Some Saturday morning thoughts on the next wave of unicorns:
1) We invest in the US, CAN, & SEA, and ppl ask us why we lump all our investments into 1 fund as opposed to regional funds. This is because the next wave of startups are global from day 1.
What do I mean by that?
2) 5 years ago, you'd be crazy to try to go global first. At that time, it was unfocused and challenging to manage. Today, you're at a disadvantage if you are not global first.
I believe that we will continue to see this trend. But you have to look under the hood at what that means.
4) If you look at the up-and-coming companies that will be unicorns in the next couple of yrs, many of them will be SF HQed companies. But their roots were elsewhere. E.g. companies like Front, Talkdesk, & I'd put Intercom in that category too.
5) And it's important to look at beginning stories, because that's how startups get their foot on the first rung of the ladder. E.g. If you can keep your costs down on engr talent AND manage well, you can go far.
6) I recently caught up w/ 2 past portfolio cos. I was floored that both were doing $5m ARR w/ fast growth and had raised very little seed funding. I asked them how they were able to build so much and sell so much w/ so little.
7) All of their devs were in Vietnam and Argentina (respectively). Both teams had a tech co-founder leading product outside the US. Both teams sell to companies in the US and have all customer acq (sales / mktg / BD) in the US.
8) When I look at my @HustleFundVC portfolio which is newer, I also see the same trend. Even if not hiring abroad, they are hiring outside of SF. One of my current portfolio cos who actually has raised a lot of cash based in SF has more employees in Dallas than SF.
@HustleFundVC 9) Then I have a couple of current portfolio cos doing some crazy global arb things. E.g. Canada gives startups a TON of grants reducing the cost of tech talent: a 3-5x difference to SF tech talent costs. 1 of my SF based cos set up a Canadian entity to take advantage of this.
@HustleFundVC 10) On the business side, we have portfolio cos selling to Asia and SEA cos selling globally / to the US. 5 years ago, this seemed weird / impossible. Today, this makes a lot of sense for the right biz.
@HustleFundVC 11) When I looked at our portfolio, I could not quite "bucket" so many of our companies. They are SF based & US corp but have most ops and devs in Y country / city. Or a SG incorporated co that sells to the US.
@HustleFundVC 12) There's no clear cut geography anymore and founders who can navigate this new way of hiring / managing remotely (or w/ hub and spoke) / and selling remotely are at a serious advantage in this new economy.
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-Pre-seed rounds are getting done at low valuations.
-Hot pre-seed rounds are getting done all over the map
-Seed rounds are getting done at say $8m+ post with companies that have lots of traction -- sometimes $1m+ rev runrate
Last yr, I personally paid more in taxes than what I made (!!).
I was completely shocked - I didn't think it was possible to *owe more* than you make. But it is.
To be clear, this post isn't meant to ask for pity, but I think it can help a lot of ppl out.
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1) First, every VC and many bootstrapped startups are advised to set up LLCs.
E.g. LLC for your funds. An LLC for your management co. An LLC really for any partnership. Etc.
We're told this is tax advantageous.
But like everything else, it depends...
2) So how is this possible?
First, how do LLCs work? My ELI5 explanation of an LLC is that when you make money, the taxes get passed through to the business owners -- the partners of that LLC.
So EVERY dollar that comes through is taxed to YOU as the business owner
Today HR 2799, a legislative bill, has passed the House of Representatives in the US. This bill will have a huge impact on startups and emerging fund managers if it can become a bill.
2) The backstory: VC funds are only allowed 99 accredited investors. This means that if you want to raise a $50m fund, your average check size from each of your investors must be over $500k.
$500k is doable (and small) for institutional investors β pension funds, endowments, etc
Todayβs tweet thread is about VC audits and how they affect startups.
I knowβ¦*such an interesting topic*β¦but actually itβs *extremely important* with the current market for founders.
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1) First, what is an VC audit?
Many VC firms hire a 3rd party auditor to analyze their funds annually. This gives their investors (LPs) confidence that fraud is not being committed, capital in the fund is being deployed into legit companies, and performance is not fabricated.
2) Auditors charge *tens of thousands of dollars* per yr to audit a fund.
As an aside, if anyone is thinking about creating a tech-enabled audit firm for microfunds, Iβm extremely interested.
There are very few auditors for VC funds on the market.
It's been about a year since the markets crashed for startups and VC funds. In the past year, it's been incredibly hard for both funds & startups to raise $$.
I'm no crystal ball, but here's what is happening from my standpoint & where I think the mkts are going.
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1) First, what am I seeing now?
For startups, there are basically 3 categories of companies who need to raise somewhat soon:
-doing great
-doing fine
-doing meh or not good
If you don't need to raise for another yr or more, then you're in good shape.
2) In the last category, this is where most cos are getting wiped out.
2021 prolonged the lifetime of startups that would've ordinarily died in a "normal" market. Companies w no product-market fit.
Many of these companies were given an extended lifeline with valuation markups.