The Accelerator Tour - So What?

Sam Altman wrote a post earlier this week about YC only accepting startups that haven't been through another accelerator. It got a lot of buzz and responses including Imran Ghory showing results with some data. Coincidentally, two of his success examples are Techstars companies. I've spoken with maybe hundreds of companies that have done an accelerator (or were currently in one) and want to also do Techstars. My initial reaction to all of those instances was curiosity around what the founders learned during the initial program, and why/how they want to leverage another program.

Start-Up Chile is a great example of a non-dilutive accelerator that could prime a company to take even more advantage of a top accelerator program. This is especially true for international startups wanting to be in a US-based program.

If the founders are great, the idea is interesting with big potential, and the drive and hustle is in the team, then why not accept them into another accelerator? Why not add those founders into a growing network that can always benefit from more great people? Most importantly, if the mentors and support surrounding that program have deep experience specific to that company, there's even more reason.

If you're coming from another accelerator just be prepared to explain the value you want to get out of a program, beyond raising money and connections. The traction, business model, and tech are what get you those things-- not a stamp of approval from a great accelerator. In fact, this is something commonly missed in interviews by many founders.

Fundraising for Out-of-towners in an Accelerator

I visited Techstars Cloud in San Antonio earlier this week while the companies are in the last month of the program and thinking about fundraising. I re-read Tomasz Tunguz’s post “The Importance of Hometown Investors for Startups” after having a similar conversation with multiple companies.

Startups that relocate for an accelerator program have unique advantages and disadvantages when it comes to fundraising. Making the most of the advantages greatly outweighs the disadvantages. In just a few months, the founders’ network will spike in number and value because they’ll have at least two cities with deep connections. That said, there are a few strategies to consider before going into the program. Below, I discuss approaching different scenarios. These are similar to the thought exercises we were diving into during those accelerator interviews.


The company knows it's returning to the original location post-program:

Being able to secure investment from the accelerator city’s investors is a huge win and vote of confidence. Initial interest in that new city is being influenced by being in that program over local companies not chosen/participating. The investors now have a company they wouldn’t otherwise see and can consider the out-of-town deal. Bringing that vote of confidence back to local investors can be huge.

If you have/get local investment from the hometown it’s more good signaling to investors in the accelerator city. That’s more security for making an out-of-town investment.

The company isn't sure:

This scenario may come down to where you can get investment. The new network is invaluable and can’t be forgotten, but stay flexible to move wherever the investment happens. Many Bay Area investors aren’t doing deals in companies that remain outside of the the area. This doesn’t mean everyone came from SF, though. Stay in the accelerator city if the lead investor comes from there, return home if the money is there, or move to the city with proximity to investors or customers.

The company is permanently moving to the accelerator's city:

Here is the easy one. You need to get investment from the new city. Network through quickly and take advantage of being the new kid on the block. I’ve seen plenty of startups have local press do stories about their moves because of an accelerator. Warm up relationships with angels and funds throughout the accelerator period with the intention of asking if they’re committing in the future.


Having investors from the previous hometown is, again, a very big plus. However, getting local investors in your new HQ city is plenty of reason for a return trip to where you moved from for a fundraising blitz. Your network knew you before, they were excited about you getting into an accelerator program, and, despite losing you to that city, it’s a deal that requires serious consideration. The investors that committed helped create that momentum.

There is always a healthy discussion around this subject and the multiple scenarios that come from it. The approach to fundraising doesn’t happen once the investor deck is complete. It’s a constant thought process of positioning and using momentum to improve the chances for success. Consider the move as an opportunity to start another p of that exercise. Just remember to research which investors don’t invest in companies outside of their own city to avoid wasting time.

Happy 31st

My Aunt just reminded me that today is the 31st anniversary of my Grandma's company. It's called Marker's. Clever, right? Each of her Three children had, or are having, significant impact on what it has become. It's a few years older than me so I literally grew up in it. First job-- rolling spare change to be taken to a bank and made cash. I took my percentage to buy CDs or video games. I think I've had a job, serious or not, for the vast majority of my life.

Those thoughts come up because of how special of an achievement that is for her. It survived three significantly difficult recessions: Texas' S&L Crisis in the late 80's and early 90's, post-9/11, and the "Great Recession." Luckily the S&L crisis helped to make the most recent one not as significant here as in other states. She is a woman in a male dominated market. It's also a legal services business that continues to face legislation change that rocks the industry. Yet, it's better than ever today after weathering the storms and refining or redefining the business. 

The truly amazing thing is all of the employees through the years that have helped build it. The plan has always been to provide the right kind of training and development to allow the people to be great. That means all people across all diversities. That feels like the soundest business lesson I've ever received. Also, it has been proven by maybe more than a thousand people that have worked there or that are there now.

31 years is a big life goal and something I'll always admire. Congrats to her, all of the employees that made it what it is today, and the family that have led it along the way.

Business Models are Taking an Early Lead

Focus is shifting to better management of invested cash and setting up a sound foundation for a business-- not just a seed stage startup. There’s a difference. Many seed stage startups are building towards proof of concept and potential product/market fit. This makes them eligible for Series A. It’s done however possible and at the expense of burn. Startups begin to act like companies once there is a Series A investment from VCs to guide them.

Everyone is talking about the reality of early stage funding being harder to get at seed and A rounds. 2016 will be the return of seed stage startups working to be companies out of the gate. This means building the soundest business model possible early on; not sacrificing proof of concept for excessive burn.

I’m admittedly a broken record for using a financial model as a tool to do this. Own the numbers going in and out of the business that have dollar signs in front of them. For many, it’s simply a reality of looking at them and facing the truth. Managing this consistently, though, can become a relief.

Having a financial model doesn’t mean pay someone a ton of money to build one for you, or spend 30 hours on a great model. Three hours in a Gsheet to structure a model with drivers is more than enough to track revenues, expenses, cash flow, and working capital. Updating this weekly, or at least monthly, with actuals to mold the forward looking projections is how you manage burn rate. Managing burn rate is how you look appealing to investors. Looking appealing to investors is how you navigate the simple conversation around the business model to get to the big vision. This big vision was what garnered so much of the investment over the last few years. Now it takes the other metrics like revenue, burn, and maybe even profitability to entice investors. Those need to be healthy for the big vision to hook investment capital.

Don’t build a financial model to show investors how you plan to build a sound business. Use the financial model to build the sound business investors are looking for. Who knows, maybe bootstrapping makes sense for the business you were ready to raise 20M for :)

Seed Explosion and Steady A Volume

The "Series A crunch" started to echo well over 2 years ago. The thought was so much seed funding being deployed would surely create it as A funds ran thin, but that wasn't the case. LP capital has been strong over the past several quarters and even more capital is being deployed at the A round, but to a relatively unchanged amount of companies when compared to overall seed deals.

This isn't a crunch-- it's an explosion at the Seed. Check out this post from Manu Kumar that dives a bit deeper into this. I also put a small anecdote down about it in February.

A lot of founders that raised seed funding for the first time in the past ~2 years have seen a unique landscape of plentiful investors that continued to grow in number. Micro VCs became even more common, crowdfunding opened up new capital alongside a strong run in the public markets, syndicates increased crowdfunding confidence, and bridge rounds (read: Second Seed) became the norm. These bridge rounds also feel like a Series A buffer and a bit more runway to make it happen, bloating the seed stage even further.

I think it's important to state the fact that growth outweighs all other factors to help you reach the next round of funding, even if it's a bridge. Of course, you'll have to prove even more growth to reach the A. There have been plenty of companies that were in build-mode, finding the right customer segment, whatever, for 12-24 months that finally launched into a growth spurt to hit an obvious Seed or A round 2 years after starting. This came with a repeatable sales model and technology that seems scaleable alongside growth. Raise from a position of undeniable growth, not soft assumptions that look promising.

Keep Investors+ in the Loop

Company updates to investors, advisors, and even mentors, are useful to you and the company. Actually, they’re critical. The whole point is to keep everyone closely in the loop (at least monthly) with things that are happening and what you might need. That means the good and the bad. Investors and others receiving that email can potentially react to the ‘bad’ or the ‘asks’ and jump in with advice, introductions, or personally help. Maybe the ‘good’ needs a small course correction, experienced opinions matter.

There’s another reason to do these updates that can feel a bit more intimidating or intrusive, and that’s showing everyone you’re making significant progress month-over-month. This can become a type of accountability to push the founders and company to make sure every update has substance.

Updates are something so many preach even though the consistent follow-through rate is low among founders, relative to the incremental value updates can add. Make sure you’re doing this, and not just during fundraising or anytime something great happens. You’re losing the real value-- help during the tough times --and those receiving the updates know you’re filtering what information is going out.

Early Stage SaaS Financial Model Template

This post is directional to help someone get up to speed with the SaaS financial model template you can download at the bottom. Just know this is a really boring post unless you’re working with the model!  Once you’re done with this post, continue to play with the numbers and really understand what’s happening in every cell.  Feel free to reach out to me with any questions through the comments, twitter, or email.  I can dive into more theory and the approach if asked.

It’s best to understand your high-level business model to talk intelligently about how you grow over the next 12-18 months and reach a Series A. For Seed stage startups and investors, it’s all about reaching Series A and having a real business to attempt scaling.

Finally, the real key to doing this right and preparing for an A round is to input the actuals in every month. Keep yourself honest with projections, understand how the business is trending, and show a healthy graph that extends from healthy actuals. This builds your investor collateral and puts you in an even better position to raise.

Download the file from my Dropbox: Early Stage SaaS Financial Model Template

Before I walk through each of the 4 tabs in this model, a few items and tips:

  • The blue cells are the only cells you should change. Anything white is a formula and is ultimately calculated from blue cells. More power to you if you want to change blue input cells into formulas! I’d suggest changing the color of those to white so you won’t forget they’re no longer inputs.
  • The model can be extended infinitely and I’ll explain how to do that at the very end. For a pre-A startup, 12-18 months is the max you should project because that’s about how long it should take to reach Series A.
  • You can use Excel’s ‘Trace Precedents’ or ‘Trace Dependents’ in the ‘Formulas’ tab to understand what that cell is tied to. This is key to understanding the calculations and what’s happening.
  • Create graphs from the financial statements (or whatever rows you’re affecting by changing inputs) and place them under the inputs you’re working on. This is a much easier way to watch the changes as you make them instead of scrolling up/down or going from tab-to-tab.

Tab 1: Customer Segment Drivers

First, notice that there are three variables for every single input. Think through these three scenarios for every customer segment you populate because there is a key purpose to having these.

Start by renaming the workbook’s header on row 2. That will populate through to each tab. Rename each customer segment in row 4 to whatever you’d like.

Notice that row 7 allows you to switch between MRR (monthly recurring revenue) and ARR (annual recurring revenue). I’ll come back to this.

  • Use cell C9 to rename the tracked metric that doesn’t actually control anything other than a metric you define. Think about it as the main qualifier you would explain to an investor when detailing a customer’s profile. This could be the avg. number of licenses you’re selling into each customer, the rows of data each customer uploads into your software, or the amount of revenue each customer does per year. Again, this doesn’t affect anything other than a metric to be tracked.
  • Cells E10:E12 name your 3 scenarios to cycle through as variables. These only affect the words on this tab and are insignificant.
  • Row 14: ACV (Annual Contract Value) will control revenue per customer and the variable on row 7 will decide whether they pay monthly (1) or yearly (2).
  • Row 19: Sales Commission is calculated as a % of the ACV, put ‘0’ if you aren’t paying this out.
  • Row 24: Implementation Revenue is a one-time fee in the first month you acquire a customer, put ‘0’ if you aren’t receiving this.
  • Row 29: Operational Costs are also a % of the ACV and are charged monthly, regardless of MRR and ARR. Think of hosting and other support directly tied to the software you’re providing.
  • Row 34: Renewal commission is also a % of the ACV and will be paid out with each renewal. I’ll discuss renewals and controlling the timing below. Put ‘0’ if you aren’t paying this out.

Tab 2: Model Drivers

This is where the magic happens. Once you’ve populated all of the drivers in the first tab you can basically forget about it and simply cycle through each scenario for each customer segment. More importantly, investors can do the same and see how you’re forecasting growth based on the three different scenarios without extra questions or building multiple models. This is why taking your time matters on the first tab and being thoughtful with those inputs.

If you want the variables to work together and change together, simply create an input somewhere that those blue cells equal. You can then put a ‘2’ and everything will go to that scenario.

The Customer Acquisition Box (Rows 4:33)

The dates are more important than you think! Cell G7 is the only input for the date. Enter the last day of the month you want to use (i.e. 8/31/2015) and it will populate the date through the entire workbook. Don’t send a model to someone with previous months having projections in them. You’ll potentially come off as lazy, or maybe even provide proof that you missed targets. Those should be filled with actuals or the date should be changed.

  • Rows 14:17 are where you input the number of customers starting that month. If you want to create a formula to drive these, even better! Just remember to switch the color to white so you know they’re no longer inputs.
  • Rows 8:11 are calculations that tell you how many new customers are starting that month. They mimic the blue inputs and help to drive the active customer numbers after churn. It seems redundant, but you can always hide this section if you only want the blue showing, or vice versa.
  • Rows 20:23 work the same way as 14:17, with integers, except they’re subtracting from the active customer count.
  • The rest of the ‘Customer Acquisition’ section is self explanatory.

The Customer Drivers Box (Rows 36:129)

To the left are small plus signs to expand each customer segment’s drivers. This will keep the workbook smaller to quickly look through. Remember my tip to use graphs while working with various inputs.

Start by expanding the first customer segment driver box at row 38. Here are those various scenarios you created on the ‘Customer Segment Drivers’ tab. Simply change the numbers in column D between 1, 2, and 3 to cycle through your scenarios. You’ll also see some very basic unit economics for each customer segment below the scenario inputs; customize those for whatever is most helpful and relevant. It’s identical for each segment.

The Revenue and Costs Box (Rows 132:166)

This is where the acquisition and customer drivers come together. Work through each section here (they’re all formulas, no inputs) and use the trace buttons I mentioned to understand what’s going on here.

The Renewals Box (Rows 170:198)

This is where you control how often your customers renew via cell F174. Put in the number of months to renewal and they’ll automatically renew (churn is accounted for like FIFO). It’ll also create a renewal commission if you’ve set that to more than 0% but not create more implementation revenue.

If you want customers paying for services every 6 months, you can do that. Set the ACV on tab 1 to whatever the 6 month contract value is, set the revenue structure on tab 1 to ‘2’ (ARR), and set the renewal to every 6 months. You can do this with any amount of time.

If you’re interested in the formulas that create the renewals, click the plus signs and trace the cells. If you don’t care and are happy with it happening, ignore those :)

The Sums for Financial Statements Box (Rows 201:257)

This is exactly what it sounds like: all of your totals that are used to populate the income statement. Run through all of this, use the arrows to trace what it’s summing from, and that’s the Model Drivers tab!

Tab 3: Headcount

This tab is straightforward. Input the title, name, and whatever into column E, the salary into column F, the month they’re starting in column G, and the year they’re starting in column H. Everything else will populate through from that.

If you need more fields to add headcount you have two options:

  • Understand how I created those and create more
  • Add multiple people in each field and multiply the salary by that headcount

Tab 4: Financial Statements

This is already an incredibly long post so I’m not going to dive into the income statement line-for-line. If it’s not automatically populated you can use the blue input box between the row label and numbers to populate the entire row. Change those formulas however you need to make the expense calculations work. The best way to understand this is to start throwing numbers in those blue cells and seeing how they work.

The Cash Flow box isn’t a true cash flow statement because it isn’t pulling from the balance sheet. I did my best to consolidate the balance sheet items and make something that is helpful to an early stage company, and this is what made sense. Input your starting cash position in cell G83. Cells G87:88 and G92:96 are simply starting inputs that populate through to each field. The exception is row 95, which is calculating using COGS from the income statement.

The key piece here is row 101 to input when your receive investment and not have an insolvent (read: no monies) business through your projections. I already wrote a post on thinking about this and how to work through that process so read Gunpowder in a Startup Financial Model and be a pirate.

Below that cash flow calculator is a small box that’s calculating burn with zero revenue, regardless of what you’re projecting.

Done! That’s that. The better you know and understand your model, the easier a lot of investor conversations will be. Not every angel or VC needs these or wants to deep-dive into them, but I think it’s a crucial exercise for any CEO. Upselling is a huge piece of growing revenue in a nonlinear way for SaaS and especially at the time of renewal. Investors also love understanding how you can upsell in the future and what it will take. Unfortunately I don’t have that in here for the sake of simplicity, but don’t forget that and let me know if you create a simple way to build that in!

How to Extend the Model’s Dates

It’s pretty simple to extend the model, but an early stage company should only be concerned with the next 12-18 months at a very high level. Anything beyond that is even more BS than 12 month projections, but sometimes it’s necessary for certain investors or angel groups.

Save before you try this!

Start with the Model Drivers tab and select the entire skinny column at the end of the model. If you opened up the downloadable file from this post, it’ll be column V. Insert columns to the left of this and always keep that skinny column. You’ll break calculations if you do not.

Highlight the last two populated columns (‘T’ and ‘U’ if it’s the original file) and click and drag those over through the new columns. Again, leave the skinny column blank. To click and drag, you will see a small, blue plus sign just under the letter in the top bar. Click and hold this while dragging to extend. You must grab the two populated columns; only grabbing one will create some errors when copying blank cells.

Now do that for the Headcount and Financial Statements tab and in that order. Everything should populate through properly, and you can do this for as far out as you wish.

Community from Techstars Programs

We finished our third Techstars program in Austin on June 17th, and it was another great demo day with the community. I’m stoked to see what the 10 teams are going to do in the coming months and years. I will eventually write a lengthy post about the experience and takeaways, but what's top of mind is the community aspect of each program and how it compounds on top of itself. Everyone talks about the tangible takeaways for participating in a program, but the intangible will stay with me forever. 

I made great friends within the program, created lasting relationships with mentors, and will always be close to everyone who went through a program. This is true for my professional and personal life.  

There are the obvious benefits of having an incredibly dedicated and smart person in your corner in the Managing Director of that program. Mentorship from the best in the brightest in the city is a big one, too. Being in the Techstars network immediately connects you to thousands of founders, mentors, corporate partners, etc. What is just as valuable is the community we work to build in each city and the camaraderie that comes of this within each individual program that permeates through each new class of companies.

I’ve been through 3 programs and worked with 31 companies that are now part of the Austin portfolio. I’m incredibly thankful to have worked with the people in Techstars and founders of each company, who are now great friends. The community that’s built in each class amongst the companies is incredible and can only really be understood if you go through a Techstars program. This is the greatest takeaway for me, and something that will continue to impact my life professionally and personally for many years to come. It’s also what you hear about the least.

One of the greatest feelings is dropping into another program while it’s in session and seeing the teams interact with each other. Drastically different personalities, working styles, office layouts, and whatever else make the atmosphere different, but the feeling of community is the same. This is incredible to me and speaks volumes for what each program and the people running it are doing in those cities.

We keep saying the Techstars network is for life, and that just grew exponentially with the acquisition of UP Global. I’m proud to be a small node in that network, and I’m proud of the community we’ve built in Austin in just 2 short years that includes hundreds of people. The fun part is sharing it with the broader network.

Equity Crowdfunding is DIY

In 2011 I joined Microventures, the first online equity crowdfunding platform, and helped grow it through 20M invested. I say that only to point out we actually did this stuff. Our small team helped create transactions in a nascent space abscent of competitors actually operating for the first year. I know this world deeply and understand both sides of the transaction.

When entrepreneurs speak about their experience with any platform it's almost always mixed feedback. In some cases, it leans more on the negative side. There are three parties involved (platform, investors, startup) so it can be tough to understand exactly why it didn’t work. The predominant reason is the startup and entrepreneur raising couldn't get it done. That statement isn’t a catchall, but I believe it to be true.

The thoughts below assume the 'platform' has active investors and actually works. When someone speaks negatively about their experience on a platform that I know can provide investors, I have to ask "how much did you raise outside of that platform?"

Equity crowdfunding is DIY and success is completely dependent upon the company raising. It's unlikely you’ll see an equity crowdfunding raise subscribe in less than a month unless you bring some serious momentum with you. You're going to have to execute on the business, show continued traction and press, have other investors enter to start the round online and make smaller investors feel more comfortable, pitch for insignificant check sizes and low conversion to invest, constantly monitor and maintain a pipeline of interested investors, etc.  

Sounds like raising a normal round, doesn't it? Just like your normal fundraising activities, if you aren't 100% committed to a crowdfunding raise, you're going to struggle to subscribe it, or see a percentage of what you were expecting finally subscribe two months in. 

Below, I'll lay out the obvious trends that make companies doing an equity crowdfunding raise successful mixed with some tips that might not be obvious.

Momentum is the main factor. This is true for fundraising, in general. You need to create real momentum to subscribe the round and create scarcity for investors that are slow deciding. A few of the later tips in this list involve creating momentum on the platform if you don't already have it from normal investors.

  1. Make sure the platform’s founder(s) and operating team are entrepreneur-focused and sincerely give a shit about you and your company’s purpose.

  2. Don't do general solicitation and don't flirt with it. The time will come where this matters and is enforced.

  3. Only raise from accredited investors and leave that liability of validation to the platform.

  4. Kickstarter usually has a 30 day window. Equity crowdfunding doesn't work like Kickstarter. Get out there and hustle to subscribe your raise and understand it could take 30-90 days. If you're at the 30 day mark with little traction, be realistic with your time and effort going forward.

  5. Ask the platform for successful companies similar to your business that raised. If there are none, maybe they should poll investors to gauge interest in that type of deal. If you have a highly technical product and no well-known investors already in the round, crowdfunding probably isn’t for you.

  6. Investors are watching your progress the whole way. Press should be shared, milestones on traction and development announced, outside capital should be coming into the round to create a feeling of scarcity with all investors, and the company should generally appear active. All of that communication burden is on the entrepreneur to craft and deliver.

  7. Load the cannon before you begin. Ask the crowdfunding platform to help you prime it with some of their most active investors. As soon as everyone is committed to working together, try to send out an email blast to take conversations from their most active investors. The rest of the investor pool won't see this email. If you can start the raise showing tens of thousands or more already subscribed, no one will feel like they're first in line at the buffet while everyone else is waiting.

  8. You can also try to funnel a couple of $25K+ investors you're working with directly into the campaign. Ask the platform to honor these investments without taking a significant (or any) cut off of the top since you're bringing the money.

  9. Be ready to take the inbound and treat insignificant check writers like angels. They might want to talk for 30 minutes or email back-and-forth in length. If that's a hassle then raise the round outside of this avenue. You’ll have the same exact interactions with angels IRL anyway.

  10. Have a big-name investor or two in your round. This is easier said than done and obvious, but there is causal relationship between this and successful campaigns. This also helps you short the decision making of those involved in number 7.

  11. Gain as many interested investors as possible that can't get off the fence and push them with a deadline. When the raise loses momentum, give those investors a week and offer to take any and all convos/questions during that time. Diligently. The platform can take your deal down at the deadline, but you can realistically still work those warm leads to come in late. Is the platform going to say 'no' to a potential bump in their revenue and a final higher raise number? Probably not.

  12. To reiterate: it's amazing what press on major news outlets can do for crowdfunding investors. It's the same with a Kickstarter campaign as it is with an equity-based one. Continue to share new PR, and hopefully some of it is coming from a major publication. As irrational as this decision factor might be, it moves the needle.

  13. Discuss all of this and more with the platform before agreements are in place.

  14. Try really hard. I'm beating the dead horse on this one, but if it's a secondary priority your results will reflect that. There is no easy money.

Gunpowder in a Startup Financial Model

A financial model is about 3 things at it's core: investment in, hiring the right people, and acquisition of customers/users. The capital in is the gunpowder that drives the top and bottom line of your P&L. If you hate finance, replace "your P&L" with "success you're creating in your company".

Customer/user acquisition is obvious. It drives top line revenue (gross) and affects the hiring you're projecting to build-out tech, to support a growing customer base, and to increase your sales team. This all relates to product/market fit and a successful acquisition rate shaping up together and hiring to increase revenue, hiring because revenue is increasing, or both.

Hiring is how you become a juggernaut. Companies are naturally ready to hire great people at the time they also need to fundraise, so one typically comes first. If you add headcount on a model, the related unit economics that role affects should begin to improve after they catch up to speed. If they don't, you're hiring the wrong people and/or can't train and manage.

A sales hire or growth hacker should start to show an increase in acquisition and then revenue. A successful hire and training process would increase this in a non-linear way. If this is happening IRL, it's time to hire more people to do the same. New developers should be building out tech and scalability, so acquisition and implementation is based on these hires. You can also think of headcount projections speaking towards the employee option pool your investors want to pad.

I suggest building out the financial model with the investment line item in cash flow empty. Once everything seems reasonable and conservative, add the investment and adjust acquisition and hiring based on the new, available cash. Revenue and expenses should increase simultaneously. Another way to think about this is to have linear-ish growth before the capital comes in, and then use that to acquire and hire to the point of non-linear growth. If you're actually non-linear before the capital projection, then your round should come together.

Priced Round or (un)Capped Note

A common question is if a company should raise convertible debt or price the round for equity at the Seed. The simple answer: find a good lead who will make the decision easy. "Convertible note" has become synonymous with "Seed round" because of a trend, but it isn't the de facto use case. You can use convertibles or a priced round at any point. 

There are several mechanics within the terms of a note and priced round that become a bit complex when you start considering the current terms' effect on a future round (which you should absolutely do). I'm going to focus on valuation to keep it short because it's typically the most impactful economic term.

First off, a company doesn't have to worry about this if they haven't raised any capital. It doesn't matter as long as the terms are properly aligned for both sides, so find a good lead investor.

A convertible note with a cap has an implied valuation that sets a max price for those investors, but they could convert anywhere below that. While a discount is in place to protect them if the new investors get a price lower than the cap, it creates a weird signal to old and new investors-- a proof point of missed milestones.

A priced round has the obvious pre and post-money valuation. Like the convertible note investors, equity investors are expecting you to hit certain milestones and successfully raise the next round of funding at the highest possible valuation that makes sense for the company (this should be read differently than “for the founders”). There isn’t a conversion to worry about in that next round, simplifying negotiations between the company and new investors.

An uncapped note happens more than you'd expect just based off of understanding the mechanics for investors. You basically take the money, and those investors get a discount upon conversion or, in crazier cases, get the same valuation as next-round investors. This means the entrepreneur didn't reward the investors with anything after they took the early risk. If you can get it, great, but why would you do that to investors you're building a relationship with? You want them to invest in your future companies so treat them fairly.

A priced round has the clearest path to the next round if the terms are fair and 15-30% of the company is taken before the A round. This percentage is also what convertible investors are looking for once converted into preferred stock. Those investors will be diluted down in the long run if you build something successful so don't balk at the percentage. A capped note should be structured strategically and at healthy market terms. Be very aware of the conversion triggers and what milestones are needed to raise the next tranche/round to convert the investors at the best terms possible for the company.

Get Low - Austin's Median Valuations

PitchBook released their 1H 2015 VC Valuations & Trends Report . Near the end of it, you can see Austin and Denver/Boulder clearly have the lowest early stage (Seed, A, B) median valuation based on PitchBook's data. This resonates with what I see and know being involved deeply in Austin, the increase in outside investors spending more time here, and generally seeing rounds across the nation and internationally via Techstars and other available data. 

More than anything, the reason I'm most excited about this number is the looming valuation correction that will happen in the near-ish future. An ecosystems that clearly doesn't need a correction across the board is Austin. We also have reasonable economics for talent, living expenses, and are seeing healthy growth as city, in general. 

Looking at the numbers YoY we see that Austin and Denver/Boulder already saw a small dip from 2013 to 2014. 

Austin has plenty of ground to cover for better early stage funding— we aren’t perfect. I think correcting the weak competitiveness and drive perception that worries outside investors [on the coasts] is a good place to start. What we do know is the valuations are healthy and companies that are doing well will provide the right opportunities for investors to see their investment grow with subsequent rounds. 

Living outside of Your Head

We went on an incredible journey to Marfa, TX with the Techstars Austin Summer 2014 group. I took away a ton of deeper relationships with great people, and some of the greatest memories I have. Like the mayor and his friend serenading our backyard BBQ with traditional border music. Not random at all. 


My favorite session on that trip was a Zen meditation workshop with Nick Terry, a 25-year Zen meditation practitioner living in Marfa. He basically oozed calm. Nick lead a circle of about 40 of us that get too little sleep, compulsively answer emails and alerts on our phones, and work 60+ hours a week on the regular. The normal startup life. Nick was the antithesis of what our life had been during the first half of the program. He also significantly changed my day-to-day.

I meditate almost every day now, sometimes more. Meditation takes practice so right now I only stay focused for 15-30 minutes. If you know me, it's a good chunk of time for me to be focused. Those short sessions bring me outside of my head to find balance. 

Sit straight up with perfect posture, close your eyes. Live in the moment and hear and feel everything happening around you-- almost like building a mental image of your surroundings --and let your mind focus on the outside world. 

I don't work during meditation, only focus on my surroundings to live in the moment. I come out of that with a clearer head and the highest point of mental focus that day. That's when I quickly cleanse whatever is weighing on my brain and prioritize my mental to-do list. 

Throughout the day, take small actions to stay relaxed and in control. The toughest suggestion to be consistent with is taking a deep breath before you pick up your phone. As soon as an alert hits-- breathe --and then pick it up. I find it incredibly difficult but relaxing when I'm working too fast.

Try reading Being Zen: Bringing Meditiation to Life by Ezra Bayda

Because the cool kids are doing it

Too many startups have that competitive matrix where they’re perched majestically up and to the right, above all other competitors, as a startup with no funding and little traction. There’s also the infamous grid where, to everyone’s surprise, you check EVERY box while others are struggling to get those coveted check marks.

The only thing these communicate is that you’re not being honest with yourself about the competitive landscape to understand the gaps to work on and exploit. Competition is a good thing and looks different from many angles, which are basically the positioning in the market.

Competition can be the signal in the market that actually validates whatever you’re going after. In this case, it’s more a question of how far along the competition is and using the market size to determine how many winners could be big enough for investors to feel significant returns. Maybe it's a big market with dinosaurs owning it that have begun decomposing into fossil fuel to run your business from. The market could have been recently disrupted with multiple early-stage companies attacking similar problems to own a piece of a massive market.

The only real concern is if 2-3 companies have already raised significant funding and are in a footrace alone to the top with market penetration. If you’re a ride sharing service going up against Uber and Lyft right now, good luck!

The competition slide, and eventual conversation, is a mental exercise to define all of this and paint a clear picture of where you stand and how you can be the/a major player. This means big enough for investors to own a very small portion of a big company.

Crafting the Investor Deck

Crafting the right pitch deck seems mysteriously formulaic because it is. I have a thought progression to lay out, but this isn't a template. I'm not convinced you should work off of a template. In the end, tell a compelling story that flows through and leaves the reader with the questions you want to receive first. Knock those out of the park to get a conversation started. 

1 liner and what you do - Keep it short and don't be a "this for that" comparison. Succinctly explain the business and let the investor quickly understand you're "this for that" without it being stated.  Try the 1 liner under your logo on slide 1 and what you do on slide 2. 

THE TEAM SLIDE! - Don't be so concerned with this. Are you a group of badasses with highly relevant industry experience at a leading company, or have a significant exit or 3? You aren't? No big deal put it towards the end. 

Problem - This will most likely be 1 slide explaining the problem briefly. If you need two just be sure it's necessary and not adding redundancy. Remember your audience is smart and can understand problems.  

Solution, Model, Product - A deck becomes art when summarizing all of this. Most of your time should be spent thinking how you plan to present this information and tell a compelling story. Think about what questions you want to receive and optimize to have the reader lead with those. I think these are all very separate points and should feel like individual presentations. Minimize the number of slides used and intelligently explain where the product is and how it works. 

The market is big enough - Great. Early stage investors just need to know it's big enough to feel an exit after dilution from multiple rounds (a big exit). Show the beachhead opportunity and the total market that is in the billions magnitude. 

Traction - In the end, the investor wants to know you a) deeply understand the customer and b) know where and how to find them. Sometimes this can be a beachhead strategy with intelligent thought around expanding it to the rest of the market. There are limits to CAC, but in the early stages it's ok if you have a sound plan to bring it down in the future but need capital to do so. Show a repeatable acquisition model.

Growth - Marketing, sales, whatever you want to call it. What have you done to understand this and how is it automated? Explain the engine you're building. 

KPIs - This is likely tied to growth, above. You need to know 3-4 KPIs that are the most critical at the current point in the business. Present those and point to the most critical one, maybe add a few words on how they're interrelated. Investors want to know you understand what's moving and you have control of the mechanics.

To revenue or not to revenue - You should show revenue projections, but simply and quickly, maybe in the appendix. This is more about understanding when you think you make money, how much customers might be willing to pay, and what exists at that point-- context is from the rest of the deck. Show somewhat reasonable revenue expectations for year 1 but don't kid yourself with long term or lofty. 

Competition - Be realistic, you aren't the first to do this and there are other companies in the space. Address this head on and explain your position in the market relative to the others. If you miraculously check EVERY box you've created to show the competitive market, congrats. Its not believable, though. Be upfront with competition and layout the competitive landscape fairly.

Roadmaps - These might belong in the appendix. You absolutely need a technology and business development roadmap to show the investors what's next (and really what's missing). Be realistic and align them with milestones. Maybe it's a Gantt chart. 

The ask - Ask for money. If you don't have a lead investor that's set the terms, you don't need to say what kind of round (convertible or priced) or what terms you want. You're already complicating the negotiation by anchoring on numbers before they know the business. Pick a reasonable number and shoot to oversubscribe, no terms unless a lead has set them.

Use of Funds - The breakdown can be a % used for team, technology, customer discovery, customer acquisition, etc. Maybe add what team members are most critical hires to show the gaps in the current team and that you understand them. Add this to the ask slide. 

Milestones - Again, this might be combined with use of funds on the ask slide. Show how you're using the funds to reach certain milestones to get to your next round of funding. Think strategically because an investor is seeing how you understand what you need to to raise a much larger round. Don't underestimate the thought process here. 

Appendix - It can grow from gaps in conversations you have. Things like: potential exit scenarios; hiring roadmap if it isn't in the use of funds; case studies and specific customer testimonials; more details on engagement; deeper competitive landscape breakdown (still put competition in the main deck); more traction graphs and projections. Just make sure the appendix isn't bloated with low-value items. 

Bad at design - fix that. Here's the dirty secret: we're all shallow and would rather look at a pretty deck. It's not an absolute deal breaker but imagine sowing up at your wedding in shorts and ankle-high socks. Content dictates design-- make sure there's substance before aesthetics.

The investor deck is a living, breathing resource that defines the company. If you're moving at the pace you need to get investor interest, it will change week-to-week in small or significant ways. Keep it up to date and don't be caught on your heels. 

Round Size is Up; Deals are Down

Mattermark released their Q1 2015 Mid-Quarter Trend Analysis the other day and macro trends continue to point towards seed and A round capital getting harder to come by compared to previous quarters. The report compares Jan-Feb 15th 2014 to 2015.

Seed deals have dropped 71% in 2015 when compared to 2014, and A round deals dropped 43%. There’s still half a quarter to go so those numbers alone don’t necessarily say much.

What we can draw something from is invested seed capital only dropped by $10M (5% decrease) in that time frame with ⅓ the deal volume. This is likely due to valuation creep and investors needing a certain amount of the cap table to make the deal worth it. Larger checks are being written at valuation terms more favorable to the company, so investors are putting in more to keep their desired percentage. There are other influences that could be factored in, but for simplicity that's the main one. 

The average A round deal increased by 71% while the average seed deal shot up by 216%. 

You’d naturally expect a lift in A round funding after we’ve seen an abnormally large amount of seed deals over the last several quarters. Likewise, the A round could be larger after raising an initially larger than normal seed round (another consistent trend). 

Until there's a correction in valuations we could see seed deals continue like this, causing a steady dip in the number of seed stage companies getting funding. 

Product/Market Fit with Inside Sales

A lot of founders hear “inside sales” and cringe a little or don’t react because they think it’s irrelevant. These are wrong sentiments for plenty SaaS and Marketplace companies.

Inside sales can be the precursor to continuous deployment and successful A/B testing.

I used to spend the bulk of 9-5 on the phone activating and re-engaging users/customers on the platform. All the real work happened during early morning, evening, and nights to let me focus on talking to people in the day. These calls and emails were invaluable early on to understanding which type of user was likely to turn into a customer, why that was, and what their future expectations were. Basically, this is how we learned product/market fit without deep demographic data on users that were signing up to create accounts.

I can’t say it’s a one-size-fits-all, but it’s close with a little force. Before you start early user and customer interviews to understand what and how you’re solving problems, read up on inside sales. A/B test various scripts with people (on the phone or via email) and start to mix and match the successful pieces to come up with scripts that consistently work with certain types of people. With enough interactions (probably a metric shit-ton), you’ll start to see the potential fit and direct the product, messaging, and acquisition towards that.

If you were right and your KPIs start to tick up and feel repeatable, you’re already set to begin growing an inside sales team you never knew you wanted.

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Translation for inside sales: an inexpensive way to grow your acquisition strategy by tying sales goals to compensation and keeping the burn consistent with performance.

The 30 Minute Investor Meeting

In the end, a conversation is what you’re going for. A two-sided, challenging, thought-provoking conversation about early assumptions and what the business could be. Back this up with proof of concept and actual use case examples/customer conversations and it gets interesting.

Don’t waste ⅓ of the meeting going into a 10 minute pitch, especially if the investor has already made investments in the same realm. With a bit of research you can see how close to the problem an investor is. Better yet, ask them how familiar they are (or watch eyes glaze over as you run through a strand of examples).

If I were pitching it would be structured like this:

1 - 15 seconds: A quick start. 1-2 line pitch of the business, no “this for that” or problem defined. Just 1-2 sentences on EXACTLY what we do.

15 - 30 seconds: Define the problem. If I do a poor job of this they’ll ask me to further explain. I’ll change the explanation for the next meeting to keep it as quick as possible.

.5 - 3 minutes: A deep dive on the business, state of things, team, etc. (combine with demo if possible)

3 - 4 minutes: Demo (insert impressive stuff here)

4 - 5 minutes: The grand vision of what this could be and how you expect to get to the next phase of that.

5-30 minutes: Room for conversation. Best case, I’ll educate the investor a bit with the learnings so far and the unique approach to the problem. I can’t emphasize this enough.

The cadence here will vary based on how technical the product is, stage of the business, etc. Regardless, the takeaway is the small amount of time I spent talking about the problem. Educating a VC or savvy angel on something they’re already aware of is not only a waste of time, it’s a sign you’re disconnected with the other side of the table.  t

Structuring KPIs

Last week I worked with the companies that just started Techstars Cloud. They were awesome, and I’m stoked about the ideas people are working on. In a lot of the conversations, the focus was targeting KPIs to track and what that really means. Understanding KPIs is the simple part with tons of resources out there to read. Really molding them around your goals over the next weeks and months and creating a valuable dashboard to check the pulse of your progress is crucial.

Develop your KPIs and make them more than feel-good metrics -- make them the lifeline of your business. With one glance at a dashboard each day, you’re aware of the overall movement your work/experiments are creating.

These metrics should be measurable, actionable, and vital to progress in getting to your next level. Craft them in a way that’s clearly tied to every high level goal of the business and more than just a check engine light. If a KPI starts to change, good or bad, there should be at least one other that’s moving to give you an idea of what’s happening (or at least where to begin looking).

Think of where the business and product are at today and where they need to be in 1 month. Start brainstorming on anything and everything that you could track and narrow down to a list of 10-15 metrics that could matter over the next several months. Further narrow your list from there.

  • They’ll be highly variable, especially in the first 18 months of your company. Everything will change based on development, customer discovery, feature deployment, and whatever else.
  • Pick just one that’s the focus for the time being. That’s the number you effect by forming everything else around it.
  • From there, 3ish KPIs will be on the periphery and help you gut check why one or more of these numbers are moving. Don’t forget to take into account your customer acquisition strategies, changes in adwords, new features, bug fixes, etc. that could move these numbers each week but aren’t necessarily a KPI. Cohort analysis combined with these metrics and knowing what you’re doing differently provides the best kind of insight into your numbers.
  • Create a KPI dashboard to check each day.
  • Actually check it each day -- make it a ritual.

Investor conversations will begin to resemble your KPI tracking and tweaking. You’re getting a feel for your business and understanding what moves the needle -- the exact expectation of seed round investors. Get really good at this and combine that with growing MRR and Series A conversations are formed.

Plotting Your A Round

The easy goal for most SaaS and marketplace companies is hitting $100K MRR with steady MoM growth to reach Series A. I hear that number consistently. While there isn’t one size that fits all, for the sake of this post, I’ll run with that number. With a number in mind, how do you hit that Series A goal and what do investors expect growth to look like moving forward?

It’s not about simply reaching a revenue figure and showing investors real dollars. Factor in the timing of growth and show a quick acceleration from low revenue to $100K MRR (just a made-up number).

Plenty of startups have struggled to gain significant interest and have sat at low $10-20K MRR for months or even a year+ to eventually figure it out. Four months later they're seeing 25-50% MoM growth and show a growing funnel with repeatable conversion at the bottom. That four-month sprint with a pro forma showing 3X+ growth for the next year of operations is what gets investor attention. Take the same product and stretch that revenue growth over 2 steady years and it's far less attractive.

With increased seed deal volume (~175% increase from 2010 to 2013 and leveling off in 2014) comes increased Series A options for investors. Some companies will raise with little revenue but an intense user adoption growth rate. Some founders will sell a grand vision of solid technology and avoid the revenue lust of VCs. These are the outliers. Most startups won’t raise again. Think strategically about revenue growth and building a healthy company.

Execute on your seed round goals and have a revenue-driven investor introduction to make it to the grand vision discussions.