David Cummings on Startups

Blog

  • Entrepreneurs and Engineers Moving from Silicon Valley to Atlanta

    Yesterday I was talking to an entrepreneur that’s in the process of moving from Silicon Valley to Atlanta. After seven years in the Valley, and multiple startups, he’s ready to launch his next one in Atlanta due to one of our strong clusters. At the Atlanta Tech Village there are several software engineers that worked in Silicon Valley for years before moving to Atlanta. It’s not a critical mass yet, but I’ve talked to enough entrepreneurs and engineers to understand the main drivers.

    Here are a few reasons entrepreneurs and engineers move from Silicon Valley to Atlanta:

    • Family – Having a family member in the area or growing up in the area is the most common reason people move from Silicon Valley to Atlanta.
    • Lifestyle – After renting for many years, there’s a desire to own a house with more space in a nice neighborhood, and Atlanta real estate is considerably more affordable (even less expensive than the national average)
    • More Varied Interests – In Atlanta, the general focus is not on tech startups and people have a wider variety of interests and backgrounds (see Startups for Grownups).

    There’s a small flow of entrepreneurs and engineers moving from Silicon Valley to Atlanta, and as the Atlanta brand and reputation grows, look for the numbers to grow.

    What else? What are some other reasons entrepreneurs and engineers move from Silicon Valley to Atlanta?

  • 10 Key Insights on Startups from Brian Watson

    Brian Watson, an associate at venture firm Union Square Ventures, just put up a great post called Post Money Evaluations about his two year experience working one of the tops firms in the country. Here are 10 key insights on startups from his post:

    1. VC is about story recognition. Remember the anecdotes (and how they’re resolved), because history often repeats itself.
    2. Raising money is a trade-off between valuation and control.
    3. Your reputation is everything. Only make an investment if you are committed for the long term.
    4. Operating a company is a balance between doing the right thing (strategy) and doing it right (execution).
    5. Good company culture is when the team feels accountable to each other, implicitly and explicitly.
    6. Being selective — doing less—keeps you focused.
    7. Once you have a core product, the goals should be growth, monetization, and happiness.
    8. When you’re interviewing someone, ask what they don’t/didn’t like at their current/previous job. It gives them a chance to go off on a rant, which can teach you about them and provide insight on whether or not they’re a good fit.
    9. A culture of collaboration is better than a culture of consensus. Get buy-in from the team, use proactive communication, set clear KPIs, and maintain a sense of alignment.
    10. Running a network is like urban planning for the internet. It’s a social engineering problem, not an electrical engineering one.

    Go read Brian’s post if you haven’t done so yet as it provides a wealth of information.

    What else? What are some other key insights from Brian’s post?

  • The Value of Hard Work

    As I reflect on Father’s Day and what it’s like to be a dad I can’t help but think of my dad. My dad has influenced me more than anyone else, yet I don’t tell him “thank you” enough. As a small business owner, my dad has been in business for himself for 30 years as an orthodontist in Tallahassee and is still going strong today.

    Back in 1984 my dad left the dentist he was working for and started his own practice across the street, only the new practice was exclusive to orthodontics. One of his first initiatives was building a new office building with a large waiting room and open treatment area. Inside, the main motif is fish with several fish tanks and large aquatic murals. In terms of design, the space was very forward thinking with open areas, tall ceilings, and great natural light.

    One of the most important values my dad instilled in me is that of hard work. My dad loves working — both at the office and at home. He would spend full days at the office and then come home and do extensive amounts of reading and landscaping. Growing up, there was always a new project or book and he would diligently put in long hours to see it through to completion.

    When I was in middle school and desperately wanted a high-end remote control car, my dad sat me down and explained that I had to do 40 hours of yard work (mowing and pulling weeds) to save up enough money to afford it. Immediately, I went to work and got the job done during the hot Florida summer. Connecting the dots between hard work and getting what I wanted was a valuable lesson.

    The value of hard of work was instilled in me at early age and I owe it to my dad. Here’s to all the dads out there, and especially my dad. Thank you.

  • Finding a Rhythm as an Entrepreneur With a Family

    Several weeks ago a young professional that wants to be an entrepreneur approached me for advice about being an entrepreneur and having a family. He had just had his first child and was looking for ideas. Having spent time thinking through this I offered up a fews ideas:

    • Write down a set of rules and guidelines and share them with your spouse (getting everyone on the same page is critical)
    • No more than one early breakfast meeting and evening meeting per week (e.g. networking event or professional meeting)
    • Have dinner with the kid(s) at least five nights per week
    • No more than five business days of travel per quarter (some jobs make this difficult to achieve)
    • One week of vacation for the entire family per quarter (must go out of town)
    • Hold a weekly date night and leave the kid(s) with a babysitter

    Developing a rhythm like this results in clear expectations and helps with the work/life blend. Every family is different but this process has worked well for ours.

    What else? What are some other thoughts on finding a rhythm as an entrepreneur with a family?

  • When does a $1M seed round make sense?

    After yesterday’s post on $250k seed rounds, I received a number of questions and comments. One of the most common was “when does a $1M seed round make sense?” After thinking about it for a bit, I came up with a few ideas:

    • If it’s a serial entrepreneur with a proven track record and there’s significant demand from investors to get in the round (e.g. a successful entrepreneur is going to get a much higher valuation, so selling 20% of the business for $1M would make sense)
    • If there’s an existing team that’s worked together and there’s an option to bring them over all at once (e.g. a CTO with a team of five engineers that wants to move together)
    • If the startup is located in an extremely expensive part of the country and it isn’t reasonable for the three team members to live on $50k/year for 18 months

    Each of these examples is pretty rare for the majority of the world, and thus the $250k seed round is recommended. On occasion it does make sense for a $1M seed round.

    What else? What are some other examples that make sense for a $1M seed round?

  • $250k Seed Rounds

    Earlier today I had a debate with an investor in the startup community. He was arguing we need more angel investors that can help pre-revenue entrepreneurs put together $1 million investment rounds. I was arguing that the $700k – $1M seed rounds aren’t a good idea because the entrepreneur almost always spends all the money without making enough progress to raise the next round at a higher valuation leading to even more dilution. Raising a $1M seed round can work, but when entrepreneurs have money in the bank and believe they can raise more, the money gets spent quickly.

    Instead of $1M seed rounds pre-revenue, my recommendation is for angel investors to put together small rounds in the $250k range. $250k is enough money for a small team of three people to work on finding product/market fit and building the start of a repeatable customer acquisition process over the course of 18-24 months. If product/market fit hasn’t been found at the end of that time period, it’s a good time to evaluate continuing forward with the startup or shutting it down.

    Entrepreneurs would do well to think about smaller seed rounds and the benefits of a leaner team, less dilution, and more time to figure how to stay in the game long enough to win.

    What else? What are your thoughts on $250k seed rounds?

  • Getting Deals Done with a Third-Party Deadline

    I didn’t realize it at the time but one of the luckiest aspects of the Pardot/ExactTarget deal was that ExactTarget’s annual user conference, Connections, was scheduled for the second week of October 2012. So, when we were working on the acquisition, we always talked about getting the deal done just before the conference so that we could make a big splash at the show. With that firm deadline locked in, we moved forward in an expedient manner and got the deal down a few business days before the event.

    In talking with members of the AirWatch team, they had a similar situation, only at a much larger scale. When they raised over $200 million in one of the largest Series A rounds ever, it was announced at Mobile World Congress in Barcelona in 2013. When they sold the business to VMware, it was announced at Mobile World Congress 2014. In both cases, the largest tradeshow in their industry also provided a great third-party deadline for both parties to work towards so as to have a huge announcement for the show.

    When working on a big financing, partnership, or exit, if you have a true third-party date to as a firm deadline, it focuses all parties and helps get the deal done in an efficient manner.

    What else? What are your thoughts on having a third-party deadline to finish a deal in a timely manner?

  • Modeling Sales Rep Ramp in SaaS Startups

    Most Software-as-a-Service (SaaS) financial models focus on the standard areas like new customers acquired, customer churn, expenses, cash flow, etc. In the section that models out labor there are the standard categories like sales, marketing, engineering, operations, administrative, etc. Only, the sales rep section is often too simplistic with a model that shows the hiring of two new sales reps every month/quarter (always hire sales reps in pairs) and simply leaves it at that.

    Here are a few items to model in the sales rep ramp for a SaaS startup:

    • Time to quota attainment (most sales reps take 60 – 120 days before they’re productive)
    • Sales rep churn (often 50% of reps hired won’t work out and some percentage of the successful reps will leave each year)
    • Productivity increases (reps often get 10-20% better each year)
    • Quota increases (often coincides with productivity increases and market dynamics)

    Sales reps, as a percentage of total employees, is almost always higher than most entrepreneurs realize (check out Salesforce.com which is said to have more than 50% of the employees in a sales capacity). Ramping up a large sales team in a SaaS startup is much more complicated than most financial models dictate.

    What else? What are some other thoughts on modeling sales rep ramp in SaaS startups?

  • The Most Popular Blog Posts Here

    Once a year I like to see what blog posts are most popular here. SEO drives the majority of the traffic with social media in second place. Here are the 14 most popular posts based on site traffic:

    Clearly, planning/strategy content and SaaS content is popular. Look for more in the future.

    What else? What are some other topics you’d like to see?

  • What’s Atlanta’s Grade in the Competition for Startups?

    Mark Suster has a solid new post up titled How to Kick Start Your Community’s Startup Scene. Whenever I see a post like this I always size up Atlanta relative to the recommendations. Under the “What does a city need to compete” section Mark offers five areas of focus. Here are the five areas and how Atlanta’s doing:

    1. Events (Grade: B+) – With a strong set of metro events like the Atlanta Startup Village Meetup, Startup Chowdown, ATDC Entrepreneurs Night, and TAG Entrepreneurs Society there are a number of great events that connect the community. Without a national event that brings outsiders to Atlanta, it’s tough to get a better grade (we have a great venture conference with Venture Atlanta).
    2. Co-Working Space (Grade: A) – Between ATDC at 40,000 sq. ft. and the Atlanta Tech Village at 103,000 sq. ft. Atlanta has a tremendous amount of startup-friendly office space.
    3. Angels & Recycled Capital (Grade: B-) – With the Atlanta Technology Angels (one of the largest and most active angel groups in the country) combined with a number of local angels, Atlanta is making great progress. It’s still extremely difficult to raise seed stage capital and there’s limited recycled capital.
    4. Venture Capital (Grade: B-) – There are a number of active venture firms in town including Noro-Moseley Partners, BIP Capital, Mosley Ventures, Fulcrum Equity Partners, TechOperators, and Kinetic Ventures. Even with those firms, a general guideline is that they’ll average one investment per year in Atlanta, meaning there’s only six local VC investments per year. Venture capital, and all other capital, is much more mobile now, meaning it will find the best entrepreneurs and opportunity to make money, regardless of geography. Entrepreneurs with proven metrics and a scaling business can easily raise money in Atlanta.
    5. Mavens & Marketing (Grade: B) – We’re working hard to spread the word about Atlanta’s great startup community, especially for bootstrapped businesses, startups for grownups, and our strong clusters (like digital marketing, internet security, logistics, mobility, financial technology, health IT, and more). Atlanta unicorns happen fairly regularly, but we can still do more to get the word out.

    Atlanta’s making great progress and is well positioned to be one of the top 10 cities in the country for tech entrepreneurs.

    What else? What are your thoughts on Atlanta’s grades in the competition for startups?