by tomnora | Oct 26, 2011 | early stage, founder, Revenue Growth, Scalability, startup CEO
The Second Round, or “B Round”, or “Follow On” round can be the achilles heel of a startup. It requires much more than a first injection of funding especially in the current healthy seed and angel investing environment.
No doubt the first round of external funding for a startup is usually critical to a startup as it can be the difference between continuing your startup or shutting it down. But it’s a different milestone than the second round of funding. The first venture round is often based on an idea, past successes, a business plan, or a market hunch. The decision to invest is based on an educated guess by investors. Often the investors are family and friends or angel investors, who have less sophisticated standards for measuring the likely success than top tier VCs.
The current phenomenon of Internet multi-millionaires recycling their money back into the startup markets is creating “super” angels like Ron Conway. For them, a $500,000 seed investment requires very little due diligence or proof of long term scalability. They sometimes invest in multiple companies within one meeting. There’s a slang term “spray & pray” describing this type of investing – put a little bit into a lot of startups and you’ll win by statistical odds.
The second round, however, is based more on cold hard facts. Is this company catching on? Have they built the foundation for the next 3-5 years? Does their product line hit the mark? Is it positioned correctly? What are the follow on products? Where is the market going?
The second round is often for some or all of the following – corporate growth, go to market, turn the prototype into a robust offering, marketing costs, or to hire a sales force. It’s no longer based on a hunch, unless the company is in trouble and needs money to finish what the first round started. (This problem often leads to a lowered valuation or “down round”. Not a great scenario.) If the company is doing well, the second round is easier to acquire. Facebook is a great example of this. They’ve had 9-12 rounds, depending on how you count, with investors still begging to get in. Their 2nd/3rd rounds were bigger than most startups ever see.
Facebook Funding Seed, A, B:
source: Crunchbase
The second round can also be a mezzanine, or pre-IPO round, or even the IPO itself. In one scenario in my career I was with a company that had taken only one round of equity financing. With rapidly increasing revenues, we felt we had enough momentum and cash to execute an IPO without any more funding, thereby retaining more equity and control of our company, but we were getting a lot of pressure to take on another round. Our current venture partners felt we needed some insurance money in case of a downturn, more marketing money, a bigger team of investors, and a new logo. They turned out to be right about everything but the new logo.
Most startups that get a first round never make it to the second round. In todays soft-bubble economy this is more true than ever since so many first rounds are happening. Some don’t even want a second round. But the second round is truly a measure of scalability for your startup. Please feel free to contact me by DM to discuss more. @tomnora or @cowlow
by tomnora | Oct 13, 2011 | Business Development, CEO Succession, early stage, founder, Revenue Growth, Scalability, startup, startup CEO, venture
This is an obvious one, but a point too many startups forget or ignore in early stages.
The purpose of a for profit business is to generate revenue, period. Avoiding this fact and/or not planning on it, focusing on it In most cases, the goal is to increase revenues continuously over time, i.e. scalability. It’s even more desirable to never have a dip in revenues, but this rarely happens.
There are tons of articles about many things about the startup world these days. Equity discussions, how to pitch, what’s hot, success and failure stories, etc. But very few articles about how to begin, grow and sustain revenues, what that process looks like or what to do when they stall.
There are also almost as many startups as the number of people I meet these days. Everyone has their own startup, which is usually little more than a reserved url, a $10 commitment and an idea. But can they produce revenues, increasing revenues over time profitable revenues? Can they create jobs? Stay in business for 10 years?
Google just announced their most recent quarter numbers: 26% increase in revenue year to year to $9.7 Billion. Now that’s a revenue focused company, pretty incredible for a 13 year old company to be growing that fast in a bad economy. Google’s original business plan didn’t even include their current main source of revenue – advertising. But they adapted quickly and haven’t looked back yet. Their admirable amount of revenue allows them to do so many powerful things their competitors can’t as well as contribute enormously to philanthropic causes. Not every startup will be a Google of course, but if you figure out how to continuously scale revenue or even maintain zero growth revenue, you can provide viable employment, profitability, benefits and even give back to society a bit.
So how do you do it? There are several components that must work together like a system that incorporate your products, your values, your people, outside advisors, investors and more. Having a great idea of course is key, but that alone won’t sustain you. This is where many startups trick themselves. “We have an amazing idea, so we will succeed. You must monetize properly, plan for hiccups, see the future. Most of all, Revenue has to be nurtured and protected priority #1.
I’m happy to discuss this more, just send me a DM at @tomnora or post on this blog.
by tomnora | Oct 9, 2011 | Business Development, CEO Succession, early stage, founder, Scalability, startup CEO
Chief Executive’s Top Ten CEO Blogs | ChiefExecutive.net | Chief Executive Magazine http://j.mp/nEW767
by tomnora | Sep 19, 2011 | CEO Succession, early stage, founder, Launch, Scalability, startup CEO
Responses to my Santa Fe Friends + Cali Friends + + letter. In chronological order.
So you and Rich Murray became friends? how long did he last at NMCC?LOL
peggy
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Hey Tom Baby!!! Im HERE!!!Patsy
Lets get together soon
Loved this message!
Thank you.
I have some good ones for you to meet.
Can you send more info on your social media (or otherwise) focus?
Peter
Tom,Thanks for the thoughtful note. We miss you and look forward to seeing you soon.The NM Green Chamber of Commerce wants a ‘buy local’ app. Does such a thing already exist?Would you be interested (or know someone) in creating it? Alex works with the chamber and I know the folks involved.
Don’t get shot out there.
Joe
Sent wirelessly via BlackBerry from T-Mobile.
yeah very good friends. he runs the poker game! Not long with Jarrett. He barely remembers him.
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show details Sep 16 (3 days ago)
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I missed the excitement of the real business world and the water.
I made amazing friends out there and enjoyed small town life very much, but needed to plug back in and wanted to launch a startup here.
New Mexico is a weak startup location – missing many parts and move too slowly. The best of both worlds is to have both, but I can only live in one place at a time.
Napa is probably similar to Santa Fe in many ways, I could see you living there. Hope all is well for you, have a glass of wine for me.
Tom: Congrats on your move, I wish you the best.
Enjoyed our discussions and adventures. Hope we can stay in touch and please let me know when you get back this way.
Best personal regards,
David
yeah just say when. lunches are pretty open. will you have a car?
T
Yes I’m interested, building up a strong little team here of app developers. Tell me whom to connect with.
Also interested in Teres Kids progress. Did u guys get funding yet?
I’m sure 9/11 was a thoughtful day for you. Take care.
Tom,Wow, what a great letter, what a great way to catch us all up on your move.
As someone who still hangs on to her LA area code, I love your new city and consider it still “my city” even though after seven or eight years here,
I have to admit I’m not living there anymore.
I’m going to be out there in early October to attend Indiecade…do you have a free couch?
You should see my paintings! I am making major progress!
I wish you all the possible best in your new environs and really do hope to stay in touch.
Note my new phone number and I cc’d you on my go-forward email address after I leave EPIC in January.
BE WELL!
Big hugs,
Stephanie
Good luck Tom, thanks for staying in touch.
Stephen Hadwin
Hi Tom. Thanks for your soulful update. Gotta get tough if you’re gonna stay in LA though! Just remember, compliment everyone on everything and you’ll fit right in. – JB
yes i’m back in the groove, moving faster, no mo “manana”, headed to Arrowhead today to catch up with OC friends.
Good luck, Tom. Let’s try to keep in touch.
I had a great weekend in San Francisco and I’m trying to figure out how to get back more often.
Need to start generating some income so I can afford a small apartment in the city.
Trying to figure out how to schedule a trip to India with my new partner in our social enterprise.
Anyway, give me a call when you get a chance. Enjoy the urban life.
Thanks for the official welcome – i’m stuck in town this weekend but could go next wkend if ur still painting. Are u painting walls or canvases?
Heather: Now that Tom is living in Los Angeles, it would be a real favor to my friend if you would drag him along to some events there so he
can get integrated into the social media and tech scene there.Stewart
wow. Life changes, the one thing we can always count on. Back in LA, must feel strange in some ways,
exciting in others. . . curious Tom, as we haven’t talked in awhile, what prompted the move? And, did you rent a u-haul?
I know you like Nascar and all, drive fast and all, but somehow you and Frieda in a u-haul? Nah. . .
I may be in LA to look at some projects there, so maybe we’ll connect.
Texas is unreal, even for me, but here I am.
Brazos y besos
Iim at district 13 right now u gotta check it out.
Gonna miss you! I had no idea that you left to the bigger city. I do get out there as my sister lives near you, in the West Hollywood area and my son, is enrolled at Claremont McKenna College.
So, I’ll be sure to give a call when in the area. Let me know when you are visiting NM and I’ll make a point of taking you for drinks.
Have fun and make a difference out there! Lillian
Hi Tom—
Wow I had no idea you were moving!!! We are definitely going to miss seeing you and hearing about all your entrepreneurial experiences at our events.
Best of luck in California and next time you are visiting in NM let me know. J
Take care! Shandra
Absolutely.
Tom, please feel free to email or call me. Social Media Week LA is happening right now and I believe there’s some events
(looking into it). If not this week, there’s a few good events every month. Would love to connect.Heather
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by tomnora | Sep 15, 2011 | Business Development, early stage, founder, Launch, Revenue Growth, Scalability, startup, startup CEO, venture
http://sfist.com/attachments/sfist_jeremy/garage.jpg
Many dream of being the instigator or part of the “Startup Launch”: First Discussions, Initiation, Developing a business and product(s), and most of all Success. What many dreamers don’t realize is that all of these steps are the by-product of the core reason the startup is being formed – a great product or service. It’s not a TV show where Ashton Kutcher claims he’s an “Internet billionaire” and no one questions it; in the real world great startups become great companies by focusing on Execution of ideas into products and services. A startup becomes a sustainable enterprise by repeating the process over and over.
An idea in itself isn’t worth much, and this applies to the tech world more so than most other segments of industry. Because of the vast amounts of publicity lavished on Mark Zuckerberg, Steve Jobs, and the Google twins, many fashion themselves as making a few key steps and then finding themselves on the cover of Time, or at least in a million dollar home.
I often encounter people who have great tech ideas – friends, colleagues, employees, neighbors. Many are very good ideas; almost all of them drift away into the ether, unless someone else executes one of them. Then my friend will inevitably say “I had that idea! They ripped me off!” Or they tell me that I should execute their idea and then give them a percent of the “winnings”.
Ideas without execution are just talk, I’m a culprit also, for many reasons. I used to try to explain this to people when they approach about a tech idea, but it usually just bursts their bubble and they don’t quite hear the message. The act of execution tests whether the idea can become more – it causes validation, formation, proof of concept, exposes fatal flaws, creates adjustments, essentially turns it into reality or the discard pile. This process IS the company, extremely important and often misunderstood.
There are countless examples of startups that begin as one thing then morphed into something different – HP, arguably on of the first Silicon Valley garage startups, was first successful with an audio oscillator, which they built after very little planning or product thought. Their process was correct.
So your original idea is likely to change some anyway through the process. Other people will help take it over the line; welcome them. So please contact me if you’re anywhere along the startup road, and Ill try to help you turn your ideas into things that the world wants.
personal: @tomnora
business: @cowlow
by tomnora | Jul 27, 2011 | early stage, founder, Revenue Growth, Scalability, startup, startup CEO
Aurum Rex. Nummus Rex. Emptor Rex.
I.e. Cash Is King. An old sayings, but so true in the startup growth equation. Where does revenue fall here? Is it more or less important? What about Strategy? Revenue? Growth? Buzz? Profit? A “Right On” product?. Smart People? Ambition? Your position on the Bell Curve?
When a startup has none, cash seems like liquid gold that can flow over the business and cure all – salaries, resources, exposure, growth, success, new offices, marketing. But often entrepreneurs fool themselves into thinking that lack of cash is their only problem. I’ve been involved or almost involved in so many early stage companies that said “If only we had $XXX in cash, everything would be o.k. Sometimes they get the new cash but still can’t scale or survive. Cash is certainly required to play, but it has to be part of a larger system, purpose, goal.
Venture capitalists, controllers of cash, are always looking for mind blowing new things that can “change the world”; can step out in front of our regular world and catch fire, anticipate what the world needs that no one else has figured out yet. And they have cash, high risk cash, to take a shot at being part of these new phenomenons. They get in early and guess at the future, which means they could be often wrong. But that’s not a problem; they only have to be right once in a great while to win big. That’s the game they’re in. What an exciting job!
On the other side we have the yet-to-be-funded or need-more-funding startup. Whatever cash is in this company is less than enough to spark it to the next level quickly enough to meet the business goals, or often just to make the next few payrolls. Is this you?
So what about REVENUE? Revenue is close to cash in it’s power within a startup. It can solve so many problems, including cash issues. It attracts more cash investment, it creates profits, it legitimizes your business. Revenue has to be managed properly and leveraged wherever possible, but those are good problems to have. It’s eventually more important than cash, especially when it’s steadily and predictably growing. Growing revenues, not cash, create higher valuations.
Early on, most startups focus more on adoption, eyeballs, users, traffic, assuming these will infer and convert to future revenue (Twitter, Google, Zynga, Facebook). The actual cash on hand and/or revenues don’t fully support the business, but no problem if major growth is apparent.
So is that it? User adoption? For Twitter it is, they’re currently at a valuation of 40X revenues, way high. But there’s no question that they’re permeating the globe, possibly with more longevity than Facebook.
The bottom line is value. What value, how many valuable things is your company providing. What’s better, cheaper, faster, unique, easier. Google is a great example of amazing and increasing value to user. It’s all of the above, mostly free, with an attitude of always wanting to provide more to its users while simultaneously simplifying use of everything digital.
Early on Google didn’t focus much on cash or revenue; they eschewed it, they had a higher goal – organize all the worlds information. Their goal and execution of it was most important to them. Of course they also happened to be a few blocks away from the highest concentration of venture capitalists on the planet, but they went 3 years without VC funding. Their first 2 years they had no revenues and received only $100K in funding, from Andy Bechtolsheim. A year later they raised $25 million. Their great ideas and excellent execution came before any cash.
So maybe cash shouldn’t be #1 for an ambitious startup, rather amazingness should, true passion, even if it’s nights and weekends around your day job.
@tomnora @cowlow @norasocial
