1/ There are 3 broad risks in the startup’s journey - product, market and execution risk.
A startup grows from idea to IPO by eliminating these systematically along the way.
Let us examine these.
2/ First, product risk.
Does the product you designed solve a problem for a customer. Does s/he care? Getting to a minimum viable product (MVP) broadly eliminates ~80% of product risk.
3/ Market risk - is there a market for the product you created, or can you iterate to a problem for a paying market? Getting to product-market fit (PMF) is about eliminating this risk. PMF eliminates ~90% of market risk for the then product, I think.
4/ Finally, Execution risk - can you keep feeding and cranking the growth machine, given you have PMF, without f*king up along the way?
5/ Important. Sometimes you can hit PMF and think market risk is eliminated for it to reappear.
PayTM is an extreme example. Market risk reappeared when UPI became bigger and faster-growing. They have had to focus on selling financial services (new market).
Specific investors help founders navigate these risks
- Product risk - angels/accelerators/pre-seed funds/soloVCs
- Market risk - seed funds (At Blume, helping founders move from MVP to PMF is the promise we make)
- Execution risk - Series A+ / growth capital to help you scale.
7/7 This is a simplistic model, but a useful framework for founders to keep in mind.
Would love to hear thoughts. Are there any other bigger risks I havent addressed that doesnt fall into these categories?
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A perspective basis my last 3 years in a seed VC.
(this is true especially of seed investing, but holds for the broad VC asset class)
I work at @BlumeVentures, a seed stage tech VC, and we get 3-3,500 startup pitches a year. We can fund 10-12 at best a yr. This means that we reject a lot of great startups.
Some of these startups are rejected because they are too late or early for us, and thus don’t fit our investment criteria (blume.vc/for-startups). Some are rejected because we have invested in their competitors or in similar risk buckets we dont want to add to.
On @ClassplusApps, its recent fundraising round, and what we can learn from one of the most exciting B2B startups out there today.
A B2B startup with a consumer DNA, that any B2C co would be proud of.
On thursday, Classplus announced its latest fundraising round, toting up to $65m across Tiger, @gsvventures and existing investors Falcon Edge / AWI, @BlumeVentures
“Early stage valuations aren’t really valuations. They are the exhaust fumes of a negotiation about two things — the amount raised and the amount of dilution.”
Let us understand this.
2/23
They say that chess is a game that can be learnt in an hour, but it takes a lifetime to master. Venture valuations are similar.
Here is the simple part of startup valuations. Take capital invested, and divide by stake diluted.
I got this whatsapp message yday👇🏽fm a founder grinding it out, 1 month of runway left. But absolutely unwilling to give up.
We saw 2 great stories recently fm the ecosystem - as Meesho, Cred became🦄. Congrats to them, & let us celebrate their achievements.
But let us also celebrate the founders grinding it out without much love. Life is hard for them. It is tough mentally & not easy to keep pushing.
It takes a special grit and determination to chug along, to motivate your team on dreams and vision alone without hikes, or even delayed salaries; holding on to them when other startups and Big Tech are throwing money at them.
Barton Biggs, research guru turned hedge fund manager famously classified people into visiles & audiles (ref ‘Hedgehogging’).
Visiles absorb info via eyes (reading)
Audiles via ears (talking / listening)
(Youtube wasnt too popular then for it clearly breaks his split!)
2/18
Now I am a visile & I have struggled w podcasts:)
Podcasts are great content of course, & lots there you don't get easily in writing. But I have wondered as to why I should take out 40-50mins to listen to a podcast when in that time, I can instead breeze through 3-4 posts?