David Cummings on Startups

Blog

  • The Atlanta Top 10 Startup City Question

    Earlier today I got a question that hasn’t come up as often as I’d like: do you really believe Atlanta can be a top 10 startup city within 10 years? The answer is an emphatic yes! Atlanta has all the natural ingredients including a large number of young professionals, a low cost of living, the largest engineering school in the country with Georgia Tech, the world’s busiest airport, and an active startup community. If Atlanta has all the ingredients, what else is happening to make Atlanta a top 10 startup city?

    Here’s what’s going on in Atlanta:

    • Large anchor technology companies – Atlanta has AutoTrader.com (over $1 billion in revenue) and Air Watch, which is going to IPO and have a billion dollar valuation within 24 months. More anchor technology companies results in more talent recruited to the area, more jobs, and more startups that spin-out. The seeds have already sprouted in Atlanta and full bloom is right around the corner.
    • High density startup areas – Atlanta has the ATDC, Hypepotamus, and the Tech Square area in Midtown with dozens of startups. Add in the new 103,000 square feet Atlanta Tech Village with room for 75-100 companies and 400+ people and now there are two areas accessible via train that have critical startup mass necessary for serendipitous interactions.
    • Early stage investment dollars – Within the past 24 months Atlanta Technology Angels has invested in 29 startups (source). Within the past 12 months three new venture funds including Moseley Ventures, Forté Ventures, and Hamilton Ventures have been formed. Just last month Cox Enterprises announced the $250 million dollar Cox Innovation Fund to incubate tech startups in Atlanta.

    All the ingredients are in place and necessary advancements are under way. Atlanta will be a top 10 startup city within 10 years.

    What else? What are some other reasons Atlanta will be a top 10 startup city within 10 years?

  • Yolo and Startups

    One of the popular acronyms right now for high schoolers is yolo, as in You Only Live Once. Not to be confused with the cool stand up paddle boards also known as yolo boards, yolo makes it easy to justify doing something you might not normally do, like cliff diving into a lake. How can we get a little yolo idealism into some of the talented people that don’t consider startups as part of their career options?

    Here are a few ideas:

    • Facilitate programs and initiatives that specifically target college juniors and seniors (e.g. host a regular startups career and internship fair)
    • Promote technology meetups to employees of larger companies via targeted ads on LinkedIn, Facebook, and Twitter
    • Organize more startup drinks-like happy hours in high density commercial areas such that it’s an easy walk for people in the surrounding area

    Bringing the idea of yolo to talented people that haven’t considered startups isn’t an easy task. But, in the end, the biggest challenges can be the most fun.

    What else? What are your thoughts on yolo and startups?

  • When All Paying Customers are Friendlies

    Recently I heard the story of an edge case from an angel investor commenting on the question How Much Traction Does a Startup Need to Raise Angel Money. Here’s the background: an angel investor is pitched by an entrepreneur that has recently cleared the $100,000 in annual recurring revenue mark. The idea sounds plausible but it isn’t completely clear if the product is candy, a pain killer, or a vitamin due to the lack of domain expertise by the angel investor. As the angel investor starts to dig in on due diligence it becomes clear that there’s an anomaly here in which the 10 customers each paying $12,000/year are all friends with the founder of the startup.

    All the paying customers were friendlies. That is, all the customers already had a prior relationship with the founder such that there wasn’t a clear picture regarding the true value of the product as well as how difficult it would be to build a repeatable customer acquisition process. Now, the fact that the founder had such strong relationships with a variety of people bodes well for success in general, but as an investor one of the biggest questions is how the sales and marketing process is going to scale.

    The next time you’re thinking of working for a company or investing in a company with 10 customers, research how the customers were acquired.

    What else? What are your thoughts on the situation when all paying customers are friendlies?

  • Maintaining a High Standard of Excellence in a Coworking Space

    One of the most common questions we get at the Atlanta Tech Village is regarding how we’re going to maintain a high standard of excellence among the tech companies, startups, investors, freelancers, and tech-related service providers. The main concerns are around corporate culture, work ethic, and general success of the ventures.

    Here are a few ideas for maintaining a high standard of excellence in the coworking space and ATV overall:

    • Application process with in-person interview to assess core values fit (see the core values)
    • Monthly or quarterly peer review process where members evaluate other members as to how well they’re meeting the values and, potentially, people who aren’t meeting the values get voted off the island
    • Sell 90 day pre-paid memberships such that every 90 days there’s the option to renew the membership, or not renew if the core values aren’t being met

    This is a really tough topic as we want to be inclusive while building the best place for tech companies and startups to grow and thrive. We have a ton to learn.

    What else? What are some other ideas for maintaining a high standard of excellence in a coworking space and community center?

  • Developing an Accountability Plan for Startups in the Community

    One of the goals with the Atlanta Tech Village is to create an environment of accountability and competition such that the member tech companies and startups achieve a greater level of success than if they were on their own. The ultimate measure of ATV’s overall success is the number of companies that build sustainable, meaningful businesses. Now, how can we create and foster this type of environment in a way that’s positive and fun?

    Here are a few ideas for an accountability plan for community startups:

    • Monthly or quarterly check-ins with an entrepreneur, mentor, or community manager
    • Accountability questions like what did you accomplish, what are your going to accomplish, and how can you improve whereby the answers are recorded in a Google Spreadsheet for review during the next period
    • Continually measure objective items related to revenue, new users, page views, downloads, App Store ratings, etc
    • Regular peer feedback survey where the other startups rate how they see their peers doing across several dimensions

    We want tech companies and startups that are continually moving onward and upward such that the Village is known for having an environment that breeds success. Accountability is going to be an important part of the equation.

    What else? What are some other thoughts on developing an accountability plan for startups in the community?

  • How Much Traction Does a Startup Need to Raise Angel Money

    500 Startups has a great checklist for investing in startups that includes items like capital-efficient, internet-based distribution, simple revenue model, functional prototype, small but measurable usage, and more. One area that’s vague but super important is around the small but measurable product usage or early revenue, otherwise known as traction.

    In most of the country, startups need to have some level of traction to raise money unless it’s an entrepreneur that’s been successful before. Here are some thoughts on the amount of traction needed to raise angel money:

    • Valuations of $1 million – $1.5 million pre-money are pretty standard when startups have $25,000 – $100,000 in annual recurring revenue
    • Valuations start to move up once the startup has $250,000+ in recurring revenue
    • After $1MM in recurring revenue is achieved, valuations move up significantly (e.g. $5MM – $8MM pre-money) as the venture is often getting close to a repeatable customer acquisition process and the business is viewed as less risky

    Most startups I meet with are pre-revenue and in a difficult spot because angel investors want to see some traction, even if it’s modest, before investing. Entrepreneurs would do well to have a fair amount of recurring revenue to raise money on good terms.

    What else? What are your thoughts on the amount of traction a startup needs to raise angel money?

  • How big does a startup’s market need to be to make sense?

    Recently I was talking to an entrepreneur and he was sharing his new idea. Now, the idea was sound and made sense but it immediately struck me as too small a market. There’s no perfect method to determining the size of a market opportunity but there’s plenty of information available.

    Here’s how I like to think through if a market is large enough to go after:

    So, it doesn’t need to be a billion dollar business but it does need to be large enough to build a sustainable, successful business in a reasonable amount of time.

    What else? How big does a startup’s market need to be to make sense?

  • Balancing Startups and Service Providers in a Coworking Space

    Community support and interest has been amazing at the Atlanta Tech Village. As expected, startups and service providers have enthusiastically wanted to join. One of the items we’ve been trying to figure out is the right balance between startups and service providers renting desks in the coworking space.

    We already have five categories of full-time members:

    • Tech companies (headquartered in a different city or another part of Atlanta)
    • Tech startups
    • Independent freelancers (software engineers, graphic designers, consultants, etc)
    • Investors including venture capitalists
    • Tech-related service providers

    The current thinking is to have 80% of the members in the first four categories and 20% of the members in the tech-related service provider category. Looking ahead, we’re excited to continue learning and figuring things out.

    What else? What are your thoughts on the balance between startups and service providers in a coworking space?

  • 4 Different Angel Investing Strategies

    Over the past few months I’ve asked a number of angel investors about their experience and strategies when it comes to angel investing. As expected, there are a variety of different approaches and outcomes. Most angels say they’ve made money angel investing, when leads me to believe there’s some survivorship bias as well as returns included from companies they’ve operated.

    Here are four of the most common angel investing strategies I’ve encountered:

    • Domain Expertise – looks for startups in a field related to personal background and areas of previous experience
    • Bet on Previous Winners – focuses exclusively on investing in entrepreneurs that have already been successful
    • Small Bets and Double Down – invests the minimum amount in a large number of startups and then invests significantly more in the winners
    • Follow the Leader – takes the lead from another angel investor and follows him/her in investing

    I don’t have much experience with this yet but I’m looking forward to learning more and getting a better understanding of each strategy.

    What else? What are some other angel investing strategies?

  • Choose the Right Medium for the Communication

    One leadership lesson that took me entirely too long to learn was that different communications require different mediums. The idea is that communication mediums like face-to-face, video chat, phone, and email make it easy to share words but the context and nuance varies wildly. As an example, if people are upset or any sort of miscommunication is going on, face-to-face is significantly better than email or text message.

    Let’s look at some of the different mediums and communication circumstances:

    • Face-to-face – Best for anything emotional (good or bad), alignment-oriented, or difficult
    • Video chat – Not as good as face-to-face but still auditory and visual, especially for staying connected to someone in a different physical location
    • Phone – For exchange and dialogue on a complicated subject as well as times when emotion and relationship are an important part of the equation
    • Email – Simple, fast, and effective for basic information exchange, tasks, and clarification

    Chat and text message are similar to email in that they’re digital but have a greater sense of immediacy and two-way communication about them. Regardless, it’s important to choose the right medium for the communication.

    What else? What are your thoughts on choosing the right medium for the communication?