Thursday, December 27, 2012

Punt to Fred: Following Through

Fred has a great post on following through with your promises. The context is important to note as well--a ton of startups raised seed rounds from angels over the past 18 months. Some of them have or will raise a follow-on round from the angels; fewer will raise a formal venture round. 

And a lot will shut down because they didn't focus on revenue. Talked about it, thought about it, mapped out assumptions, but didn't hustle for customers. 

Last year I made a long (-winded) list of predictions for 2012. I'll revisit those on Monday, but I'll point out the ones that were obvious--and relevant to Fred's post: 
  • The angel funding boom will subside as investors start to experience what happens when seed-stage funding runs out and founding teams scramble for bridges to nowhere. 
  • This will create opportunities for early-stage venture funds, which will have had a lot of their homework done for them in the seed rounds and inevitable thinning of the herds. 
  • There will continue to be more venture capital placed than makes sense because of the perverse incentives created by the 2/20 model. 
  • Liquidation preferences will swing back toward investors a bit, from 1x non-participating to 1x participating, as last year's crop of seeds compete for the next round. 
  • We'll start to find out how well 500 Startups picks startups. My guess is it will outperform the general seed stage market, but its success rate will trail Y-Combinator and Tech Stars simply because of the number of startups it funds . This year, anyway. (Performance means follow-on round of funding without cramming down founders :)
That last point missed the point: revenue and sustainability are part of performance as well. I've weened myself off of thinking of investment as important. Sometimes it is, sometimes it's not. The best source of capital is from customers.

Go read Fred's post and the comments--good stuff. 

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