Those are the challenges I took on at the request of an intriguing multi-million stealth startup’s founders. (more…)
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Varun Mathur, the Techvibes Community Manager, who I just learnt is based in Toronto (I look forward to meeting you, Varun), made an excellent point yesterday in his Techvibes post on What Separates 37signals And Twitter ?
For all the talk about “getting to revenue” as fast as possible, VCs are still valuing companies based on hype and unproven potential for exponential revenues. You can build valuations based on traffic, but if you can’t attach a realistic average $ amount to a visitor, and if you are going to hemorrhage your traffic as soon as you offer ads, then your valuation is built on shaky grounds – which in finance means you should likely be extremely conservative or discount it.
I don’t say there is never a case for giving high valuation to companies that have great brand awareness and usage even if they haven’t made a buck yet, but my thesis is that the risk of this revenue never materializing should lead to discounting valuations more heavily than they currently are. VCs should put their valuation through a simple risk-based, probabilistic tree analysis, contemplating the likelihood of 3 basic scenarios: (more…)
My friend Fred Sweeney of VG Partners pointed me to this interesting call for help by the biotech industry in Canada, whose start-ups are finding it difficult to raise money to survive, let alone thrive. In these times of hardships, the ventures with the least obvious path to commercialization and revenue are the ones who suffer first and most. Given the lengthy development cycles and uncertain payout, biotech ventures evidently stand at the frontline of the crisis.
What all that shows is that a start-up should at all times be able to articulate the revenue model it is proposing to pursue. It should tie all its current efforts to this model, or “reverse-engineer revenue” as per the expression I coined at GrowthRoute. Doing just that provide three benefits: one, you stand in first row against competing start-ups when comes the time for VCs to hand out cash; two, keeping your eyes on the prize helps you identify where to focus your efforts today, and better allocate your current resources; three, spending some time thinking about how you will make money could point to nearer-term sources of revenue you may not have thought of.
Without a destination and a map to get there, you can have a tight ship and yet run it in circles. Better to never count on the government to get you back on track.