Trevor Thomas of Cross Culture Ventures (CCV) invests primarily in consumer startups that seize on key cultural shifts, such as changing demographics. CCV looks for entrepreneurs who are scrappy and ready to fight for their vision for the long haul.
“We think the ability for a founder to roll up his or her sleeves and just hustle is a huge differentiator – and a huge barometer for success. Starting a business is extraordinarily challenging and you have to have that level of fight.
“I think that I’d give entrepreneurs more cautionary advice: to really think about whether they should be doing this. It’s a highly risky endeavor to start a company. You need to be able to offer a product that doesn’t exist, and you need to be able to run for a long time, through failure, brick walls, adversity and unfairness. Some people enter the startup landscape and they don’t appreciate how much of a slog it can be. It’s a beautiful struggle, but I always implore entrepreneurs to keep in mind that you need to be ready for battle.”
What it takes to get funding
Fundraising is time-consuming, and there are no easy shortcuts. Investors and founders alike emphasized the importance of preparation, persistence and relationship-building.
Amish Jani of FirstMark Capital has met with countless companies and founders over the course of his career and reminds people to cultivate the human element of investing.
“There is no “silver bullet,” but one obvious thing is to find a warm relationship to make an introduction. Venture firms have extensive social graphs and the best way to start momentum is to get someone we already know and respect to make an introduction. On the flip side, we occasionally see entrepreneurs “gamifying” the investment process and trying to shortcut the process. It’s hard to build trust and a long-term relationship in that kind of environment. I’ve been with some of our entrepreneurs longer than I’ve been married! So, focus on the long-term relationship and building an authentic relationship.”
Ryan Bethencourt, Co-Founder and Program Director of IndieBio, the world’s largest biotech accelerator, tells entrepreneurs to think of the big picture and highlight sales projections when trying to secure funding.
“Always have a grand plan, but also note the individual small steps you need to take in order to get to each stage of funding. Always think about time-to-revenue, because earning revenue and generating sales gets you freedom. Sales solve everything, even with biotech.”
He also reminds entrepreneurs to keep investors abreast of company developments after funding comes through.
“Make sure you communicate often, at least once a month. Give your investors regular updates on how the business is doing, how the staff is doing and how the science and technology results are coming along. It doesn’t need to be a detailed report — you can keep it simple — but give enough information so that investors feel confident that you have everything under control.”
Lastly, Jen O’Neal, Co-Founder of Tripping.com, a search engine for vacation rentals, has been through many rounds of fundraising and encourages entrepreneurs to diversify their search for capital.
“Don’t just look in Silicon Valley. Our Series A was led by a terrific company out of Japan. Our Series B was led by a hedge fund in New York. And so there are lots of options out there for capital, and that’s something that I think a lot of founders forget.”
Challenges of scaling
Getting a startup to the point where it operates smoothly is one challenge, but growing and expanding the business requires an entirely different skillset. Every successful startup undergoes this management challenge, and bridging the gap between the seed and growth stages requires some flexibility and creativity.
Arjun Dev Arora, a Venture Partner with 500 Startups, has lived and breathed the challenges of scaling a business. When he was growing ReTargeter, an ad retargeting service for small- and medium-sized organizations, he started thinking early on about the company’s culture and values.
“When we started in 2009, it was just me and a couple of interns. By 2011, we had 15 people. And by the end of 2013, we had jumped to nearly 50. At first we weren’t deliberate about setting company culture. But by the time we hired our sixth and seventh employees, we realized that we needed to be more intentional about creating and sustaining a culture that was focused around our values – one that allowed us to focus on constantly improving. So we laid out our values, and then we built our incentives around what was important to us. We walked each new employee through those values on their first day, and when we did our reviews, we circled back to those ideas.”
As an early-stage investor, former investment banker, and entrepreneur, Arjun has been on both sides of the table and encourages entrepreneurs to consider whether a potential investor is a good fit with the company’s goals.
“For me, one of the most important things is to ensure you are thoughtful about every share of equity on your cap table and that every investor is aligned with your values and your vision. Sometimes you have people who aren’t thoughtful or cautious about it in the right way. For instance, if you’re looking to build a small, stable company, don’t bring in investors who want it to be a hyper-growth, venture-backed business.”
There can be a lot of pressure for startups to move quickly. Kieran Hannon, Chief Marketing Officer at Belkin International, advises companies to think carefully before moving on to something new.
“I think a lot of people become enamored with big, bright, shiny lights, and can move too fast without bringing the rest of the market along. For example, you always hear that millennials aren’t on Facebook, but then you look at the reach and engagement by millennials on Facebook and it far outweighs any other social media platform. So before you move on to something new and different, make sure you maximize opportunities you have with current platforms. I think you can be experimenting with 10 percent of your marketing at any given time, but the other 90 percent should be solidly building that foundation and making it stronger every day.”
The importance of partnerships
One way for startups to scale quickly is to partner with a trusted company or brand. Startups should do their own research to find their ideal partner and ask their investors to make introductions.
Partnerships also play an important role in investment decisions, according to Rodrigo Sanchez Servitje and David Hite of B37 Ventures.
Rodrigo: “Some startups scale up too quickly, and this is a common problem. The key component is having the right suppliers and partners in the market you want to be in. You need to understand those needs and build the team around them.
“Part of our investment thesis is to invest in companies for which we can provide the right partner for international growth. Our corporate investors today operate in more than 80 countries in the food, mobility, finance and manufacturing industries. Just as Apple partnered with China Mobile and Uber with Starwood Hotels, it’s better for startups to have a strong international partner. We try to provide that partnership.”
David: “Startups and large corporations have different and complementary assets. We believe that connecting the two is beneficial to both sides. It gives otherwise unobtainable technology to multinationals and helps startups to expand by leveraging the operations of established multinationals.”
The next big thing
As the individuals creating and funding the latest innovations in tech, startup founders and early-stage investors get a unique window into the future. Tech leaders identified several trends that will shape the startup space and the industry at large.
FirstMark Capital’s Amish Jani is seeing more connected devices and artificial intelligence.
“One area in which we’re spending time is artificial intelligence. AI is really just a successor to the Big Data wave. It began with the creation of massive data sets a few years back. With such immense amounts of data available, all of a sudden, ideas that had been around for a long time, such as AI, became practical. We also are very excited about the coming worlds of 3D and VR. There’s also the continuing trend of connected devices. For example, we’ve made a number of IoT investments and continue to actively track the space, particularly technologies that emphasize the software and data layer on top of hardware.”
Technology is also reshaping how people work and run their businesses, noted 500 Startups’ Arjun Dev Arora.
“I see a lot happening in financial tech right now, especially in lending and insurance. I’m also excited about some of the startups in the B2B space, including HR software. In addition, the growth of the gig economy and more folks being able to work remotely affords all kinds of new opportunities. Finally, I am excited about augmented reality and audio as new ways to interact with computing.”
Finally, IndieBio’s Ryan Bethencourt sees greater reliance on biotech in the next few decades as the world population climbs.
“It’s hard to know the daily or annual fluctuations of the market, so I look at megatrends instead of year-to-year. There is no area in our lives that won’t be affected by biotech or biology in the next 10 to 20 years. Urbanization around the world means people want more food, and the United Nations estimates that the current amount of food production will need to double in the next two decades to support life. We can’t do that without the use of biotech, and it will be impossible to do so unless we spur – and fund – innovation in the biotech field.”