business School case on Dropbox in my HBS class on Launching Technology Ventures for many years regarding their scaling their sales and marketing operation. We also teach an early stage case on Dropbox to all first year students at HBS. And a few of my former students joined the company early and became key executives over the years. So, when the Dropbox S-1 came out yesterday, I was excited to read through it and see what I could learn. To be clear, I am not an investor in the company and don’t own any shares (as far as I know!)

In

Continue reading “Dropbox S-1 Teardown”

How To Raise Your First Round of Capital

Last week, I delivered a presentation to Harvard Business School students on how to raise your first round of capital from angels and venture capitalists. The presentation is a derivation of my book (Mastering the VC Game) and my experience as an entrepreneur and venture capitalist. Enjoy!

 

Business Leaders Get Woke

oprah golden globes

Watching the Golden Globes last night, the message hit you like a two by four. Black dresses, biting jokes, poignant acceptance speeches — all hitting on the same set of themes. At one point in the evening, my teenage sons turned to me and my wife and asked innocently, “are they going to move on at some point from this activism thing?” No, guys. America is not ready to move on. Not even close.

This zeitgeist is proving very challenging for business leaders, who by and large prefer to remain nonpartisan and disengaged from politics. As The Economist recently observed, “The Trump era has made it harder for executives to stay above the fray.”

There are two separate but powerful forces coming together at this point in time driving this phenomenon. First, a recognition that great companies and great leaders are mission-driven, not just bottom line-driven.  Continue reading “Business Leaders Get Woke”

Getting Your First Startup Job

EnteringStartUpLand_300dpi.jpg

When Julisa Salas told me she wanted to join a startup, I was worried. Her background was not exactly typical for StartUpLand and I was concerned her search would end in disappointment.

Julisa had been a liberal arts major (English Language and Literature) who secured her first job out of college at a large investment bank before returning to school for her MBA. Capable, smart and personable, she was also the type of candidate that most startups shy away from — no technical background, zero startup experience, and a young woman of color trying to break into an industry dominated by white men.

A few months later, Julisa emailed me with great news: she had landed a job at one of the hottest startups in the country, a fast-growing restaurant technology platform called Toast that had just raised $30 million in financing and would later go on to raise another

Continue reading “Getting Your First Startup Job”

What Makes Boston’s Startup Scene Special?

Every year, I present an overview of the Boston startup scene to incoming Harvard Business School and MIT Sloan students. Having refreshed the presentation once again and tried my best to update it such that it would contain the latest and greatest information, I am pleased to post it here. As always, I welcome any feedback or suggestions. My goal is to give an overview of all the amazing companies and support systems in one place so that students can easily navigate what otherwise might seem like an opaque, intimidating community.

Boston StartUp Scene

 

Enjoy!