Considering a slow-down in venture funding last year, a political environment with many unknowns and yet, the Dow Jones at a record high, it was hard to know what to expect from yesterday’s annual venture outlook by Durham venture capital firm Bull City Venture Partners.
I can best sum it up as a mixed bag.
Investors on a pair of panels seemed expectant that M&A activity will accelerate in 2017, IPOs may happen in greater frequency and early stage and series A capital will still be plentiful for companies with the best teams and product market fit.
And yet, companies overvalued in 2014 and 2015 are still taking down rounds or shutting down. Both institutional funds and angels are investing more money in fewer companies. And entrepreneurs are still making the same mistakes in pitching—not knowing the competition, lacking data to back up their assumptions, seeking too much money or setting unrealistic valuations.
Investor Anthony Pompliano told the crowd that 80 percent of the entrepreneurs in the room should shut their companies down and get a job.
So what should entrepreneurs do considering the landscape? In a lot of ways, the advice from both panels was back to basics. Here are some key takeaways:
Know who you’re pitching
The Charleston Angel Partners have just over 50 members who have interest in solutions to large market problems. They want to see traction and a path to revenue. Venture South presents deals to 10 angel groups around the southeast, a majority of which have focus on enterprise software, life science and industrial manufacturing.
Full Tilt Capital wants to be in a deal as early as possible. That often means pre revenue and sometimes pre product if the team is good and plan is specific and feasible enough.
Valor Ventures has a trio of founders with a range of abilities—one is an engineer and former CIO at Samsung with 15 patents, another with 15 years of experience in M&A at GE, and the third with a decade of experience operating and scaling tech companies. Hyper growth SaaS companies are their focus, and they know what they’re seeing from the engineering, financial and operational perspectives.
Know the landscape
Accel’s Alex Estevez gave a 26-slide presentation on the technology landscape for 2017 and beyond. It’s helpful to know what historical influences and macroeconomic trends might plan into your company’s trajectory, whether fundraising, scaling in a certain industry sector or pursuing an exit.
Know what your investors expect
Full Tilt expects a plan in place to accelerate growth in the next 90 days. That can mean any number of things, but other portfolio companies have gone from 9,000 users to 100,000, grown revenue 12x or signed four $700,000 deals in that time frame.
A Citrix investment doesn’t require a board seat but it typically means you’ll get access to Citrix as a partner or customer, and it wants first of refusal to acquire if offers start coming in, says Mike Cristinziano, who lives in Raleigh but vets and makes deals for the corporation nationally.
“We try to be a champion of that company,” Cristinziano says. “Partner with us more and succeed.”
The Charleston Angel Partners expect to participate in follow-on rounds after making an initial investment in a company. Once in, they want to be along for the ride.
Set milestones, hit them and share them
Investors want to see a plan in action. Pompliano compares startups to video games. Founders should be focused on advancing to the next level versus beating the game. Investors suggest updating them regularly on progress so they can see a trajectory of growth.
“Your job is to build credibility at every step in the process,” says Matt Dunbar of VentureSouth.
Trends do and don’t matter
There seems to be an investor for anything. Some might be focused on certain verticals, industries or technologies. Others just want a great idea with a team with the passion, skill and determination to make it happen.
Pompliano’s fund, for example, doesn’t follow trends at all (though he admits interest in finding a viable genetic nutrition company). HIs investments range from a stiletto heel company to app intelligence to “hard core biotech.”
Have a plan for growing the business without raising capital
Money isn’t always there when you need it. And the time you spend fundraising might be better spent building your product. Estevez said it best: “Build a business where you’re not dependent on us and you’ll find out we love you.”
If you do have to raise money, Lisa Calhoun of Valor Ventures suggests getting creative with terms. Though they have more money, funds and angels are doing 25 percent fewer deals, she says. You have to really stand out, and be willing to negotiate.
Know your competition
This seems obvious, but too many founder pitch their businesses and gloss over the competition or fail to account for competitors globally. Mark Rostick of Intel Capital says startups need to know very clearly what makes them unique from or better than competitors. And global scope is important.
“We invest in world class companies—we happen to live in this region. When you come to us, show us you have that kind of perspective on what you’re doing,” he says.
Get to know corporates in your space
If you’ve watched the stock market and read quarterly earnings reports, you know that corporations are flush with cash. Most would rather pay for innovation rather than do it themselves. So you can only expect more acquisitions, or as the VC shared on the panels, “platform roll ups” of startups in various niches related to the corporate’s core offerings.
If acquisition is your end game, or it makes sense to exit rather than raise a series B or C, consider getting to know the mainline companies in your industry.
Companies must add process and systems over time to keep up with the fast growth of their team, but culture has to remain important all along. Estevez uses the example of Mark Zuckerberg, who 10 years ago was attending Accel’s annual summits and now has a top five valued company in the world. The ability to grow rapidly, Estevez says, comes from Facebook’s investment in its culture.
Estevez pointed out that determination is really key to success in building a startup. “There are so many examples of 10-year overnight successes,” he says. Expressing respect for the founders out there working hard every day, he encouraged them to ignore the high valuations and unicorn companies and instead focus on solving problems.
“The most overriding successes have valued persistence and doggedness to make it work,” Estevez says.