“Series A Investors Look at Team, Technology, Market” 5 Lessons I Can Share About My Series A Venture Financing Round
I had the pleasure of interviewing Peter Relan, founder of YouWeb Incubator and sponsor of over 25 startups which have collectively raised over $200M in venture financing, and have generated over $2B in M&A or secondary exits.
Jean: What is your “backstory” of how you become involved in the Startup space.
Peter: I was a tech industry executive, VP of the Internet and Application Server Division at Oracle when I left for my start-up career first as a Head of Technology at Webvan from Series A through its IPO, then founded my own company in 2011 which raised a Series A in 2004 and was acquired in 2006, and then started YouWeb to become a “parallel entrepreneur”.
Jean: What do you think makes your company stand out?
Peter: My incubator is unique. Unlike others like YC, we work with a very few founders who may not even have an idea when they join us. For example, when Jason Citron, founder & CEO of Discord came to work with me in 2012, there was no clear idea, just a general white space he wanted to tackle. Today Discord is a household brand in the gaming community with over 100M registered users, and growing faster than Slack.
Jean: Are you working on any exciting projects now?
Peter: Currently I am CEO of Got It, which is an AI based platform that dramatically boosts user productivity by connecting a user to a vetted knowledge expert within seconds, when they have a problem they are stuck on, using business tools, programming and other knowledge work.
Jean: Do you have a favorite book that made a deep impact on your life?
Peter: Two books: Hard Drive on Bill Gates and Only the Paranoid Survive by Andy Grove. I took a class that Andy Grove taught when I was at Stanford. I was struck by management approach of Andy Grove (he did a column in the San Jose Mercury providing advice to how to manage employees, which I used to read regularly and use his ideas even today) and how strategic he was in his thinking about Intel and it’s future. In a case study we did in the class, I “dared” to answer a question, despite his withering look, and it turns out I nailed it, but he was so matter of fact: as if, “of course that’s it, and if you thought anything else you’d be stupid”.
Jean: What are your “5 Lessons I Can Share About My Series A Venture Financing Round” and why?
Peter: With my incubator companies, I am usually co-raising the Series A round with the founder who has worked with me typically for 2 years (1 year in the incubator and then raised a seed round in the 2nd year). The biggest lesson I’ve learned doing this a number of times is that start-ups are so capital efficient now in the seed stage, that the bar for the Series A is very high. The seed round is supposed to be about having achieved traction, otherwise the Series A is unlikely to happen. Unless you are a successful serial entrepreneur the Series A will not happen on just a “business plan”. An example from my incubator is Discord, whose Series A happened just on the back of Jason Citron’s reputation (he had a $104M exit in his previous start-up which was also incubated at YouWeb). His Series A was led by Benchmark on a prototype product only. On the other hand, Got It, whose founder started the company in his college dorm while going his PhD, had never done a start-up, so we got a seed round and worked to show 40% MoM growth of his service usage that then led to a Series A.
Fundamentally series A investors look at team, technology, market (and related to that product market fit). You can have a big market, a technology not working yet, and a great tech team, and that might be enough to raise an A round, because the risk that a great tech team will not crack the tech is low, and the big market is very attractive.
Network effects: Investors love business models where there is a flywheel that might need a jump start with some capital, but then can become self-sustaining. Like marketplaces that can show “the more the buyers the more the sellers and thus the more the buyers etc..
Deep domain knowledge: If a founder has deep domain knowledge, like a doctor or surgeon doing a healthcare/medical device company, and they team with a solid team, this can be very attractive to investors.
A hot space or a challenger to a a first mover: Uber/Lyft, Doordash/Postmates etc.
Jean: Some of the biggest names in Business, VC funding, Sports, and Entertainment read this column. Is there a person in the world, or in the US whom you would love to have a private breakfast or lunch with, and why? He or she might see this. :-)
Peter: Barrack Obama.
— Published on June 1, 2018
This was very inspiring. Thank you so much for joining us!