David Cummings on Startups

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  • Failure to Attract Talent Starts with the CEO

    This past month I’ve had a number of CEOs reach out asking for help attracting talent. With a shortage of talented software engineers, digital marketing managers, and SaaS sales reps, competition is strong to attract the best and brightest. Many CEOs have a hard time owning this but a failure to attract talent starts with them.

    Here are a few thoughts on CEOs and attracting talent:

    • Talent is attracted to environments that promote autonomy, mastery, and purpose (see Dan Pink’s book Drive)
    • Corporate culture starts at the top and strong cultures attract strong talent
    • Absent a strong culture and interesting work, companies that can afford it resort to paying well above market salaries
    • Best practices for retaining employees also apply to recruiting employees
    • Recruiting and attracting talent should be viewed as first-class initiatives, and not ignored

    Attracting talent is one of the top five priorities of a CEO, and most CEOs neglect it. When a startup is having a hard time recruiting talent, know that it starts with the CEO.

    What else? What are some other thoughts on the idea that the failure to attract talent starts with the CEO?

  • Seed Rounds Up 4x But Series A Rounds Flat

    First Round Review has a great new post up titled What the Seed Funding Boom Means for Raising a Series A. The general idea is that the number of seed funding rounds is up 4x, but the number of Series A financings hasn’t increased, meaning a significant number of startups that were expecting to raise another round failed.

    Here a few notes from the post:

    • Just because it’s easy for some founders to raise a seed round doesn’t mean it’ll be easy to raise subsequent rounds
    • Seed rounds are often raised based on the strength of the team and idea whereas Series A rounds are based on startup traction, and many startups don’t have strong enough metrics to warrant institutional funding
    • One idea for seed-stage startups is to raise a larger seed round and/or make it last longer so as to provide more time to show results
    • When raising a Series A, consider starting with a lower desired amount of funding, and, if there’s more demand than expected, raise the amount (it’s easier to go up than it is to go down after talking to investors)
    • Metrics matter and entrepreneurs need to have a strong handle on the key drivers for their business (too often entrepreneurs wing it, especially when the startup is so young)

    For entrepreneurs that have raised a seed round, What the Seed Funding Boom Means for Raising a Series A is a must-read.

    What else? What are some more thoughts for entrepreneurs that have raised a seed round and are looking to raise a Series A?

  • 5 Ideas for Atlanta to be a Top 5 Tech Startup City

    Continuing with yesterday’s post, Atlanta in the Top 10 for Startups Funded, one of the most talked about ideas is what it would take to be a top five tech startup city. With Washington DC in the number five spot with 69 fundings and Seattle at 67 fundings (source), it would require almost 80% more fundings than Atlanta had to earn the number five spot, assuming no other growth from these cities and others (unlikely). Let’s assume Atlanta would need 90 deals in 10 years to be a top five tech startup city since other metro regions would make progress as well.

    Here are five ideas for Atlanta to have 90 first-time fundings by the year 2025:

    1. Multi-Billion Anchor Tech Company – One massive success story, like Atlanta’s had with Home Depot and CNN, creates hundreds (thousands?) of millionaires, attracts thousands of employees from inside and outside the region, and helps spawn dozens of new companies (10 company first-time fundings increase per year).
    2. New Accelerator Programs – With only a couple accelerator programs in Atlanta, there’s a real opportunity to build several more, especially ones that are more industry or technology specific (e.g. SaaS, IoT, internet security, etc.). More accelerator programs will result in more first-time fundings (10 company increase).
    3. Increased Startup Density – As areas like Buckhead and Midtown continue to attract startups and increase in density, a number of benefits ensue and the chance of entrepreneurial success increases. With increased success comes increased first-time fundings (10 company increase).
    4. More Recycled Capital – As the current generation of success stories achieve strong exits, more entrepreneurs will have the opportunity to invest in the next generation of entrepreneurs, and recycle a greater percentage of the wealth created. Creating a culture where entrepreneurs are expected to recycle some of their winnings will generate a number of new first-time fundings (10 company increase).
    5. Startup Relocations – Some percentage of the existing 39 deals last year in Atlanta were startups that relocated to Atlanta, especially from surrounding states in the Southeast. Assuming it was 10% (4 companies), doing a more proactive job and highlighting the strengths of our existing community, that number could rise to 14 companies (10 company increase).

    With these five ideas turning into 50 additional first-time fundings per year, Atlanta has a real opportunity to be a top five tech startup city. Of course, it’ll take a tremendous amount of work, and a lot of luck, but with so many good things happening, momentum is strong and the opportunity is real.

    What else? What are some other ideas to help Atlanta become a top five tech startup city?

  • Atlanta in the Top 10 for Startups Funded

    Lance Weatherby’s post from earlier today titled Atlanta Cracks the Top Ten highlights the latest Brookings report on first round venture investments by region showing that Atlanta comes in at #10 (tied with Houston). Put another way, every company that raised venture money for the first time in 2014 was categorized by region and Atlanta came in the 10th spot with 39 deals. Just to put it in perspective, Silicon Valley had 630 first rounds of venture investment (not counting angel rounds, follow-on rounds, etc).

    Here are a few thoughts on Atlanta and the number of startups venture funded annually:

    • Cracking the top five is a long shot, but possible (the first four spots with Silicon Valley, NYC, Boston, and Los Angeles are locked down) as the regions in the top 10 are also working hard to grow their community (something miraculous like a Google-esque success story would be required to produce enough wealth to fund enough additional startups per year in Atlanta)
    • Per capita, Atlanta is on the lower side for number of investments, but being the 7th largest metro region in the country bodes well for future opportunities
    • Venture funded companies are only a piece of the startup region rankings — jobs created, success stories, IPOs, and exits are critical as well
    • Not all venture fundings are for tech startups (e.g. VCs look for high growth companies but they aren’t limited to technology companies)

    Doing well on national comparative rankings isn’t the ultimate goal for a startup community, but entrepreneurs love competing, and there’s strong community pride. With time and hard work, Atlanta will continually be a top 10 tech startup community.

    What else? What are some other thoughts on Atlanta being in the top 10 for first rounds of institutional financing in 2014?

  • Finding a Startup CEO Role

    In the last month I’ve had two successful tech executives reach out to me looking for help to find a role as the CEO of an early or growth stage startup. Both executives have strong track records and see the CEO role as the next step in their career progression. While there aren’t a number of publicly available open positions for this role (have you ever seen a careers section of a company’s site list CEO as a position available?), they do exist and require extra work to find.

    Here are a few thoughts on finding a startup CEO role:

    • Network with local VCs as they often know of opportunities
    • Meet with local angel investors and ask about their portfolio companies
    • Talk to local attorneys and accountants that have a focus on tech startups
    • Ping connections on LinkedIn and ask for introductions
    • Reach out to head hunters and executive recruiters, especially ones that work with startups (look for announcements around other CEO hirings and see if you can find the firm that placed the executive)
    • Decide on the desired stage of the company (e.g. two entrepreneurs in a garage, a million in revenue, post Series A financing, growth stage with over $5 million in revenue, etc.) and sector (e.g. Software-as-a-Service, hardware, mobile, etc.)

    Finding a startup CEO position really comes down to traditional networking and working existing relationships. Executives with a successful track record should already have a strong network and be able to find opportunities.

    What else? What are some other thoughts on finding a startup CEO role?

  • Public SaaS Company Valuations Q1 2015

    Once a year I like to take an inventory of the public Software-as-a-Service (SaaS) companies regarding their valuation, revenues, and employee count. On the public equities side, I don’t pick individual stocks (I’m a fan of Vanguard Index Funds), so I only hear about things when a stock makes a big swing.

    Here’s a snapshot of public SaaS companies as of March 9, 2015:

    • salesforce.com (NYSE:CRM) – customer relationship management SaaS company.
      Market cap: $40.74 billion
      Last reported quarter’s revenues: $1,444 million
      Employees: 13,300
    • NetSuite (NYSE:N) – enterprise resource planning (accounting, inventory, etc) SaaS company.
      Market cap: $7.26 billion
      Last reported quarter’s revenues: $157.87 million
      Employees:  3,154
    • Constant Contact (NASDAQ:CTCT) – email marketing for small business SaaS company.
      Market cap: $1.30 billion
      Last reported quarter’s revenues: $88.05 million
      Employees: 1,400
    • LogMeIn (NASDAQ:LOGM) – remote desktop access SaaS company.
      Market cap: $1.28 billion
      Last reported quarter’s revenues: $59.90 million
      Employees: 804
    • LivePerson (NASDAQ:LPSN) – live chat SaaS company.
      Market cap: $614.14 million
      Last reported quarter’s revenues: $58.23 million
      Employees: 796
    • Demandware (NYSE:DWRE) – ecommerce SaaS company.
      Market cap: $2.45 billion
      Last reported quarter’s revenues: $52.50 million
      Employees:  383
    • Marketo (NASDAQ:MKTO) – marketing automation SaaS company.
      Market cap: $1.09 billion
      Last reported quarter’s revenues: $42.34 million
      Employees: 519
    • ServiceNow (NYSE:NOW) – IT asset management SaaS company.
      Market cap: $11.15 billion
      Last reported quarter’s revenues: $198.00 million
      Employees: 2,826
    • Workday (NYSE:WDAY) – HR and financial management SaaS company.
      Market cap: $15.45 billion
      Last reported quarter’s revenues: $226.27 million
      Employees: 3,500
    • Cvent (NYSE:CVT) – Events management SaaS company.
      Market cap: $1.20 billion
      Last reported quarter’s revenues: $39.33 million
      Employees: 1,450
    • ChannelAdvisor (NYSE:ECOM) – Ecommerce channel management SaaS company.
      Market cap: $243.30 million
      Last reported quarter’s revenues: $23.83 million
      Employees: 683
    • HubSpot (NYSE:HUBS) – B2B marketing platform SaaS company.
      Market cap: $1.22 billion
      Last reported quarter’s revenues: $34.16 million
      Employees: 719
    • Zendesk (NYSE:ZEN) – Help desk management SaaS company.
      Market cap: $1.76 billion
      Last reported quarter’s revenues: $38.54 million
      Employees: 806

    Clearly, SaaS is hot with Salesforce.com far and away the most dominant vendor. All companies have had an increase in valuation compared to last year, except for ChannelAdvisor.

    What else? What are some other thoughts on the valuations for publicly traded SaaS companies?

  • Rule of 40% for SaaS Companies

    Brad Feld wrote a great piece last month titled The Rule of 40% for a Healthy SaaS Company. The idea is that growth plus profitability should be 40% or greater once at scale (double digit millions of revenue). As an example, if a SaaS company grew 100% year-over-year, and had negative margins of 60% (burning lots of cash), then those combined percentages equal 40% (yes, they’re two different percentages, but the metric is more of a gauge rather than scientific). As for another example, if a SaaS company grew 20% year-over-year, and had EBITDA (profit) margins of 20%, then those combined percentages equal 40%, and hit the mark.

    Here are a few thoughts on the rule of 40% for SaaS companies:

    • For seed stage (under $1M run-rate) and early stage ($1-$5M run-rate), the percentage should be much higher
    • Higher growth rates often equate to higher valuations (see the growth rate valuation multiplier)
    • No growth, and profit margins of 40%, would still fit this 40% metric, but not be nearly as interesting to traditional venture and growth stage investors (unless they thought significant revenue growth was possible)
    • As scale increases, maintaining high growth rates becomes much more difficult as the law of large numbers kicks in
    • Mailchimp, a rare unicorn, has double digit revenue growth and greater than 50% profit margins

    Thinking about growth rate in conjunction with profitability makes perfect sense as there’s always a trade off between the two. The Rule of 40% for SaaS companies provides a general metric that takes into account both growth and profitability.

    What else? What are some more thoughts on the Rule of 40% for SaaS companies?

  • 16 Signs You’re an Entrepreneur

    Last month I was talking to an entrepreneur that was going through a really difficult spell. No matter how hard he tried, it seemed like everything went wrong. After we talked about a number of challenges, I stopped, looked up, and said, “those are all signs you’re an entrepreneur.”

    Here are 16 signs you’re an entrepreneur:

    1. One day you’re on the top of the world and the next day you’re completely demoralized
    2. Those layoffs last year were done by you personally
    3. Dozens of investors have rejected your investment pitch
    4. In the morning you’re writing code, at lunch you’re emptying the trash, and in the afternoon you’re on the phone doing a sales call
    5. That first company credit card was really your personal card
    6. Those two employees that don’t fit the culture — you agreed to their hiring out of desperation to fill the position
    7. Every week you have a new idea to make the company better
    8. Competitors have raised way more money than you
    9. Those channel partners you expected to sell your product haven’t even hit 10% of expectations
    10. Culture is valued more than anything else since it’s the only thing within your control
    11. Everything you thought you’d accomplish took twice as long as expected and was twice as expensive
    12. After thinking you were alone, you found 10 other entrepreneurs in the same exact spot
    13. No matter how hard you try, there are never enough hours in the day
    14. The original idea for the business wasn’t the idea that ultimately became successful
    15. Making decisions with imperfect information gets you excited
    16. When things are going well, you have the best job in the world

    Being an entrepreneur is both exciting and scary at the same time. These 16 signs ring true for entrepreneurs around the world.

    What else? What are some other signs you’re an entrepreneur?

  • More Investor Emphasis on a Repeatable Customer Acquisition Process

    Over the past month I’ve talked with several entrepreneurs that are trying to raise money for their startup. Often, there’s some initial success from a couple friends or a rich uncle that will put in $25,000 or $50,000, and then, when talking to angel investors, there’s not much luck. The challenge: angel investors are requiring that entrepreneurs have the start of a repeatable customer acquisition process in place. No longer is having a product with a handful of paying customers enough. Now, more investors need to see how acquiring the first 50 customers is going to translate into acquiring the next 500 customers.

    Here are a few thoughts on investors requiring a repeatable customer acquisition process:

    • Entrepreneurs that only have a product, or a product with a limited number of customers, are going to have an increasingly difficult time raising money (it’s already hard to raise money)
    • More entrepreneurs are going to realize the importance of distribution sooner (e.g. using tools like SalesLoft to proactively reach out to prospects)
    • Investors are always looking for ways to de-risk an investment, and more proof of a repeatable process helps add confidence

    Investors are requiring more of a repeatable customer acquisition process from entrepreneurs before investing. Entrepreneurs would do well to plan for this and ensure that they have enough progress to satisfy investor requirements.

    What else? What are some other thoughts on more investor emphasis around a repeatable customer acquisition process?

  • Atlanta Tech Village Job Board as #1 Benefit for Startups Hiring

    Earlier this week I was talking with a few entrepreneurs in the Atlanta Tech Village and I posed the question: what’s the best benefit of the being the community? Naturally, I was thinking I’d hear things about cool office space or the opportunity to work with a number of other like-minded entrepreneurs. Two entrepreneurs immediately chimed in that the best benefit was the Atlanta Tech Village Job Board. Now, in this case, they both had recently filled open positions, so hiring was top of mind, and some of their highest quality candidates came from the job board.

    Here are a few thoughts on the Atlanta Tech Village Job Board as the #1 benefit for startups that are actively hiring:

    • Recruiting talented people that fit the values is the most important thing an entrepreneur does, so increasing the pool of quality applicants is invaluable
    • Costs for recruiters to place candidates can easy run 20-30% of the first-year salary, thus finding one $100k/year team member through the job board can cover the cost of office space for the whole year
    • Job boards are everywhere, thereby making it hard for startups to standout while the Village job board helps self-select people that are actively looking to work at a startup (just like SaaStr.Jobs)

    Entrepreneurs in the Village would do well to list on the Atlanta Tech Village Job Board and job-seekers looking to get in with a startup would do well to browse the openings. Many startups are hiring and finding some of their best candidates through the job board.

    What else? What are some other thoughts on finding candidates through a job board as a major benefit of being in a large tech entrepreneurship center?