David Cummings on Startups

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  • Notes from the Twitter S-1 IPO Filing

    The Twitterverse is buzzing about the upcoming Twitter IPO, and now we have all the intimate details courtesy of the S-1 IPO filing with the SEC. I’ve found Twitter to be an amazing medium that I use on a daily basis (@davidcummings), so I want the company to succeed in a way that grows both the value of the community and shareholder value.

    Here are a few notes from the Twitter S-1 IPO filing:

    • 215 million monthly active users (pg. 1)
    • 500 million tweets per day (pg. 1)
    • 75% of users accessed it from a mobile device (pg. 2)
    • 45% of Super Bowl ads used hashtags to engage users (pg. 5)
    • 300 billion Tweets created since origination (pg. 6)
    • Revenue (pg. 10)
      2010 – $28.3M
      2011 – $106.3M
      2012 – $316.9M
    • Losses (pg. 10)
      2010 – $67.3M
      2011 – $129.8M
      2012 – $79.4M
    • 87% of revenue from advertising Promoted Tweets, Promoted Accounts, and Promoted Trends (pg. 16)
    • Accumulated deficit of $418.6M (pg. 24)
    • 2,000 employees (pg. 26)
    • 2011 FTC settlement that requires biennial security assessments for 20 years (pg. 31)
    • February 2013 attackers accessed 250,000 user records (pg. 32)
    • 6 U.S. patents issued and 80 patents pending (pg. 33)
    • 25% of revenue is international (pg. 60)
    • Equity ownership (pg. 144)
      Dick Costolo – 1.6%
      Jack Dorsey – 5%
      Benchmark Capital – 6.7%
      Evan Williams – 12%

    Twitter’s IPO is going to do exceptionally well due to the large number of consumers that love the service and the fact that it’s an extremely fast growing technology business, which is in high demand.

    What else? What are your thoughts on the Twitter S-1 IPO filing?

  • Do the Personal Math When Thinking About Raising Money

    Yesterday I was talking to an entrepreneur that was contemplating whether or not to raise a Series A round for his Software-as-a-Software startup. The business is growing nicely and it’s clear there’s a big market opportunity. With a low cost of customer acquisition and a great lifetime value, the financial model is there to scale the business indefinitely with little outside capital. Only, there’s so much market potential that with outside capital the business can grow significantly faster and gain marketshare in a relatively greenfield space.

    My answer to him regarding raising money was pretty simple: do the personal math on the expected outcomes with and without venture capital.

    Here are a few questions related to doing the personal math when thinking about raising money:

    • How many rounds of financing will the business take and how much equity will be sold at each round?
    • How much more difficult is it to find a buyer for the business when the valuation exceeds $50M? $100M? $500M?
    • With no outside capital, how fast and how long do you believe the growth will persist?
    • Is it a winner-take-most market where marketshare matters or is it a fragmented market with many winners?
    • What are your personal goals and aspirations related to control, company size, and financial outcomes?

    There’s no right or wrong answer when it comes to raising outside capital but more often than people expect, going the independent route makes more sense financially, assuming the startup can get to the point where it’s self-sustainable. The next time an entrepreneur says they’re raising outside money, tell them to do the personal math.

    What else? What are your thoughts on doing the personal math when thinking about raising money?

  • Breakout Startups Grow the Ecosystem of Talent

    When talking to local software engineers, sales people, and entrepreneurs that come through the Atlanta Tech Village, I find a common pattern where the individual starts their career at a non-startup company and then eventually gets recruited by a startup. After a taste of the startup experience, the individual never wants to go back to a regular business. Now, once the individual is in the startup ecosystem, every 2-4 years they move to a different startup and bring their experience and expertise to a new opportunity.

    This is all good and well but it doesn’t significantly grow the startup community since most startups fail and the talent gets recycled into the community (which is fine and healthy). What does grow the startup community is breakout startups. Startups that create 100+ jobs locally bring a ton of talent into the startup community. Software engineers get recruited from all kinds of backgrounds, especially right out of school. Sales reps get recruited from insurance jobs, telcom positions, and other traditional sales roles. And, of course, entrepreneurs that started ventures that didn’t work out join the breakout startup, provide great leadership for a few years, and then go on to start their next thing.

    Having more startups helps grow the entrepreneurial ecosystem, but a greater impact comes from breakout startups that bring in tons of talent and introduces them to a better way of life.

    What else? What are your thoughts on breakout startups growing the ecosystem of talent?

  • Syndicating Angel Deals in Atlanta with AngelList

    AngelList just launched their Syndicates offering and it’s a big deal. Angel investing is notoriously inefficient due to corralling hobbyist investors, extensive paperwork, and generally small dollar amounts. Syndicates works to change that and deliver some of the benefits of a venture fund with a larger amount of investments dollars, fewer investors to wrangle, and the speed and leadership of a lead investor.

    Here are a few details on AngelList Syndicates:

    • Lead angels get a carry (part of the profits, if any, from doing the deals) and AngelList gets a carry (that’s how they make money as a company)
    • Money invested from lead angels in a deal often represents a much higher percent of the deal, and personal wealth, compared with venture capitalists investing from their own fund (e.g. the lead angels have much more skin in the game compared to VCs)
    • No management fees (management fees are money taken out of the fund to pay salaries, office space, etc. regardless of making a profit)
    • Open to accredited investors and qualified purchasers (it isn’t crowdfunding)

    Overall, this has the potential to make lead angel investors much more meaningful and impactful with their time and effort.

    From an Atlanta perspective, this is awesome. This provides the opportunity to bring together startup investors that don’t want to commit capital to a fund, and the requisite long term illiquidity, but still want the guidance, deal flow, and help that a lead investor provides. It’s win-win.

    I’m looking forward to using it and seeing how it changes the market for angel and venture funding.

    What else? What are your thoughts on syndicating angel deals with AngelList?

  • Serial Entrepreneurs at the Village

    When originally thinking about the Atlanta Tech Village, I viewed it as community and office space for first-time entrepreneurs. After a month, it became readily apparent that serial entrepreneurs and venture-backed startups wanted to be in the community just as much as first-time entrepreneurs. Entrepreneurs, whether on their first try or fifth try, want to be around each other.

    Here are a few ideas about serial entrepreneurs at the Village:

    • Entrepreneurs, even ones that have been so successful so as to never have to work again, enjoy the energy and camaraderie that comes with a strong community
    • Markets and technologies are changing so fast that even if you were successful before, the same tactics applied again aren’t guaranteed to succeed
    • Talent is always at a premium, so being in an awesome environment for recruiting new talent into the startup world is always beneficial
    • Leadership skills and the importance of great people are the same, regardless of first-time or serial entrepreneurs

    So, the Village isn’t a home for first-time entrepreneurs; it’s a home for all entrepreneurs.

    What else? What are your thoughts on serial entrepreneurs at the Village?

  • Entrepreneurs Taking Chips Off the Table

    Several years ago there was significant discussion around the pros and cons of entrepreneurs taking chips off the table. Taking chips off the table is another way of saying that the entrepreneur sells some of his or her equity before selling the entire business. Generally, the idea is that by putting some money away now, especially if it’s a decent amount, pressure is removed to sell the whole thing early and instead go for building a much larger business.

    I’m a fan of entrepreneurs taking chips off the table for several reasons:

    • Having 99% of your assets tied up in one company creates pressure to take the first good offer that comes along
    • Spousal and family stress during the entrepreneurial journey can be partially alleviated when things like the house and college for the kids are completely secured
    • Investors that buy some of the entrepreneur’s equity show faith in the venture and the opportunity for it become significantly more valuable

    For investors, one of the major considerations when buying equity from an entrepreneur is ensuring that the entrepreneur still has enough equity to be sufficiently motivated going forward. There’s no exact science here but it’s a topic of consideration nonetheless.

    For successful startups with meaningful value creation, entrepreneurs would do well to take some chips off the table.

    What else? What are some other reasons entrepreneurs should take chips off the table?

  • Entrepreneurs Aren’t the Best At Evaluating Ideas

    Quick, what’s an entrepreneur? In my mind it’s someone who’s optimistic, blissfully ignorant at times, can see around the corner, and gets results with limited resources. Now, entrepreneurs, especially successful entrepreneurs, are constantly asked by other budding entrepreneurs to hear their new idea so as to provide feedback. In reality, the budding entrepreneur wants validation and encouragement from the successful entrepreneur. Only, entrepreneurs aren’t the best at evaluating ideas.

    You know who is good at evaluating ideas?

    The potential customer.

    That’s right, don’t get someone who isn’t in the field and doesn’t have the domain expertise to pontificate on the next great idea. Go straight to the source — the prospect. Spending time getting feedback from entrepreneurs is nice and all, especially because many entrepreneurs are a little crazy and excitable, but that’s not a good use of time. The next time an entrepreneur asks for feedback on his or her idea, ask them if you’re they’re ideal customer.

    What else? What are your thoughts on entrepreneurs not being the best people to evaluate an idea?

  • Announcing the Atlanta Student Fund

    Urvaksh broke the news this morning about the new $1 million fund for Georgia Tech student startups called the Atlanta Student Fund (site coming soon) as part of Atlanta Ventures. Georgia Tech is an amazing university with a top-flight engineering school and a tremendous asset to the City of Atlanta.

    Here are a few notes on the Atlanta Student Fund:

    • $5,000 – $10,000 investments in startups with a current GA Tech student on the founding team
    • Convertible note (a loan that turns into equity upon a qualified financing event)
    • Memberships and desks at the Atlanta Tech Village
    • Target of 10 investments per year (opportunistic)
    • $1 million fund to invest over three years, inclusive of follow-on investments

    Overall, the goal is to increase the number of successful, seed stage startups in Atlanta that then grow into larger, meaningful companies. Georgia Tech has tremendous talent and there’s a real opportunity to increase the amount of entrepreneurial activity on campus.

    What else? What are your thoughts on the opportunity for more startups at Georgia Tech?

  • Pivoting is More Common Than Expected

    We’ve all heard the term pivot by now. When a startup isn’t working out, it’s time to try something different, thus the concept of pivoting to a new idea. What most people don’t know is that a large number of successful startups became successful after doing a pivot. I was reminded of this again a few days ago when Alan Dabbiere, chairman of AirWatch, spoke at the (co) lab summit. Both of Alan’s huge successes were pivots:

    • Manhattan Associates (NASDAQ:MANH – Market cap of $1.8 billion) – Started out as a solution for printing packing slips in warehouses and eventually pivoted into supply chain software
    • AirWatch (raised a $225 million series A round in early 2013) – Started out doing WiFi management for a restaurant chain (Panera Bread) and eventually pivoted into mobile device management software

    On the personal front, Pardot started out as a pay-per-click lead generation service before pivoting into marketing automation software. Pivoting is a normal part of the startup process and more common than expected.

    What else? What are your thoughts on pivots being more common than expected?

  • Sales Team Required

    I love reading about Software-as-a-Service (SaaS) and sales ideas, so when I saw Peter Levine’s latest post titled SaaS Manifesto: Part Two – It’s Time to Build a Real Sales Team, I jumped right in. After going through the article, one stat really stood out to me:

    LinkedIn has a 1,200 person sales team.

    Yes, you read that correctly. LinkedIn has well over 1,000 people as part of their sales force — that’s enormous! As an entrepreneur, the standard tendency is to get so focused on the product that the concept of having to invest significant resources into selling doesn’t enter the mind. In reality, even with an amazing business like LinkedIn, and all the valuable services they have, they still have a massive sales team. Occasionally, some startups succeed without a sales team, but 99% of the successful ones have a sales team.

    Great technology still requires a sales team.

    What else? What are your thoughts on the need for a sales team?