Starting vs Scaling a Startup


Originally posted on David Cummings on Startups:

When people think of joining a startup, they often think of tech companies with cool offices and lots of chaos. While that’s often true, I think it’s even more important to distinguish between startups starting out and startups scaling, as they are incredibly different.

Startups starting out have much more uncertainty, are tiny in size, and need to pivot or iterate a number of times before figuring out product/market fit and a corresponding repeatable customer acquisition process. It’s hard to forecast and accurately plan without operating history and metrics, which further contributes to challenges, and potential excitement.

Startups scaling are executing against a proven plan, have product/market fit with a repeatable customer acquisition process, are well capitalized (or could be if they so choose), and are focused on maximizing growth. Every little process is an opportunity for improvement and overall energy is spent optimizing, rather than discovering.

The next time…

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A TV commercial for Facebook? What’s not to “like?”


Originally posted on Gods of Advertising:

https://www.youtube.com/watch?v=8g4TQPNcjwY
Weird yes but “we are not alone.”

I don’t know which ad agency, if any, created this ad for Facebook but I “like” it. A lot. In the news –somewhat controversially- for spending enough money to bail out Greece on a texting application, it’s nice to see Facebook doing a bit of image advertising that’s just plain fun.

Not that Facebook needs to build awareness but they could use a bit of freshening and, for me, spots like this do it. Instead of marketing some new feature, Facebook goes old school (how ironic is that?) and comes through with advertising about the very thing that made Facebook cool in the first place: community.

In this case it’s people who dig Sci-Fi. We see a bunch of geeks sporting costumes of their favorite Martians just being real and that’s about it. We hear the iconic theme music from 2001 A…

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Irreplaceable Places


Originally posted on Om Malik:

An interactive guide to America’s National Parks is useful combination of text, photos and maps. Check it out. And then think about making this more visual, more alive and more real-time. How would we do that? I think maps as an interface to our real world is still a virgin territory for innovation.  Google Maps new design is merely a start. It ends with Harry Porter’s map.

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What I am reading today


Dilution With Every Round of Funding


Originally posted on David Cummings on Startups:

Every time a startup raises money there’s a parade of announcements and media coverage. Raising money isn’t a sign of inevitable success, yet it’s treated as one of the ultimate achievements. For the entrepreneurs and employees, a round of funding results in dilution. And, more and more rounds of funding equals more and more dilution.

Here are a few thoughts on dilution and funding:

  • Dilution, of course, depends on amount of money raised and pre-money valuation (the amount the company is valued at before the money is invested)
  • Equity isn’t static as stock options can be granted multiple times (e.g. existing options might be diluted by a new round of funding but could be partially off-set by the granting of additional options)
  • As a percentage, dilution is often in the 20-50% range, depending on how well the startup is performing and how many investors competed to win the business
  • Companies…

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Example Founder Dilution Over Multiple Financing Rounds


Originally posted on David Cummings on Startups:

Continuing with yesterday’s post titled Dilution With Every Round of Financing , it’s instructive to walk through an example as a founder. Before the example, I like to highlight the stories of ultra-successful entrepreneurs that have taken their company public, and the vast majority own less than 20% of the equity at time of IPO (e.g.  Marketo’s founder had 6.6%  and  Cvent’s founder had 16% ) . Now, 20% of $500 million is still a massive number, but it’s a far cry from what people might otherwise think the entrepreneur owns.

Here’s an example walkthrough of dilution over several rounds of raising money:

  • Two entrepreneurs come together and start a company, splitting the equity in half (so, each has 50% of the equity)
  • Angel investors are excited about the working product and early customers, deciding to invest $300,000 for 20% of the business (the entrepreneur now owns 40%)
  • Recruiting great…

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What I am reading today