Early-Stage Monthly: Founding One Dollar Capital
We are starting a series of posts to share our experience of building a VC firm and discussing early-stage challenges that every startup faces.
Don’t hesitate to share with other talented entrepreneurs and to send me feedback or your startup challenges at vlad@ayukaev.com.
Six Million of Dollars in Failures
Are you a startup founder or just thinking of quitting your laid back job and rushing for the Next Big Thing? If your answer is “Yes”, then we are in the same boat. However, before we begin our weekly journey and discuss some of the most thought-provoking challenges tech entrepreneurs face early on, I want to talk about the propeller mechanism that pushes the entire boat forward (or in reverse).
My business partner and I are both experienced startup guys, who had co-founded multiple ventures in the US and overseas, including one of the biggest peer-to-peer rental marketplaces in Europe, Rentmania. Bootstrapping tech companies matured into our true passion right after college (hence we didn’t know each other back them). I’ve never even landed “a real job”. Slava did it once.
Since then, we’ve built excellent teams, hacked complex markets, developed beautiful tech, and attracted over $6M in early-stage funding. Sounds impressive, right? There is one minor drawback: all our startups but one had sunk and never made to A-series
Top performing VCs have a simple strategy. Are you a part of it?
If you examine portfolios of the most successful VCs and spend some time digesting stories behind them, you will see that they all revolve around a straightforward strategy. Top VCs invest their brand names into companies that undoubtedly do well and already know their sailing fundamentals. In a retrospective, every single venture deal that led to a unicorn involved great founders, a growing market, a tailored business model and an impressive track record with a positive cash flow of hundreds of thousands of dollars.
Experienced investors understand that a money check won’t solve a single challenge for a startup. It most cases it will backfire as it hides sprouting problems at the expense of founders time. In other words, big-name VCs close deals when there is no more job to be done. That is how they make 100x.
Simple rules that make your startup immortal
One of the painful truths we learned the hard way is that most investors don’t know how to turn bad startups into great ones in the beginning, so they don’t offer the tools necessary for vegetation. Angels, who try investing in smaller companies don’t have the right skills to guide, advice, or even track startups since they come from entirely different backgrounds in traditional industries. Their only real power is other angels ready to build a syndicate with them. Numerous accelerating programs (like YCombinator, 500Startups, name yours) mostly offer comprehensive classes for equity and provide their network of professional investors. Their goal is to acquire VC appealing startups as early as possible, help with pitching, and boost their marketing efforts just before the demo day. If successful, the later stage will provide massive profits for the chosen ones and rest sliding in their shadow. In other words, the venture industry is neither interested nor can effectively support founders with early-stage troubles.
A year ago, back in Los Angeles, we started a small consulting practice, that targeted super early tech founders and their companies to help them navigate through uncertainty and achieve business and product milestones. During the following months, we’ve worked with five startups in different countries and markets. Each of them came to us just before their runaway was about to come to an end, obviously, trying to find a hotfix to that problem.
The statistics make total sense. Many founders believe (I was one of them) that money is the key to their startups’ success and that moving forward without venture capital is impossible. Indeed, that faith is supported by numerous cases from top tier VCs and companies that turned into unicorns by closing great deals and finally fixing every single problem at once. Nevertheless, my partner and I prefer to look at it differently.
It is a myth generated by VC firms not to run out of entrepreneurs ready to trade their equity. As I argued before, in reality, no one cares that the vast majority of founders will kill their startups chasing money while ignoring critical signals coming from elsewhere.
Our consulting practice, as well as the previous venture experience, provided a set of fundamental principles that ultimately differentiate good early-stage companies from bad ones. Also, the principles helped startups that came to us to survive.
The odds that your startup won’t bust are high, if you remember and apply those essential rules:
- Get a co-founder, who is an expert (you might fill this role yourself) in your particular domain. Otherwise, your startup will go broke while accumulating common knowledge.
- Get a co-founder, who has had a startup before, since growing unicorns became an established science.
- Find a steady growing market niche. You can’t get a product-market fit if there is no market for your product. Also, entering shrinking or stagnating markets has a very low ROI.
- Propose a business model that is either already accepted in your market niche or can easily disrupt it at no cost. If the model is unacceptable, no one will pay you. If the disruption is expensive, your company will run out of cash before hitting the critical mass.
- Have a clear vision to seize the market. It is necessary to understand early on where your customers (UA channels) are and what drives their behavior. Selling great products to wrong people returns zero.
- Integrate a process that facilitates hypothesizing and validation. Life is about moving. Moving is about deciding where to go and acting on it. Do it fast.
What if every early-stage investor preached those simple principles? We bet the industry would see 2x more unicorns and 10x more working businesses in tech. It is the core of our vision that we want to push.
A better investor for early-stage startups
Last month my partner and I founded One Dollar Capital — a venture firm that guides early-stage tech companies, seeks growth levers together with founders, tracks metrics via own online tools and reports them to venture partners who are ready to invest.
One Dollar Capital introduces a new working framework that focuses on purifying company goals, creating an appropriate product strategy and delivering results before hitting big name VCs.
We believe that helping founders to digest the startup sailing fundamentals as early as possible is the key to success. Moreover, it’s a critical mission to provide access to such expertise and network to digital entrepreneurs from diverse backgrounds who wouldn’t have it otherwise.
Too early for Sequoia? Come work with us!
Our main goal is to invest in ten startups in 2019. We’ve already closed a couple of deals and are actively looking for awesome startups to join our team.
Are you a founder of an early-stage startup? Please fill a short form and apply on our website: onedollar.vc
Do you know a VC, who will be happy to invest in cool startups together with us? Let me know at vlad@ayukaev.com
We are starting this monthly newsletter to share our experience of building a VC firm and discussing early stage challenges that startups face. Please subscribe to get the latest insights and see the tech world from an investor point.
Don’t hesitate to share with other talented entrepreneurs and to send us feedback or your startup challenges at vlad@ayukaev.com.
