Notes for TWiST Ep.612 — All #AskJason: best of scaling, pitching, traction, trends, hiring & practices for 2016

First AskJason episode of ThisWeekInStartups of 2016!

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Jason meets with startups for a living. He invests in 50 startups a year and gets a lot of questions from founders.

Here are some of them:

“I have a validated idea with huge potential and market, but I don’t want to build a startup because I know there are successful startups in this niche that can easily add this idea to their product. How do I sell this idea to an established, successful startup?”

• You don’t. You are overvaluing your idea. In the slim chance you are a genius and your ideas are so valuable, you should be starting companies.
• There is no marketplace for selling ideas. Ideas are easy, execution is hard
• If you can’t execute, your ideas are worthless
• Unless you want to become a product manager, design these things, make wireframes and go work at those companies

“If a startup has novelty and traction in a high growth market with a solid team but it’s struggling to get investors excited, is the pitch the problem or the product?”

• It could be your team, they don’t believe they can be good enough
• The market may not be high-growth and big as you think
• It’s novel as in a fad or a gimmick
• It could be the pitch (unlikely, investors can see through bad pitches if something is good), the product, the team or the market
• There should be month-to-month definitive growth
• It’s up to the entrepreneur to prove he has traction needed to get investors’ money
• For a clear feedback, after a meeting send a follow-up question asking why they are not interested and to be as candid as possible (no sugarcoating please)

“After a startup’s distribution plan, what is most important to you as an investor?”

• Based on his track record of successes (Uber, Thumbtack, WealthFront) he looks for winners who execute at high level, with drive, who can listen and learn and have the skill to acquire skills
• If you can acquire a new skill in a highly changing environment, you’ll do great

“How do you investors judge startups in fields where you have no expertise?”

• When there is a trend going on, he meets with plenty of startups in the field and they educate him. That’s the beauty of the job

“In launching an MVP, is it better to focus on # of users or demonstrating a revenue stream?”

• Have both: if you don’t charge, you won’t be taken as seriously as if you do from investors
• Charging is also a good test to know if they’ll pay and how much they’ll pay
• We are in the age of performance where traction and revenues matter a lot
• Figuring out how to make money repeatedly is what it’s all about in 2016

“Where are the opportunities to innovate with government?”

• Looking how to make government more efficient might not be as efficient as looking at your life and see what you can take away from the government and privatize
• Ask yourself instead: what can we do outside the government to make our communities work better and have an impact on the inside that makes the government change?

“What business processes have been surprisingly valuable for you?”

• Product release cycles and having a deadline to release a product — manufacture deadlines if you have to
• Board meetings every two months? Have a board deck ready by week 7
• Monthly live online demo of the product
• Cadency and deadlines make people increase performances

“We have a prototype and going to be in beta in about 2–3 weeks what are the top 5 things I should consider as I’m looking for funding and pitching to investors?”

1. In 2016 you want to have a prototype that’s clean and simple (less is more)

• Having lots of features isn’t so good — most investors know that products that scale have one or two simple elegant features (think Instagram, upload a picture, comment — videos came years later)

2. If you have traction and understand key metrics of your business

3. Have a robust understanding and infrastrutture around the metrics of your business so when they ask you questions, you can pull up a chart and give them a clear answer

4. Why are you doing this, what’s your goal here — have a big goal and vision (don’t say you are doing it to make a lot of money, even if you believe so, investors know that people in the game to make money quit quickly)

• Startups are so painful and mortality so high, you need some strong motivation
• Starting with a purpose driven culture helps

5. Why this business is gonna work now? It could be for GPS, battery life, cheap solar cells, broadband

6. Have great advisors, go to a great incubator

“Would you hire someone with a felony conviction, given that he or she is an A player?”

• He hired a felon under indictment for cybercrime and wrote about it (didn’t know he was when he hired him) but he wouldn’t have if he knew.
• If you have a venture-backed company, it’s a risk depending on the crime they were convicted for (a CTO for a payments company with a felony for stealing people credit cards…not good)
• In a startup with investors you have people to answer to, it depends on the person, the crime, the role, the startup
• They will ask: Is it necessary to take the risk?

“How do consulting service providers scale up?”

• They don’t and that’s why VC don’t invest in them
• Consulting is a great piece to add to an existing business and be part of the revenue mix if you do SaaS but it’s discounted heavely by investors and the public stock market

“Which will you think will have a bigger impact on VC market: AngelList $400m fund or YC Continuity Fund?”

• Jason doesn’t think either of these will have a dramatic impact on the VC market
• They are small funds compared to the whole VC market
• The number of startups have increased
• Many of them need continuing funding so massively that we still don’t have enough funds
• With the $400 million fund investing 200–300 per startup will give startups a few more months of runway
• It’s not going to change everything but it will be a nice icing on the cake (more time and more traction before going to the actual VCs)
• YC Continuity fund is just another VC firm joining the market
• It’s a way for them to keep investing on the unicorns they may get out of 300 startups a year that come out of their incubator

“Does scaling and growth matter more than technology?”

• Yes. If you have a ton of great tech and no growth, VC would not be interested in investing.
• If you had a ton of growth and scale but a disaster of tech, VC would want to invest
• Fixing technology collapsing under the rate of growth is one of the reason startups raise funds
• It’s a growth-over-technology market

“What are the big video trends that are gonna shake the market and how do we best take advantage of it?”

• Video is huge, people spends hours every day watching videos
• Business-to-business video is gonna be huge: thisWeekinStartups is a 1 million dollar a year business (even if it’s a hobby), Leo LaPorte ThisWeekInTech is a 6/7 million dollar a year business
• On the high end, people are building tv shows and going directly to Netflix
• Medium area, podcasts like Jason’s
• Small are, DJ Khaled has the viewership of Kim Kardashian 25 million a year reality show for his SnapChat videos (Snapchat shows the future of reality tv shows)
• Individuals will be able to produce appealing content for their following and make a living off it
• Yahoo should have gone full content company and focus on video

“How do you raise capital for a company with innovative technology requiring a multidisciplinary team to bring to market?”

• There are investors that like to invest the money, a lot of money, required to bring such a product to market and take a multi-year approach
• You’ll need a lot of research done, have a solid team of scientists, skip the angel round and go to the best and brightest VCs

That’s all folks!

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