“Getting tough to get startup money!”
“A rounds are drying up!”
“B rounds are going to be very tough to get done!”
“Better cut that burn rate and hope you survive!!”
Doom and gloom in glaring headlines.
Pronounced by the masses of venture land.
Noticeably absent in commenting: the old timers – scarred veterans of deals done, IPOs completed and the dead buried.
Why? Because they are – very quietly – already watching the arrival of the New New Wave. They know it’s started. They’ve been here before. They’ve switched focus from the existing to the not-here-yet new ventures. They’re eagerly looking for the next Uber-whatever-it-will-be. It’s how they became successful.
What do they see that others don’t?
The answer lies in some excellent startup financing metrics presented by Tomasz Tunguz of Redpoint Ventures.
Try the following metrics: what is the picture you see painted?
- Venture community is blogging about the coming dark days.
- A rounds and all other rounds are declining in units and dollars.
- $ per deal of Seed round is falling.
- Number of Seed rounds is rising.
The venture community masses see a very dark, even depressing cloud getting darker every day. They have (wisely) prepared their existing startups for the unavoidable storm that has begun, hoping several companies survive with a few emerging healthy and thriving. The rest will be sold and forgotten. “Adjust burn rate to live on the cash you have – don’t count on getting the next round” is the mantra. They see the metrics telling that story. It’s reality. It’s what is happening. Startups or just their technology are looking for buyers 24X7. It has nothing to do with the economy, China or politics. It's the natural fallout of the startup Hype Cycle.
But the battle-scarred see a different picture. They see a fork in the road shaping up, an alternative path to pursue, one full of fresh opportunities to come. They are watching the formation of a new era, one that will reveal lucrative new startup opportunities, the new kids on the block that do the new new things.
What is the metric that signals the change?
- Here it is: Number of Seed rounds is rising + $ per deal of Seed round is falling.
That signals fresh, tiny startups are getting their first cash to begin work. Those are new enterprises with a lot to do before getting the big rounds of capital. Among them will be a flock of the next Uber-Whatevers. The veterans are focused on listening to founders with not-heard-of-before ideas. Thus the lack of interest in more huge rounds to unicorns fighting the competitive battle to the death.
Wannabe founders who also recognize this will jump on that reality. They will form startup plans call for using a small amount of cash to get through Proof-of-Concept. Their startup ramp will be classical, meaning expanding to major milestone achievements with ever larger rounds of funding. And yes, there will be several who will enter markets with billions of dollars of potential and require huge amounts of capital (the New Unicorns – someone will dub them with a fresh handle).
BOTTOM LINE: It’s a great time to do a new startup. Veterans know that. You’ve got to be very new, very different. Your plan has to be focused on a market that does not yet exist, one open and free enough to give hope that you can become the gorilla that dominates it. Not all have to be gigantic, there’s a place for those with less ambitions. The venture community will always be filled with them. Your job is to figure out how to take advantage of the arrival of the new era. When you do, you’ll find you’ve gained a powerful element to build your unfair advantage.
I wish you The Best on your Adventure!