Many founders believe in the myth that the first steps of starting a business are the hardest: Attracting the first investment, the first hires, proving the technology, launching the first product and landing the first customer. Although those critical first steps are difficult, they are certainly not the most difficult on the arduous path of building an iconic company. As early and late-stage funding becomes more abundant, founders and their early VC backers need to get smarter about how to position their companies for a looming valley of death in-between. As we’ll learn below, it’s only going to get much, much harder before it gets easier.
There will be an abundance of capital at the two ends of the startup spectrum. At one end, hundreds of seed and micro VCs, each armed with dozens of $250,000-$1 million checks to write every year, are on the prowl for visionary founders with pedigrees and resumes. At the other end, behemoths like SoftBank, sovereigns, as well “early-stage” firms raising larger funds are seeking breakout companies ready for checks that are in the mid-tens to hundreds of millions. There will be a dearth of capital to grow companies from a kernel of a business, to becoming the clear market-defining leader. In fact, we’re already seeing deal volume decreasing significantly as dollars increase, likely evidence of larger checks going into fewer companies.
Founders should no longer assume that their all-star seed and Series A syndicates will guarantee a successful follow-on financing. Progress on recruiting and product development, though necessary, are no longer sufficient for B-rounds and beyond. Founders should be mindful that investors that specialize in leading $20-50 million rounds will have a plethora of well-funded, well-mentored, well-staffed startups with slick presentations, big visions and some early market traction from which to choose.
Today, there is far more capital chasing fewer quality companies. Fewer breakout companies and fear of missing out is making it easy to raise growth rounds with revenue growth, which may not be scalable or even reflective of an attractive business. This is creating false realities and prompting founders to raise big rounds at high prices — which is fine when there is an over-abundance of capital, but can cripple them when capital later becomes scarce. For example, not long ago, cleantech companies, armed with very preliminary sales, raised massive financings from VCs eager to back winners toward scaling into what they characterized as infinite demand. The reality is that the capital required to meet target economics was far greater and demand far smaller. As the private markets turned, access to cash became difficult and most faltered or were acquired for pennies on the dollar.
There is a likely future where capital grows scarce, and investors take a harder look at the underpinnings of revenue, growth and (dis)economies of scale.
What should startup leadership teams emphasize in an inevitable future where the $30 million rounds will be orders of magnitude harder than their $5 million rounds?
A business model representative of the big vision
Leadership teams put lots of emphasis on revenue. Unfortunately, revenue that’s not representative of the big vision is probably worse than no revenue at all. Companies are initially seeded with the expectation that the founding team can build and sell something. What needs to be proven is the hypothesis that the company can a) build a special product that b) is inexpensive to convince customers to pay for, and c) that those customers represent a massive market. It should be proven that it is unattractive for customers to switch to the inevitable copycats. It should be clear that over time, customers will pay more for additional features, and the cost of acquiring new customers will go down. Simply selling a product to customers that don’t represent that model is worse than not selling anything at all.
Recruiting talent that’s done it
Early founding teams are cognitively diverse individuals that can convince early investors that they can overcome the incredible odds of building a company that until now, shouldn’t have existed. They build a unique product, leveraging unique tools satisfying an unmet need. The early teams need to demonstrate the big vision, and that they can recruit the people that can make that vision a reality. Unfortunately, more founders struggle when it comes to recruiting people that have real experience reducing a technology to practice, executing on a product that customers want and charting the path to expand their market with improving unit economics. There are always exceptions of people that do the above for the first time at startups; however, most of today’s iconic startups knew what kind of talent they needed to execute and succeeded in bringing them on board. Who’s on your team?
Present metrics that matter
The attractive SaaS valuation multiples behoove all founders to apply its metrics to their businesses even if they aren’t really SaaS businesses. Sophisticated later-stage investors see right past that and dismiss numbers associated with metrics that are not representative. Semiconductors are about winning dedicated sockets in growing markets. Design tools are about winning and upselling seats in an industry that’s going to be hooked on those tools. Develop a clear understanding of how your business will be measured. Don’t inundate your investor with numbers; present a concise hypothesis for your unfair advantage in a growing market with your current traction being evidence to back it.
Find efficiencies by working in massive markets
“Pouring fuel on the fire” is a misleading metaphor that leads some into believing that capital can grow any business. That’s just as true as watering a plant with a fire hose or putting TNT in your Corolla’s gas tank: most business models and markets simply are not native to the much-sought-after venture growth profile. In fact, most later-stage startups that fail after raising large amounts of capital fail for this reason. Most markets are conducive to businesses with DIS-economies of scale, implying dwindling margins with scale, which is why many businesses are small, serving local, fragmented markets that technology alone cannot consolidate. How do your unit economics improve over time? What are the efficiencies generated by economies of scale? Is there a real network effect that drives these economies?
I expect today’s resourceful founders to seek partners, whether it’s employees, advisors or investors, to help them answer these questions. Together, these cognitively diverse teams will work together to accelerate past any metaphoric valley and build the iconic companies taking humanity to its fantastic future.
Audio-Technica true wireless earbuds case recalled over fire risk
Audio-Technica, a company known for its high-end personal audio devices, has recalled the charging cases for its ATH-CK3TW true wireless earbuds after receiving multiple reports of overheating ‘incidents.’ The recall was recently highlighted by the US Consumer Product Safety Commission (CPSC), which notes that consumers who own the case can get it replaced for free.
The Audio-Technica ATH-CK3TW true wireless earbuds were announced in September 2019. As with other true wireless headphones on the market, the product involves two individual earpieces, as well as a charging case that contains a battery for recharging the earbuds. Consumers charge the case using a USB cable.
In a new post on its website, the US CPSC reports that about 7,450 charging cases sold as part of the ATH-CK3TW model have been recalled due to a risk of overheating, which may lead to a fire. These cases are made of plastic and sold in multiple colors; Audio-Technica will replace regardless of the shade, though.
Consumers who own a pair of true wireless Audio-Technica earbuds can check the model number on the back of the charging case. Assuming you have a recalled unit, you should stop using it immediately and get in touch with Audio-Technica, which will provide you with a prepaid shipping label to return the case to the company.
Once the case is received, the company will ship the consumer a replacement case that’ll work with their earpieces. Though there haven’t been any injuries reported in association with this recall, the company notes that four cases of overheating happened outside of the US and that damage to both the charging surface and case resulted.
Oculus Quest subscriptions roll out for games and apps
Oculus today announced that it’s now allowing developers to offer subscriptions to their apps. While perhaps not the best fit for gaming – which Oculus was centered around at the beginning of its life – the company says that by offering subscriptions, it can offer monetization options that make Quest a better fit for other types of apps. Obviously there’s no one-size-fits-all solution for subscription offerings, but in today’s announcement, Oculus listed several different apps that will offer them to start.
There are six different apps that are adding subscriptions today: FitXR, Rec Room, Tribe XR, TRIPP, vSpatial, and VZfit. Oculus says that content you’ve previously purchased in these apps will continue to be accessible after these subscriptions go live, so it sounds like developers won’t be allowed to remove content that’s already been paid for and stick it behind a subscription.
In FitXR, for instance, Oculus says that subscribers will get a new instructor-led class from the existing Box and Dance studios and the upcoming HIIT studio each day, along with access to multiplayer. Those who already purchased FitXR will keep the content they’ve paid for (which includes Add-On packs). While newcomers to the app will get a seven-day free trial to the FitXR subscription service, those who already own the app will get a 90-day trial.
With Rec Room, we see something entirely different. While the base app will continue to be free, a subscription called Rec Room Plus will be offered as something of a premium tier for those who want it. The monthly subscription will net users 6,000 tokens each month – which translates to $10 of real world cash – along with weekly four-star items and access to a special section of the store that’s reserved for subscribers.
Ultimately, what you get with a subscription depends on the app – some might require a subscription to access the app, while others might just offer the subscription as a bonus for those interested in getting some extra content. Oculus says that you’ll be able to cancel subscriptions at any time. To read more about the subscriptions being offered by these initial six apps, check out today’s blog post on the Oculus website.
Apple Fitness+ adds workouts for beginners plus older and pregnant users
Apple Fitness+ is gaining new workouts today, adding specific sessions for pregnancy and that target older adults and beginners. It’s part of a workout boost for the Apple Watch-centered subscription fitness system, and will also include a new Time to Walk session with Jane Fonda.
Announced last year, Fitness+ opened up its guided sessions in December 2020. It relies on exercise tracking through the Apple Watch, with tutorials and classes delivered via a variety of the company’s screens, such as Apple TV, iPad, and iPhone.
One of the challenges early-adopters have found, particularly those just getting into fitness, is trying to get up to speed. That’s something Apple is addressing today, with new workouts for beginners. Offered across the Yoga, Strength, and HIIT workout types, they consist of low-impact exercises and spend more time on how to perfect form to build good habits.
Much in the same way, the new workouts for older adults focus on the specific needs of older people trying to get – or stay – fit. They center on strength, flexibility, balance, coordination, and mobility, Apple says, with a series of eight sessions led by trainer Molly Fox, with guest appearances by Gregg Cook for Strength, Dustin Brown for Yoga, Bakari Williams for HIIT, and Jhon Gonzalez for Dance.
Each workout is 10 minutes long, and many can be completed with either bodyweight or a light dumbbell, Apple says. Alternatively, they may use a chair or involve leaning against the wall. They can also be combined with other Fitness+ workouts, carrying those modifications over.
Finally, there’s a new workouts for pregnancy series. 10 sessions – covering Strength, Core, and Mindful Cooldown – will be led by Betina Gozo alongside trainers Emily Fayette and Anja Garcia, each 10 minutes in length. They’re designed, Apple says, to suit any stage of pregnancy along with any fitness level. Again, as with the older fitness sessions, they also include suggestions on how to modify the more general Fitness+ workouts in ways to accommodate those who are pregnant.
Beyond the three specific categories, there are now two new trainers: one in the Yoga section, and the other in HIIT (High Intensity Interval Training). From April 19, meanwhile, Jane Fonda’s Time to Walk session will be added. That takes the form of an audio interview with paired walking instructions.
Apple Fitness+ is currently available in the US, Australia, Canada, Ireland, New Zealand, and the UK. Three months access is bundled with a new Apple Watch Series 3 or later, while existing owners can try it free for a month. After that, it’s $9.99 per month or $79.99 per year – for up to six family members to share – or bundle as part of the $29.95 Apple One Premiere plan.
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