A recent Techcrunch post entitled “Why Entrepreneurs Fail and Most Startups are DOA” offers generally spot-on insights into why well-intentioned entrepreneurs fail. The author’s punchy critiques include “Stealth is Stupid”, confusion into what makes a real “Entrepreneur” (vs. an “Intrapreneur”), and “Open your F****g blinders”, most of which are applauded by reader comments.
Author Ashkan Karbasfrooshan also implies that bad timing and market factors can be a major determinant as to whether or not your startup succeeds:
“Entrepreneurs rarely launch their business as a result of market (macro) conditions, but rather, personal (micro) timing and circumstances that have little to do with the broader landscape, even if the macro backdrop is at odds with the micro circumstances.
An example of this is launching a hiring startup in a recession when companies are laying people off by the boatloads. No amount of vision, ambition, determination, execution and luck will offset your bad timing. Ideally the macro and micro come together at the right time.”
I’ve had many discussions with fellow entrepreneurs about this. So - when is the right time is to launch a startup, with regards to the economy, industry trends, and funding cycles? One way to find out, is to look at market conditions when the current wave of IPOs first got started.
Boom Times and Bust
Everyone knows that Angel and VC funding is generally easier to raise during favorable market windows (call them “Boom” times). So more companies are started during Booms - resulting in a generation of startups that will compete for market segments, talented employees, and follow-on rounds.
Conversely, during Bust periods, VCs and investors hoard their cash, making it hard to raise funding at agreeable terms. So many would-be founders sit back and wait out the storm. This can be a blessing in disguise for those not afraid to bootstrap and pitch hard, since it means early access to follow-on funding rounds, expansion, or exits. As Warren Buffet says, “Be fearful when others are greedy, and greedy when others are fearful.”
So When Did the Current Crop of IPOs Start?
So it it better to start during Boom or Bust times? Accepting either to be true has implications on the decisions, momentum, and confidence with which prospective entrepreneurs attack their next venture. Recent “Boom” and “Bust” periods, defined by availability of funding and high-multiple exits, include:
- Boom: 1995 - 1999 (Dotcom boom)
- Bust: 2000 - 2002 (Dotcom bust)
- Boom: 2004 - 2007 (Web 2.0)
- Bust: 2008 - 2010 (Global Financial Crisis)
- Boom: 2011 - ongoing (Bubble? Or Real Revenue Generating companies exiting?)
Let’s take a quick look at when the current wave of successful IPOs (2011 - present) were founded, and how they’re doing today relative to their starting market conditions.
- Pandora- Founded 2000 (Bust market). IPO’d in June 2011 @ $16/share. Now down 36% since IPO ($1.7B market cap )
- Zipcar - Founded 2000 (Bust market). IPO’d in April 2011 @ $18/share. Now down 21% since IPO ($0.6B market cap )
- LinkedIn - Founded 2002 (Bust market). IPO’d in May 2011 @ $45/share. Now up 102% ($9.3B market cap )
- Yelp - Founded 2004 (Boom market). IPO’d in May 2011 @ $15/share. Now up 45% ($1.3B market cap)
- Homeaway - Founded 2005 (Boom market). IPO’d in June 2011 @ $27/share. Now down 3% ($2.1B market cap)
- Zillow - Founded 2005 (Boom market). IPO’d in July 2011 @ $20/share. Now up 67% ($1B market cap)
- Zynga - Founded 2007 (Boom market). IPO’d in Dec. 2011 @ $10/share. Now up 30% ($9.1B market cap)
- Groupon - Founded 2008 (Bust market). IPO’d in Nov. 2011 @ $20/share. Now down 10% ($11.5B market cap)
Winners’ Distribution: Half of these companies started during a Bust period, which does not support that they were negatively affected by weak market conditions. Of course, these eight company IPOs are marquis examples and represent just a sliver of the many industry wins & exits in the last two years - so they’re not comprehensive. Boom: 1, Bust: 1
Stock Performance Since IPO: The average price of the “Boom” companies’ current stock price is up 35% since their IPO price, or about 4X the average of the Bust companies (up 9% on average). Not being a financial analyst or professional stock investor, I would only note that the Boom companies are younger and have grown faster, which may be reflected in their stock price (amongst a myriad other factors). Boom: 2, Bust: 1
Market Cap: Interestingly, the combined market cap of the four Bust companies is $23.1B, almost double that of the Window companies ($13.5B). This is attributable mostly two big IPOs of “Bust” heritage (LinkedIn and Groupon) and only one from the most recent Boom period (Zynga - founded at the end of the Web 2.0 era). Boom: 2, Bust: 2
No Reason to Wait
There are many reasons why startups succeed or fail - some, like the team’s ability to execute, the market size, or rapid achievement of product-market fit, are paramount. What’s not obvious, is that market (macro) conditions matter much, at least from looking at the current IPOs. It would be great to see how many companies funded across the entire industry succeeded or failed - these eight company IPOs are marquis examples and represent just a sliver of the many industry wins & exits.
Still, their successes support that the best way to grow your startup is focus on the fundamentals: make sure you’re fixing a real customer pain, address a big market, hire a great team, and execute around a vision. Achieving all of these requires the stars to align - and when they do, I wouldn’t lose sleep over the macro-environment. Do your homework and get cracking.
22nd March 2012
Guillaume Nery base jumping at Dean’s Blue Hole, filmed on breath hold by Julie Gautier (by guillaumenery)
Excellent SXSW talk - “optimize in small steps, innovate in leaps”.
Friends of our family is passing legislation that would make it illegal to “possess, sell, offer for sale, trade, or distribute a shark fin” unless it was for educational or scientific purposes (California Assembly Bill 376).”
However, this linked blog article kind of misses the point, in questioning whether shark finning industry gets favorable treatment from the press, compared to if similar practices to used to prepare chicken, pork, or beef.
The real impact of shark finning lies not with cruelty (although it is indeed cruel), but with conservation. Sharks the world over have been overfished to dangerously low levels, which impacts their food webs and communities the world over.
As shark finning becomes taboo the world over, at least one extremely lucrative and attractive reason for killing sharks (i.e. to harvest their fins), will be taken off the table.
Azure, despite the best efforts of the Microsoft establishment to derail it into on-premise iterations, is a true cloud platform and has injected a huge amount of cloud savvy right into the heart of Microsoft’s engineering corps. Microsoft Online Services is a cloud enclave in the business applications homeland, where both engineers and product managers understand that cloud isn’t just a tactical deployment option, it’s a strategic enterprise lifestyle choice.
Speedflying…how much fun does this look?
Last week, I made the tough (agonizing) decision to move back from my 15” MacBook Pro to a ThinkPad, basically to make life easier in the new company environment. Fortunately, the ThinkPad is a nice machine with ultra-high resolution (1920 x 1080) - too bad it comes with a requirement to use Outlook.
Moving back to Outlook, after becoming dependent on Google Lab’s Gmail features like “undo send”, “Priority Inbox”, and “Forget attachment?”, is like losing five years of my life. Possibly 10. But…I’m treating this entire experience like a refresher diving or foreign language course- it’s important to stay sharp on both Mac and Windows platforms.
To permanently commit to Apple, and to have a workstation to start processing wedding and travel videos- today I bought a beautiful 27” iMac. To name a few of the killer specs:
- 27” 16:9 LED widescreen display (2560x1440)
- 2.8Ghz quadcore Intel i5 Processer with 8MB L3 cache
- 4GB SDRAM & 1TB ATA HDD
- ATI Radeon 5750 graphics card w/1GB memory
Video editing goes like greased lightening - and all I can say about the screen is, wow. Even the packaging box is a work of art - which is something that we all know from your iPhone or iPod package. But when I opened this huge box, large enough to safely transport this large device - and it literally contains three pieces - computer, wireless keyboard/mouse box, and power cable - all perfectly arranged at right angles and ruler sharp edges, I knew I’d reached the pinnacle of computing.
Today, we are excited to announce that we have been acquired by CollabNet Inc., the founder and corporate sponsor of the Subversion version control system. The terms of the deal are confidential, but I can say that there is a combination of cash and equity that will keep the Codesion team focused on building and growing the combined company until we achieve our ultimate vision (creating the epicenter of the Subversion universe). We are excited to bring our unique hosting technology platform and flexible, secure and reliable developer tool services, to CollabNet’s universe of 5 million Subversion downloaders, users, and now 6,000 corporate customers.
BBQ&A: Zuora’s CEO Grills Up Bulgogi and Eggplant: Tech News «
Here Tien delivers one of the best mid-BBQ pitches that I’ve seen (for his company Zuora). I’ll pass on Zuora’s recipe for SaaS subscription billing and go straight to the Bulgogi beef
Here Tien delivers one of the best mid-BBQ pitches that I’ve seen (for his company Zuora). I’ll pass on Zuora’s recipe for SaaS subscription billing and go straight to the Bulgogi beef.
josephmark Reel 2009 (by josephmark)
Our digital creative agency - they’ve helped bring Codesion (formerly CVSDude - see the logo at 2:09 in the video) a long way… and unearthed our frog.
At a future point, I’m going to write my personal perspective of the Angel vs. Venture debate, given the time I’ve spent building ties with both.
A couple of interesting notes from this article:
- FNAC - “Feature Not a Company” is VC jargon for a business that “could sell for $10M” but probably wouldn’t to mature into a $100M+ revenue company
- The gap between the end of your Angel cash runway and closing your Series A- what I’ll call the Angel to Series A (A2A) % crossing rate. As more and more companies have raised Angel money in the last 12 months (perhaps even a bubble?) - while the number of VCs have actually been reducing - the A2A rate will likely drop lower than most of the 2000s.
Y-Combinator, the famous Silicon Valley incubator founded by Paul Graham, is on a roll and a perfect example of where the Seed round economics are pushing boundaries. An angel investor friend of mine recently told me over drinks, that students are dropping out of MIT to do Y-Combinator. CTO’s of public companies are quitting to do a Y-Combinator company. Angels are scrapping just to have the opportunity to be pitched by Y-Combinator companies … and are even getting denied first meetings.
Y-Combinator itself makes small investments of $20K or less, then places the entrepreneur in a terrific position to access additional growth capital or forge relationships with potential partners (and future acquirers) like Facebook.
So, is the flurry of angel activity and entrepreneur-friendly opportunities offsetting the potential for a reduced A2A rate in coming years? Well, in the case of Y-Combinator, if you look at past years’ top 15 companies, it’s clear that success does breed success - and having the lower barrier to entry makes competing tougher and more Darwinian, but ultimately has to be good for the industry. Even if you don’t succeed in your first venture, the skills acquired by going through the startup experience are invaluable, and dramatically increase your success rate the second time around.
