Podcast Summary
Founders' obsession with product leads to customer-centric approach: Successful founders prioritize their product, leading to a customer-focused business and increased chances of securing funding
The founders of successful startups, or "unicorns," possess a deep obsession with their product and demonstrate exceptional craftsmanship and product velocity. This focus on the product naturally leads to a customer-centric approach. For instance, Uber's Travis Kalanick showed an early dedication to his product by securing the domain name and meticulously working on the cab icon's direction on the map. Similarly, Thumbtack's Marco Zappacosta pivoted away from a Yelp-like directory model to focus on getting quotes from service providers, ultimately creating a better customer experience. These founders' dedication to their product and customers sets them apart from those of less successful, or "zombie," companies. Additionally, the landscape of angel investing has evolved since Jason's book was released, making it essential for founders to possess these qualities to secure funding.
Understanding a startup's product, customer focus, and product velocity: Investing in a startup requires assessing its commitment to customers, product improvement, and founders' understanding of the market. Look for clear customer focus, frequent product updates, and a defiant founder attitude.
Understanding a startup's product, customer focus, and product velocity are crucial factors in determining its potential for success. The use of early visual cues on websites, such as icons representing driver's licenses and addresses, demonstrated a company's commitment to customer safety and background checks. Lack of product improvement, or product velocity, could indicate a team lacking the necessary skills, potentially leading to a "zombie company." Founders with a defiant attitude and a deep understanding of their customers, combined with the ability to create great products, have the best chance of building meaningful, successful companies. When investing, it's essential to ask questions about the product, check for updates, and communicate with customers to gain a clear understanding of the company's progress.
Clear communication is key to maintaining a healthy investor relationship: Regular updates are important for investor trust. Founders should communicate regularly, even during tough times. Investors can include a side letter in the contract for regular financial reports. If updates are not provided, investors should approach founders in a non-confrontational way to discuss the investment and explore ways to help.
Clear and consistent communication is crucial for maintaining a healthy investment relationship between founders and investors. When a company is struggling, it's essential for founders to keep their investors informed, even if the news is not positive. Failure to do so can lead to mistrust and a breakdown in the relationship. To ensure regular updates, investors can include a side letter in the investment contract requiring founders to provide regular financial reports. If founders fail to provide updates, investors can approach them in a non-confrontational way, such as suggesting a phone call or meeting, to discuss the investment and explore ways to help. It's important for investors to remember that most startups fail, and focusing on the winners will make up for the losses. Haranguing founders who don't provide updates can damage the relationship and create a toxic environment. Instead, investors should engage in productive dialogue and offer support to help the company succeed.
Collaborate and be helpful during high-pressure situations with founders or investors: When under pressure, work together with founders or investors to find solutions instead of being accusatory. Consider resources like CapTera for software selection or understanding crowdfunding platforms' fees, reputation, and audience reach.
When interacting with founders or investors in a high-pressure situation, it's essential to collaborate and be helpful rather than accusatory. Both parties are operating out of fear, so working together can lead to finding solutions and avoiding a "cannibalistic situation." This advice applies to various scenarios, such as seeking software solutions or fundraising through platforms like Indiegogo, Republic, or Start Engine. Founders and investors can benefit from resources like CapTera, which simplifies software selection by providing reviews, comparisons, and valuable insights. In the case of crowdfunding, it's crucial for founders to consider factors like the platform's reputation, fees, audience reach, and regulatory requirements before committing. By taking a collaborative approach and offering valuable assistance, everyone involved can navigate the challenges and find success.
Raising Funds through Equity Crowdfunding: Equity crowdfunding enables founders to access funds from non-accredited investors, leading to a larger and more diverse investor base. Despite challenges, it has the potential to democratize investing.
Equity crowdfunding through platforms like Indiegogo, Seed Invest, and Republic offers founders an alternative way to raise funds for their companies, especially for those who haven't reached the revenue or valuation levels that venture capitalists look for. Equity crowdfunding allows non-accredited investors to participate, which can lead to a larger and more diverse investor base. However, it involves more work, as companies need to publish financials and collect smaller checks. The potential investment amount is typically in the low hundreds of thousands of dollars. Despite the challenges and the relatively new nature of this funding method, the speaker is optimistic about its future and believes it has the potential to democratize investing.
The Future of Fundraising: Equity Crowdfunding and Ideal Founders: Investors are shifting towards equity crowdfunding and seeking driven, focused founders who can deliver results. Extravagant behavior and questionable business practices will face scrutiny.
The future of fundraising may involve more equity crowdfunding platforms and a shift in what investors look for in founders. Jason Calacanis, an experienced investor, shared his insights on the topic. He discussed his experience with the first syndicate at com.com, which was a success and is now a standard in Silicon Valley. He also predicted that in the next five to 10 years, many people will participate in equity crowdfunding. Regarding the ideal founder, Calacanis emphasized that entitlement and extravagant behavior, such as smoking weed on private jets, are no longer acceptable. Instead, investors look for founders who are driven, focused, and can deliver results. Companies that perform well can afford to provide perks to their executives, but those who engage in questionable business practices will face scrutiny. Calacanis encouraged founders to focus on building successful businesses rather than seeking attention for their personal lifestyles.
Investors prioritize profitability over growth stories: Investors seek profitable businesses with quicker scaling and improved quality, emphasizing the importance of understanding customer needs and behaviors.
In the current investment landscape, a profitable business is the ideal focus for founders. Traditional investors are no longer solely interested in growth or disruption stories; they want to see a return on investment through profitability. With increased competition and product velocity, it's crucial for businesses to prioritize their customers and understand their needs and behaviors. Gainsight's customer cloud offers tools to help businesses do just that, from understanding user interactions to driving tailored engagement and improving customer happiness. Angel investing has seen an increase in the number of deals, with companies reaching profitability faster and scaling at a quicker pace. The quality of these companies is also improving, making the investment landscape more competitive.
The startup ecosystem and early-stage investing continue to improve: Angel investors demand more ownership, prorata rights, board seats, and regular updates. Startup quality doubles every 3-4 years, investors get more sophisticated, and the ecosystem evolves continually.
Both the startup ecosystem and early-stage investing have seen significant improvements in recent years. The success of pioneers like George Lucas in the entertainment industry has led to advancements and innovations that continue to build upon each other. Similarly, the quality of startups has been increasing every few years, and the sophistication of early-stage investors has risen significantly. Angel investors are now more knowledgeable and demanding, insisting on ownership percentages, prorata rights, board seats, and regular updates. The overall professionalism of the angel investor community has increased dramatically. On the startup side, the quality of startups has doubled every three to four years, and investors are getting more sophisticated, able to read complex investment documents and identify potential issues. However, despite these advancements, there is still debate about the wisdom of doubling down on winners at later stages due to potentially inflated valuations. Ultimately, the key takeaway is that the startup ecosystem and early-stage investing are constantly evolving, with both sides becoming more professional and knowledgeable over time.
Selling early in a startup: Idiot insurance or missed opportunity?: Consider taking profits early in a potentially overvalued startup for risk reduction, but be aware of the potential for missed growth. Public markets and later-stage funding offer unique challenges and opportunities.
While there's a risk in selling too early in a potentially overvalued startup, there's also value in taking some profits to secure gains and reduce risk. The speaker shares his experience with Uber, where selling early provided "idiot insurance," but missing out on the subsequent 10x growth was a mistake. He also advises that the public markets may offer different opportunities and challenges compared to early-stage investments, and that securing later-stage funding can be difficult but potentially worth the extra value. Lastly, the importance of getting enough sleep is emphasized, and a discount is offered for a premium subscription to calm.com/twist for those struggling to sleep.
Setting high standards for angel investing and continuously raising the bar: Successful angel investors aim for substantial and consistent revenue growth, doubling it every 6 months, and secure their position in exceptional companies through preemptive funding.
Successful angel investing involves setting high standards and continuously raising the bar for what constitutes a worthy investment. As an investor gains a reputation and a track record of success, the number of opportunities presented will increase, allowing for the selection of companies with stronger revenue growth. This growth should be substantial and consistent, ideally doubling revenue every six months. By implementing a preemptive funding strategy, investors can secure their position in companies demonstrating exceptional growth, ultimately maximizing returns. The Rule of 72 serves as a reminder that time is a valuable asset, and the goal is to double investments as frequently as possible.
Calculated risks on high-quality opportunities: Invest in the best deals through diligent evaluation, focusing on founders, products, revenue, and team quality, and engaging with founders for updates and support.
Successful angel investing involves taking calculated risks on high-quality entrepreneurs, products, and revenue streams, while also being diligent in the evaluation process. The syndicate discussed the importance of diversification, with a goal of presenting investors with only the best deals. They emphasized the importance of founders, products, revenue, and team quality, and encouraged investors to compare deal memos across various platforms. The syndicate also shared their approach of engaging with founders through webinars and requiring regular updates to ensure performance at a high level. They acknowledged the inherent risk in angel investing but emphasized the importance of doing thorough research and due diligence upfront to increase the chances of success. Overall, the syndicate's philosophy is to invest in the highest quality opportunities and provide support to help those companies thrive.
Comparing to existing solutions is as important as listing out direct competitors: Sharing customer stories of replacing or improving upon previous methods can demonstrate product value and highlight pain points.
When it comes to answering questions about competition in the investment world, it's important to understand that the question may not always be about direct competitors. Instead, investors may be looking for information on how your product or service compares to existing solutions that your customers have been using. In such cases, sharing stories of how your customers have used your product to replace or improve upon their previous methods can be more effective than listing out direct competitors. This not only demonstrates the value of your product but also highlights the pain points that it addresses. Additionally, asking your customers what they would do if your product were to disappear can help gauge the level of addiction or dependence on your solution. By focusing on customer stories and their potential reactions to the absence of your product, you can provide a more compelling response to the seemingly routine question about competition.
Creating an indispensable product or service: Focus on customers' needs to create an indispensable product or service, engage with audience, and build a strong community around your brand.
Achieving product-market success means creating a service or product that is so essential to an industry or customer base that its absence would cause significant disruption and panic. Slack and Uber are examples of companies that have reached this level of success, where their services are integral to their users' daily operations. When these companies face downtime, the entire industry or user base reacts as if it's a snow day or a significant event. As a founder, focusing on your customers and their needs is crucial to achieving this level of success. It's important to remember that the ultimate goal is to create a product or service that is indispensable to your customers and industry. Additionally, don't forget to engage with your audience and answer their questions to build a strong community around your brand.
