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The Silent Killer – The Company Your Community Never Created

http://www.bothsidesofthetable.com/2014/11/15/the-silent-killer-the-company-your-community-never-created/

by Mark Suster

I was at a dinner recently in Chicago and the table discussion was about building great companies outside of Silicon Valley. Of course this can be done and of course I am a big proponent of the rise of startup centers across the country as the Internet has moved from the “infrastructure phase” to the “application phase” dominated by the three C’s: content, communications and commerce. But the dinner discussion included too much denial for my liking.

I think startup communities being simple cheerleaders doesn’t help anyone. Those of us outside Silicon Valley need to make an effort to effect change not just wish for it.

At the dinner some of those arguing that Chicago has everything it needs now that it has built: GroupOn, Braintree, GrubHub and others and that it has “come along way” and “will never get the full respect it deserves just because it’s not Silicon Valley.” But I think this misses the point. I’m a very big fan of Chicago. I started my career at Andersen Consulting (now Accenture) so I went to Chicago many times a year for nearly 9 years. I then got my MBA at University of Chicago so I secretly pull for local entrepreneurs as long as they don’t make me visit in the Winter any more.

But no community can become complacent with the wins that it has. It’s not the great companies you build, it’s the silent killer of those that should have been build locally and weren’t. It’s the thousands of jobs that weren’t created but you don’t even know it.

Think about Facebook had it stayed in Boston. Could it have become the behemoth that it is today? Who knows. But I’ll bet the Boston community would take 50% of the success of Facebook built locally. And the truth is that successful startups beget more successful local startups, wealthy VPs who go on to build their next startups, etc. Even Mark has acknowledged moving wasn’t the be all, end all in this famous interview

“If I were starting now, I would have stayed in Boston. [Silicon Valley] is a little short-term focused and that bothers me.”

Boston is still a great tech hub. But wouldn’t it want to be great PLUS have Facebook?

We have similar stories in LA and most people don’t know it. For example, Lookout is a mobile security company that was founded by three talented graduates of USC. They started their company in LA but a couple of years after raising capital from Khosla Ventures in the Bay Area they ended up relocating there. A few years later they announced $150 million in a funding round at $1 billion+ valuation and areramping up jobs to secure their market-leading position. You could say the team would have gone North anyways. Perhaps – who knows? But I know with local funding and local support that’s certainly less likely.

And consider Snapchat – one of our hometown favorites as they’re based in LA (Venice Beach). Luckily for our community the founders decided they wanted to build their company in LA regardless of not having local funding from LA. That’s our great gain as Snapchat has also raised a lot of money at a monster valuation ($10 billion reported) and has been scooping up talented Stanford engineers and relocating them to LA. Locally we call it “the Snapchat effect.” The VPs of SnapChat will be LA’s great founders 5 years from now.

Silicon Valley is littered with startups where the founders were originally in LA. Klout was an LA company – sold for $200 million to Lithium. As was FarmVille (sold to Zynga) and many, many others.

Local capital matters. Local mentors matter.

That was my original idea behind Launchpad LA. I figured if we couldn’t fund every company locally we should at least embrace them as a community and show that we’re willing to mentor them whether they raise their money in town or not.

So what can a community do?

I often point out the story of when we raised our fourth fund a few years ago. I went to see several LP funds in Boston. At least twice I had conversations that went like this, “Yes. It’s true. Your fund performance has been great. But there’s also several great funds in Boston and while our first priority is to returns we have an equal responsibility to local funds and local jobs.”

LA public pension funds and endowments have historically been the opposite. I think government and community members need to understand that capital formation is an incredibly important part of economic revival. People often say, “Great entrepreneurs will build a community and the capital will follow.” I don’t see much evidence of that. I think it’s a combination of the two. It’s clear capital with no talent ends up having to travel to do deals. But talent with no capital is another word for migration.

And then there is public policy. Historically the City of LA has been hostile to startups. I’m reminded of LegalZoom who was founded in LA but moved it’s headquarters to Glendale and much of its operations to Austin, Texas. While LA was trying to impose archaic taxes on the firm and seemed to care less about its existence since it was a “startup” – the first lady of Texas welcomed them to Austin by picking up the CEO at the airport on his first visit there.  It’s no wonder hundreds of jobs migrated. Luckily since then we elected Mayor Eric Garcetti who understands the importance of startups and of technology and venture capital on job creation.

But we still need more funds. No – I’m not worried about the competition. We’ll win our fair share of deals. But when you remember the Snapchat effect you see that I gain even from the deals we didn’t get to do. I’m guessing the future leaders of Lookout will build companies in the Bay Area.

Communities can make a difference. I wrote about the awesome efforts of Cincinnati to stimulate its startup community and the role of Paddy Cosgrave in Dublin, Ireland as well the entire Irish business community, the IDA, etc. who woo businesses to put their headquarters there. I also covered the impact of Brad Feld in Boulder or Fred Wilson in NYC as observed from my keynote on a trip to Seattle, which I felt could have a huge boom if its elder statements embraced startups a bit more.

Don’t get me wrong. Chicago has made strides. The Pritzker Family has been very active and the opening of 1871 as an entrepreneurial hub is a great example. But my conversations with countless Chicago entrepreneurs suggests it has similar issues to all non-Silicon Valley centers: not enough venture capital, too few tech angel investors, not enough talent for product management or engineering, not enough local tech powerhouses to drive local biz dev / keiretsu. I think this is true of LA, NY and many other tech communities so I’m not singling out Chicago.

My point is this … cheerleading isn’t enough. We need to help create local venture capital funds who may be national in investment strategy (as we are) but who will do more than their fair share of fundings locally (for us that’s 50%). Fund formation + local mentors + local talent = a shot at creating successes that drive the future job growth of our great cities.

Revisiting the Tomato Plant Dilemma

Revisiting the Tomato Plant Dilemma*

The views expressed may not reflect the opinions of venVelo’s board or its investors.           

Many years ago, in a corporate training class, I learned about the Tomato Plant Dilemma.  Essentially, it goes like this:

You have 10 tomato plants, but only enough water for five.  Do you water each plant with half of what it needs to thrive and watch them all die a slow death while hoping for more water to arrive? Or, do you water five to make sure at least 50% make it?  Seems that the answer is pretty clear, yet smart, hard-working, persistent entrepreneurs often make the wrong choice.

Many entrepreneurs fall prey to the temptation of attempting to initiate multiple product lines out of the gate rather than focus on the product with the greatest potential, and for which there is funding support (i.e., water). I recently joined venVelo and have had the pleasure of listening to numerous pitches designed to peak our interest enough to invest.  A few have come in with the idea that they could support more than one product line.  Often, the idea would be that one easily launched product line, though limited in potential, would generate enough cash to help support the development of the real target product.  Seems like a great idea, right?

Whenever one of these opportunities was presented to us, some members of the fund – many of whom have launched and worked in more start-ups than I have – typically take the founder to task.  I am new to the game, so I usually keep to myself in these instances.  I always wondered what was so bad with the multiple product approach if indeed one product could be sold in the near term to support the other.

Well, now I have joined a start-up myself (not a venVelo portfolio company) and I see the folly first hand.  I would summarize the problem as one in which the executives leading the company may be guilty underestimating the challenge of raising market awareness with no brand value, the difficulty of developing distribution channels, the responsibility to manage invested funds carefully, and risking the success of their employees.  That may seem an awful stark statement, so let me elaborate.

Start with the devaluation of employees.  It is likely the new company has only enough funds to support a small team.  In charging that small team with trying to market, develop distribution, and sell multiple product lines, like the Tomato Plant Dilemma, they will not be able to give the attention to all that it takes to move product for one product let alone more than one. Like sharing the water among too many tomato plants, employee morale will die a slow painful death.

Similarly, in a start-up, cash is king.  When cash from investors is what is keeping the company operational, money should be spent as if “nickels were manhole covers.”  Yes, you have to spend money to make money, but when you are using other people’s money, you should keep returns on the horizon in mind.  When you try to support multiple products, no matter how honorable the intentions, you are likely to spend too much on supporting the lesser product, and cheat the business you are truly trying to create. There comes that pesky Tomato Plant Dilemma again.  Do I focus my limited financial resources on the true business, or do I risk wasting it trying to stand up an interim product?

Finally, when you have no brand awareness, and your product has limited proof of value in the market place, being able to develop distribution is typically a lot harder than it might seem.  This is true regardless of how good a mouse trap a start-up may have.  While it is true that 90% or more of start-ups fail, this is not saying that 90% of the products were inherently doomed to failure.  It is more likely that many failures were problems raising awareness and landing distribution.  You do not simply get the product packaged and go to QVC to see what you can sell, for example.  At a minimum, it takes money, the persistence of talented sales and marketing people, and a good helping of luck, to get most products off the mat.

So, my advice to myself and to other entrepreneurs is to focus on the product that you want to pin your future on.  Many things contribute to the success of an entrepreneurial endeavor, and focus is key among them.  Give the tomato plant with the most promise the water it needs to thrive.

*The author is a board members of venVelo, a venture fund and business accelerator in Winter Park, Florida focused on early-stage opportunities. Formally launched in 2012, venVelo quickly established itself as one of the most active venture funds in central Florida.

venVelo Nominated for 2014 Tech Investor Award

Congratulations! venVelo was nominated for a Tech Investor Award for the Schwartz Tech Awards 2014 hosted by the Orlando Economic Development Commission in partnership with the Orlando Tech Association and Florida High Tech Corridor Council.

The Tech Investor Award recognizes an organization that has financially supported the region’s tech industry. The Orlando EDC invites you to join us for the Schwartz Tech Awards 2014 celebration on Sept. 30th from 6 p.m. to 8 p.m. at Orchid Garden at Church Street Station in downtown Orlando.

Jockey or Horse: How One Early-Stage Investor Handicaps a Race

Jockey or Horse: How One Early-Stage Investor Handicaps a Race

By Allen H. Kupetz and Dan Lyons*

The views expressed may not reflect the opinions of venVelo’s board or its investors.

Horse racing fans and early-stage investors share a high risk tolerance. Both will likely also argue the key to success: is it the jockey or the horse that matters most? Secretariat probably wins the Triple Crown irrespective of the jockey, but most races – and start-ups – require someone in the saddle with the right skills and passion to win.

Frank Sinatra crooned, “You can’t have one without the other” and no serious fund would invest in an opportunity that didn’t have a strong business and a management team they believed could execute. But rarely do you see the perfect combination of both jockey and horse (perhaps one reason so few businesses get funded). And thus the question remains, jockey or horse? 

venVelo has a 13-person board that doubles as its review committee. It reviews pitch decks that come in via the web, through the vast relationship the board members all have, and leads from other funds. The board reviews new venture proposals every week, narrowing the field to about half a dozen quarterly candidates that pitch the board and our broader friends of venVelo (invited guests with domain expertise). venVelo has averaged about four investments per year so if a company makes it to pitch day, it is past the second turn and headed home.   

It is at the pitch stage that venVelo asks itself what is the most important ingredient to success:  the jockey (the entrepreneur who will lead the way and deliver results) or the horse (the business idea / model). 

Much has been written about this question. (For those who want to read more, we recommend David Rose's 2014 book, Angel Investing: The Gust Guide to Making Money and Having Fun Investing in Startups, and David Maris’ 2012 Forbes article, Bet On The Horse or The Jockey: Investing Lessons From an Italian Horse Race.)

For venVelo, there are a number of requirements for a business to be deemed investable.  Does the business solve a real need or problem? Is the market size attractive? Is there unique and powerful competitive advantage?  Is the plan realistic, yet aggressive enough to attain significant revenue and profitability in a 3-5 year window?  Is there an attractive exit strategy?

Equally as important, venVelo carefully listens to and engages with the entrepreneur who is championing the idea and tries to assess some important characteristics: domain knowledge; a real passion and personal connection to the mission; experience – both successes and failures – that will help to guide the journey; and personal chemistry – is this a person we can trust, who will look for advice and counsel, and who can bring others (investors, employees, and customers) on board along the way.** 

These two sets of criteria make venVelo’s bet clear: we look for a great jockey and a great horse. Of course we do. Everyone does. But we don’t often see both together. So if faced with two opportunities – one 60-40 jockey-horse and the other 60-40 horse-jockey – how do we choose?

venVelo’s experience with the companies we have invested in – certainly a small sample – does not clearly support either side of the jockey-horse argument. We have bet on brilliant jockeys almost solely for that reason. This had led to successful companies and those still finding their way. We have also bet on what appear to be fast horses – companies in vertical markets that our collective instincts tell us show great promise. Here too we have found success, but also the need at times to consider (and sometimes demand) management changes.  

Because venVelo often invests in very early-stage companies, we probably weigh the jockey more heavily. A leader who listens well, reads the signals from customers and employees, and who seeks and values feedback from a core group of seasoned advisors has an edge in being able to make the strategic pivots so often required. We believe an entrepreneur’s ability and desire to learn, coupled with strategic agility, are characteristics that make the difference between the jockeys who just run the race and those who will win.

Do you agree or disagree? What have your experiences been? Please share your comments.

-------------------- 

*The authors are board members of venVelo, a venture fund and business accelerator in Winter Park, Florida focused on early-stage opportunities. Formally launched in 2012, venVelo quickly established itself as one of the most active venture funds in central Florida.

**One of the authors of this article, Allen H. Kupetz, published an article in 2013 titled The Seven Deadly Sins of Early-Stage Funding Requests that discusses venVelo’s investment criteria in more detail.

How to Pitch to Investors in 10 Minutes and Get Funded

http://articles.bplans.com/how-to-pitch-to-investors-in-10-minutes-and-get-funded/

by Caroline Cummings

I know what it’s like to pitch to investors—both angels and venture capitalists. I’ve raised close to $1 million from angel investors for my previous technology start-ups. Sometimes you only get 10 minutes to pitch your business opportunity to the investors (or less in some cases). Below is a format I’ve successfully used, as well as helped many other first-time start-up CEOs raise investment capital.
If there’s one thing I can’t stress enough, it’s the importance of rehearsing your pitch. I’ve seen too many entrepreneurs think, “Oh, I know my business inside and out—pitching will be a breeze!” Good luck! I’ve also seen many entrepreneurs crash and burn when delivering their investor pitch—and ramble on and on. There’s nothing more frustrating then being told, “I only need 10 minutes of your time,” and then 20 minutes later you’re still on slide #5.

Additionally, investors will want you to be able to back-up your claims. Have a well thought out business plan on-hand to share, so investors can read more if they’d like to. The intention, after all, is that you deliver a powerful pitch, and their hands are out asking for either your executive summary or your complete business plan.

These are the most important things to keep in mind when you prepare your pitch:

1. Tell a Story
Begin your pitch with a compelling story. This will engage your audience right out of the gate. And if you can relate your story to your audience, even better! Your story should address the problem you’re solving in the marketplace.

2. Your Solution
Share what’s unique about your product and how it will solve the issue you shared in the previous slide. Keep it short, concise, and easy for the investor to explain to others. Avoid using buzz words unless your investors are very familiar with your industry.

3. Your Successes
Early in the presentation you want to build some credibility. Take some time to share the relevant traction you’ve had. This is your opportunity to blow your own horn! Impress the investors with what you and your team have accomplished to date (sales, contracts, key hires, product launches, etc.).

4. Your Target Market
Don’t say that everyone in the world is potentially your market,  even it it could be true one day. Be realistic about who you’re building your product for and break out your market into TAM, SAM and SOM. This will not only impress your audience, but it will help you think more strategically about your roll-out plan.

5. Customer Acquisition
This is usually one of the most skipped sections of an investor pitch and a full business plan. How will you reach your customers? How much will it cost? How will you measure success? Your financials should easily allow you to calculate your customer acquisition costs.

6. Your Competition
Again, a VERY important part of your pitch, and many people omit this section or don’t provide enough detail about why they’re so different from their competitors. The best way to communicate your value proposition over your competitors’ is to show this slide in a matrix format—where you list your competitors down the left side of the page, you have your features/benefits across the top, and place check marks in the boxes for which company offers that service (see example in presentation above). Ideally, you have check marks across the top for every category, and your competitors lack in key areas to show your competitive advantage.

7. Your Revenue Model
Investors tend to care about this slide the most. How will you make money? Be very specific about your products and pricing and emphasize again how your market is anxiously awaiting your arrival.

8. Your Financial Projections
Show what you’re projecting in revenue (per product) over the next three to five years. You MUST back-up your numbers by sharing your assumptions. You’ll see investors taking out their smartphone calculators to make sure your numbers make sense, so give them the information they need to see that your calculations are accurate. If your financial chart shows “hockey-stick growth,” be sure to explain what happens to cause those inflection points.

9. Your Team
Investors invest in people first and ideas second, so be sure to share details about your rock star team and why they are the right people to lead this company. Also be sure to share what skill-sets you may be missing on your team. Most start-up teams are missing some key talent – be it marketing, management expertise, programmers, sales, operations, financial management, etc. Let them know that you know what you don’t know!

10. Your Funding Needs
Clearly spell-out how much money has already been invested in your company, by whom, ownership percentages, and how much more you need to go to the next level (and be clear about what level that is). Will you need to raise multiple rounds of financing? Is the investment you’re seeking a convertible note, an equity round, etc.? Remind the audience why your management team is capable of managing their investment for growth. In the presentation above, I picked the image of a homeless person holding a cardboard sign that reads “Britney’s sister is going to have a baby and I need money for a nice gift” for a reason. The only thing missing out of this “ask” is the exact amount he needs to buy the gift! This is the level of detail you want to include on this slide: how much you need, why you need the money, what it will be used for, and the intended outcome.

11. Your Exit Strategy
If you’re seeking large sums of investment capital (over $1M), most investors will want to know what your exit strategy is. Are you planning on getting acquired, going public (very few companies actually do), or something else? Show you’ve done some due diligence on this exit strategy, including the companies you’re targeting, and why it would make sense 3, 5, or 10 years down the road.

Investing Patiently

By Allen H. Kupetz, COO of the early-stage investment fund, venVelo.
The views expressed may not reflect the opinions of venVelo’s board or its investors.

I heard two different stories on the radio today. Even if I get some of the facts wrong (since I chose not to take notes while driving), I thought the similarities were worth sharing.

The first story was about Warren Buffet’s idea of fat pitch investing. He reportedly said that while baseball has a strike count, investing does not. You don’t need to swing at any of the first six pitches. Or the first 600. You can never strike out. With over a $1 billion in cash to invest, Buffet’s Berkshire Hathaway could afford to swing at some pitches outside of the strike zone. But he chooses to wait for a fat pitch. Patience.

The second story on NPR’s “Marketplace” was an interview with the founder of Yelp. After 10 years – virtually all of the Web 2.0 era – Yelp turned a small profit. It had turned down a nine-figure offer from Google years ago and was only now profitable. Yelp closed today with almost a $5 billion market cap, though way down from its 52-week high. Selling in March would have made you a lot more money. Too patient?

What is the lesson for early-stage companies? Are you more or less patient than your investors? Perhaps that is a question both sides should ask during due diligence. A difference of opinion is certainly going to be problematic later.

Why the Structural Changes to the VC Industry Matter

http://a16z.com/2014/07/25/why-the-structural-changes-to-the-vc-industry-matter/

By Scott Kupor

The structure of the VC industry is changing. This matters not only to entrepreneurs raising capital — but it also impacts the finance industry overall, because companies are staying private longer (fewer IPOs) and public investors (including hedge funds, mutual funds, publicly held corporations) are getting into the VC game, too. So in that sense these changes affect everyone who is in the market.

The changing structure of the VC industry was a huge topic at the recent PreMoney conference — and the focus of a discussion between me and fellow venture capitalist Mark Suster, which you can watch here and here. Mark also just wrote an excellent post discussing the structural changes; I highly recommend you read it. To summarize, some of the key observations include: the rise of small funds (they now account for 67% of all new funds raised in 2014); the concentration of capital among fewer, larger firms (10 firms accounted for 48% of total limited partner dollars raised in 2012, according to the NVCA); the decline in the number of VC firms with $100-500M in assets (this group represents only 18% of funds in 2014) — and the fact that companies are staying private longer (some of my thoughts for why are here).

But the real question is: Why now? What’s really behind the structural transformation happening in venture capital — and by extension, the tech industry? And finally: How do we reconcile the seeming paradox of it being cheaper to start companies today… but at the same time needing to raise more capital?

It’s cheaper to build companies now

Much ink has been spilled on the very real decline in the costs of building technology companies. Some estimate as high as 100x decreases in the costs of storage, compute, bandwidth, networking, etc. in just the past decade and half.

With the advent of AWS, DigitalOcean, Rackspace — and cloud-based technologies in general — technology startup costs are significantly lower today. A lot of entrepreneurs can’t even conceive of this now, but there was a giant slurping sound of dollars flowing from VC firms to the leading technology infrastructure companies during the time we were building Loudcloud (2000). Back then, a startup raised $5 million in A round financing (yes, in those days, A rounds were actually $5 million!) and that money traveled from the VC’s bank account to the startup’s bank account directly into the bank accounts of Akamai, BEA, Cisco, EMC, Exodus, Level 3, Oracle, and others. It’s important to note that all of this was up-front capital expenditure.

Today, startups can pay as they go, scaling up their operating costs (vs. CAPEX) as needed, as their business grows. At the same time, advances in developer productivity tools (think Github) and programming languages (like Python) have dramatically increased the efficiency of software development. In many ways, what previously took 100 developers can now take just 10.

In addition, a consumer-facing startup that deploys its applications via the internet or as a mobile app gets customer distribution mostly free, at least initially. While Apple does charge a 30% tax on revenue that flows through the App Store, this is a success-based fee rather than an up-front sunk cost that must be borne regardless of revenue generation.

Meanwhile, the proliferation of platforms such as Google, Facebook, and Twitter as customer acquisition channels makes it that much easier for new companies to experiment — with relatively small amounts of invested capital — on a product to see whether it gets initial market traction. This is not completely free, but it is still a very targeted and a more incremental (vs. up-front) way to acquire initial customers at relatively low cost.

All of this explains the rise of small funds: It simply takes less money to get a company from conception to initial product launch to early customer traction (or not) than it has at any other time in history. But how does this explain the concentration of capital dollars in larger ($100-500 million) VC funds? Doesn’t that contradict the argument about how much cheaper it is to start companies today?

Well, it turns out that, while it is in fact cheaper to get started and enter the market, it also requires more money for the breakout companies to win the market.

Yet it takes more money to win the market

End-user markets are much bigger than in previous decades. The internet population (now exceeding 2.5 billion) is 10x what it was in 1999, and rapidly growing around the world. Tablets have overtaken PCs as the compute medium of choice, but the real transformation is in smartphones. Of all the cellphones in use today, only 30% are smartphones. If you believe, as we do, that there will be a wholesale conversion of this remaining 70% to smartphones — which are really broadband-enabled supercomputers that we carry around with us at all times — the opportunity for successful companies to reach ever larger markets is unprecedented.

This is is not just a consumer trend: Enterprise adoption of mobile technologies and the proliferation of SaaS as a software delivery vehicle means more users within companies and government agencies will deploy more applications than ever before. And the security, identity management, and core infrastructure needs to support these applications will grow accordingly.

But the biggest transformation of all is in who can be reached. With potentially 5.9 billion users coming online — largely due to the developing world — we have the ability to reach global markets at a scale never before witnessed. Already more people have more access to mobile telephones than they do toilets.

At the same time, the number of international markets that were once off limits due to geopolitical issues or high costs of entry is significantly smaller. The widespread penetration of mobile devices — and therefore applications — has also leveled the playing field. For example: 80% of Twitter users are international, and Facebook arguably has more international than domestic users if you include its reach through WhatsApp. The direction of innovation is starting to turn, too: Spotify successfully entered the U.S. market after having starting outside the U.S., and Alibaba, Baidu, and Tencent are likely to do so as well over the coming years.

Finally, we are seeing the rise of what my partner Chris Dixon has metaphorically described as the “full-stack” startup, where entrepreneurs want to own more of the full customer experience and are therefore building out expertise in areas beyond just tech. For instance, in a non-full stack world, AirBnB would have been a software company that developed a better customer matching and booking engine and then licensed that to multiple hospitality purveyors who would then own the customer relationship. Instead, the “full-stack” AirBnB owns the customer relationship end-to-end, and thus must build expertise in customer service, global operations, regulatory affairs, and so on. Perhaps more significantly, in a full-stack world, software companies can compete with their physical-world counterparts and build new and unexpected platforms that others can then build on. [More on full-stack startups here, here, and here.]

Ultimately, today’s winners have a chance to be a lot bigger. But winning requires more money for geographic expansion, full-stack support of multiple new disciplines, and product expansion. And these companies have to do all of this while staying private for a much longer period of time; the median for money raised by companies prior to IPO has doubled in the past five years. It’s vastly more efficient for startups that anticipate needing significant capital to seek partners who have the capital and the resources to grow with their needs.

*  *  *

Much of the above explains why we are seeing the structural changes in the VC industry that Suster and others have described.

But it’s important to note that these structural changes are not unique to the VC industry — this is a natural evolution that has occurred in nearly every other services-based business over the last 50 years. That is, a “death of the middle” occurs over time as service industries bifurcate into a smaller number of large, fully integrated, full-service institutions on one end and a larger number of smaller, niche-oriented institutions (with a focus on stage, industry, or specialized skillset) on the other.

Look no further than investment banks, law firms, accounting firms, advertising agencies, buyout firms, talent agencies, and recruiting firms to see how this phenomenon has played out in mature services-based business. Interestingly, we are witnessing this right now in a non-services business as well: the U.S. retail market. Long-dominant department stores such as J.C. Penney and Sears are giving way to big-box retailers and etailers (Amazon, Best Buy, Target) at the large end complemented by large numbers of specialty, boutique stores at the smaller end. [Though in retail, betting “narrow” can be big as the internet allows companies to better segment and address previously unaddressed markets.]

Despite how much venture capital firms invest in the most disruptive industries, the VC industry has itself been relatively staid from a structural perspective since its founding. With current trends as our compass and history as our guide, we can expect the industry to look a lot different in the next 10 years than it has in the previous 50.

So, what should we make of all of this? For VCs and LPs, venture capital is alive and well and, more significantly, the return potential to private investors generally looks very bright. For entrepreneurs, this is the most exciting time not just to get capital from multiple sources — but to build companies with a long-term game in mind.

17 Traits That Distinguish The Best Startup CEOs

http://www.businessinsider.com/traits-of-the-best-startup-ceos-2014-3

By Richard Feloni

Three out of four startups fail, and a full 90% of those in the tech sector don't survive. The startups that become successful typically require exceptional leadership — and a lot of luck.

In a recent Quora thread, users answered the question, "What separates the top 10% of startup CEOs from the rest?"

Robert Scoble, renowned blogger and analyst for Rackspace, gave a definitive answer based on his extensive experience with CEOs, and others jumped in to share some thoughts. We'll look at some highlights, including all nine of Scoble's leadership traits.

According to Scoble, an elite startup CEO...

1. [Is] good at hiring AND firing. Whenever you find a really great CEO you find someone who has a knack for hiring. That means selling other people on your dream or your business. Especially when it doesn't seem all that important or seems very risky. I used to work for a CEO who was awesome at hiring, but couldn't fire anyone. Doomed the business. Many of the best CEOs get others to follow no matter what.

2. Builds a culture, not just a company. The best CEOs, like Tony Hsieh at Zappos, build a culture that gives everyone a mission. They stand out in a sea of boring companies.

3. Listens and acts. Many CEOs want to tell you what they are doing, but the best ones listen to feedback, and, even, do something with that feedback. My favorites even give credit back. Mike McCue, CEO of Flipboard, tells audiences that I was responsible for a couple of key features.

4. Is resilient. AirBnB took 1,000 days for its business to start working. Imagine if they gave up on day 999? The best CEOs find a way to dig in and keep going even when it seems everything is going against them.

5. Has vision. Let's be honest. There are a lot of nice CEOs, but if you don't have the ability to build a product that matters to people, then no one will remember your name. Can you see a way to make billions with wearable computers? I guarantee some can, and they are the CEOs who will bring me interesting new products.

6. Stays focused. A friend who worked for Steve Jobs told me that what really made him different is that Jobs wouldn't let teams move off their tasks until they really finished them.

7. Speaks clearly. A great CEO is clear, crisp, concise. Quotable. So many people just aren't good at telling a story in a way that's easy to remember. The best are awesome at this. Since it's the CEO's job to tell the company's story, it's extremely important that this person be able to clearly tell a story about the company and the product.

8. Is a customer advocate. The best CEOs understand deeply what customers want and when they are making anti-customer choices.

9. [Is] good at convincing other people. CEOs have to deal with conflicting interest groups. Customers often want something investors don't. So, a good CEO is really great at convincing other people to get on board, even at changing people's opinions.

Now we'll summarize some of the other best answers, with our own numbers added.

Mark Suster, a venture capitalist at GRP Partners and a former entrepreneur, thinks the best type of startup CEO...

10. Pays attention to detail. Someone in charge of an early stage business needs to be hands on in every aspect of the business, from the financial side to the design side.
11. Is skilled at adapting to change. The best entrepreneurs are able to adjust their product and business model to unexpected changes in the market and consumer demand.
12. Can make decisions quickly and on their own. Corporate executives often have the benefits of time and extensive analysis before making a business decision, but entrepreneurs need to deal with a deluge of choices every day.
13. Is intensely competitive. Elite startup CEOs wants to win major deals, acquire the best employees, and sign up every partner — all at the expense of the competition.

Other Quora users experienced in the startup world also weighed in. They've seen that the greatest kind of entrepreneur...

14. Is courageous. Every entrepreneur needs to have at least some significant amount of courage to start a business, but the best ones are brave enough to stand out, make enemies (if they have to), and make unpopular decisions. —Tolis Dimopoulos
15. Doesn't micro-manage. While great entrepreneurs influence every aspect of their companies, they find ways to build machines that can deliver results on scale. —Henning Moe
16. Never stops executing his vision. Startup CEOs shouldn't trust that others will stay true to their vision without their constant influence, at least for the company's first few years. —Henning Moe
17. Is generous. People will be more willing to help startup CEOs who have track records of taking care of employees, partners, vendors, and clients. —Anonymous

http://lab15.ivolution.pl/2014/01/30/as-an-investor-what-are-the-most-important-items-that-a-startup-must-have-for-you-to-invest/

As an investor, what are the most important items that a startup must have for you to invest?

 by David S. Rose

1. Large and growing market
2. Real domain expertise
3. Provable product need
4. Scalable business model
5. Competitive advantage
6. Platform/partnership/bizdev/API strategy
7. External validation (ideally traction and/or passionate customers)
8. Viable business structure and cap table
9. Reasonable valuation
10. Proven team (tech/product/design/marketing/sales/domain/etc.)

But most important of all, it must have an entrepreneur on whom I’m willing to bet. And the attributes I look for in that entrepreneur are:

• Integrity
• Passion
• Startup experience
• Personal domain expertise
• Operating skills
• Leadership ability
• Commitment to the venture
• Long-term, extensive vision
• Realism and pragmatism
• Flexibility
• Even temperament
• Coachability
• Alignment on vision