lu.ma/ja6lr898

BLOCK71 Breakfast Club June 2, 10:15AM–12:30PM SGT

Stellantis 900, April 3 Mack Trucks 250–350 , April 18 Cleveland-Cliffs 1,830, April John Deere 9, April Summit 74, April Bando 65 laid off, April Wilson Creek Energy 425, April Advanced Drainage Systems**: 54, April Sensata Technologies**: 57, April VOLVO: Up to 800, April 18

Really neat how it consolidates replies

Please reply to this if you see it

jason@calacanis.com with Knicks in subject line!

I solved it:

1. Airthings View Plus to test the air
2. Coway Airmega to clean the air
3. Frigidaire 22 Pint Dehumidifier

We had a dozen team members and a giant podcast studio at the loft. It’s a killer space in a GREAT location with two parking spaces.

767bryant.com

email me jason@calacanis.com if you’re interested

These are the most important, venture-backed, and highly valued private companies.

The website is built on CODA, which is fantastic.

Alex Wilhelm, my co-host on This Week in Startups, manages it.

Early-stage valuations for startups are hard to understand because typically there is very little traction or data to go on in the first year or two of a startup.

[ Click to Tweet (can edit before sending): https://ctt.ac/fPF9l ]

Startup valuations are not science, but they’re not magic either. It’s a bit of alchemy, combined with bizarre marketplace dynamics like famous founders getting 3x the price for half the traction, or Y Combinator hosting a gigantic demo day in order to create FOMO with novice investors who are explicitly told not to think things through and just cut a big check (literally, that’s their bad advice to investors).

The chart above, a work in progress, is called “The Valuation vs. Traction Matrix” and it pivots on two variables: traction (aka “stage”) vs. valuation.

I started the valuation at the basic valuation we tend to see in technology startups, which is $1–2m and go up to the eye-popping $12m (which is actually not the peak, just the highest end of normal).

When you have just an idea or mockup, you are likely to do a “friends and family” round in the $1m range.

If you have an MVP or unpaid pilots, you might get some angels or seed funds involved.

When you get to paid pilots or revenue, then you are most likely to get seed funds and syndicates involved, after which the VCs start buzzing around. VCs invest, on average, when you have $2–3m in revenue these days (they might engage you in discussions a lot earlier, obviously).

Above the green line tends to be less value and below the line is more value.

As you can see, I try to operate just below the line with two of my investment vehicles, the LAUNCH Accelerator and TheSyndicate.com. We do this by finding startups that are not in Silicon Valley AND that have customers paying them.

The green line in this chart approximates the average startup. I would say that most startups in the United States would go along this trajectory unless one of four things happens:

1. You have a famous and successful founder, which gets you 3x the valuation for 90% less work.
2. You create a marketplace where many investors are competing for an allocation, which is the double-edged sword that the demo day FOMO device is designed to create.
3. Your engagement or product is otherworldly.
4. You find the dumb money which doesn’t understand that you can invest in two or three startups — with the exact same traction — for the price of one overpriced startup.

We see number four all the time when a founder tells you not to worry about the valuation of $18m because it will all work out when they’re a unicorn, which is true, but this assumes you don’t have better deals you can prioritize.

In our case, we typically have so many opportunities that we can place three $6m bets in startups that are just as good (or better) than the founder demanding $18m.

The Danger for Founders

This is the danger of founders overoptimizing for valuation early, which is, they drive away the smart money and open up the floor for dumb money. The other well-known phenomenon is that a founder who succeeds at getting a massively high-valuation early on might raise too little money in a “party round.”

In this scenario, a founder might raise $1m at a $20m valuation, only diluting 5%. If they are burning $75,000 a month they then have about a year to build a company worth $20m. To be worth $20m for a SaaS or consumer subscription product, that would be around $100–200,000 a month in revenue.

It’s possible for a founder to do this, but it’s not probable. What happens if they don’t get to $150,000 a month in revenue to justify the previous $20m cap? One of three things:

1. They lower the valuation and do a down round.
2. They get bridge funding from their existing investors.
3. They shut down or sell the company.

If the same founder raised $1m at a $5m valuation, they would only need to hit $25–50k in monthly revenue to get a round done at ~$10m.

Accelerators

When a founder goes to an accelerator like LAUNCH, Techstars or YC they have a ~$2m valuation, which is a function of accelerators getting half their equity for cash ($100–150k) and the other half for running a program. Accelerators are a great deal for investors, but they require massive work. You need to have a large, full-time staff, space and a massive interview process to run an at-scale accelerator, which I think costs most programs ~$25–100k per startup.

If you add the operational cost back, an accelerator is likely investing on a $3–4m valuation. Still a good deal, but it’s 100x the work of a solo angel investor and 50x the work of a seed fund.

I suggest new angel investors and seed funds do their first 25 deals in the space to the right of unpaid pilots, in the area in the green box below. In this box you can pay above or below the line, knowing that you’ve eliminated the founders who can’t get to some basic level of product/market fit because it’s very hard to fake paying customers.

You should absolutely avoid Investing in the red box, where founders are looking for really high valuations for their ideas, mockups or MVPs. If you’re going to take on the risk in the idea and pre-traction phase, the yellow box, you at least want to get three or four swings at bat for the price of startups in the product/market fit phase.

So, if you invested $100k for a $10m startup with $750k in yearly revenue in the green box, I could see you investing $25,000 into four ~$2–3M startups.

Angel University

We will be discussing this important topic and more at the Angel.University tour, which is making the following stops:

• April 19: Washington, DC (hosted by Riverbend Capital)
• April 23: Boston, MA
• April 24: New York City (supported by EquityZen)
• April 26: Columbus, OH (hosted by WillowWorks)
• April 29: Miami, FL
• June 17: Sydney, Australia
• July 15: San Francisco

The AU course is four hours followed by a dinner. Look forward to seeing you at this highly interactive course, which is worth attending if you’ve done zero or over 100 investments.

Exterior, San Francisco’s SOMA district, two nerds, walking briskly. Tents, traffic, and garbage — everywhere.

[ Click to Tweet (can edit before sending): https://ctt.ac/w91C_ ]

Founder, excited: “JCal, I just got some advice from an advisor that I should call my first round of funding a ‘pre-seed’ round so that the optics are clean when I go for my Seed Round and Series A…”

Angel: “Hmmm…”

Founder, more excited: “you know… in case I don’t have product-market fit and investors think we’re a zombie startup… trapped between our Seed and Series A funding.“

Angel: “It’s irrelevant, all of it.”

Founder, confused: “My startup? The Pre-Seed Round? The advice? My life?”

Angel: “All that matters, is the chart.”

— — — — — -

Founders get too much free advice these days, most of it from folks who have never built or invested in a billion dollar company. Any advice you get from someone who has not been involved in a unicorn startup is largely irrelevant if you are trying to build a unicorn startup.

Candidly, most of what I thought I knew before investing in seven unicorns was wrong or unimportant. If you want to understand what it’s like to climb El Capitan you can interview people who have done it, and as a journalist, conference impresario and podcast host, I did my share of asking questions.

But what journalists, talk show hosts, and directors know about hanging off the side of a rock is vastly different than what Alex Honnold knows.

If you want to raise capital for your startup, there are countless books and blog posts for you to read, but you must sort those words into two buckets: folks who have built or invested in unicorns and folks who haven’t.

After introducing the 200+ founders I’ve invested in to thousands of other investors, here is the number one thing that has lead to them to (a) getting a meeting and (b) getting multiple term sheets: a chart that doubles every three to six months.

If you have a revenue chart that doubles every six months or less, like Uber, Calm, Thumbtack, Robinhood, Trello, Fitbod and LeadIQ, you will be tripping over all the venture money on your doorstep.

Are there other reasons than “the chart” that VCs invest? Yes!

Can you have “the chart” and have VCs pass on investing? Yes!

Can you use unsustainable growth techniques and fake “the chart?” Yes! (but I don’t advise it)

Is having a chart that doubles your best chance at raising capital? Yes!

Best,
Jason

PS — The scene above is 100% true, except it’s a composite of three different conversations I had this week that I bundled together and took liberties with.

PPS — If you have $5,000 to $50,000 in revenue a month and want to 100x it and build a unicorn, email your story and chart to 100@launch.co

PPPS— We’re hosting LAUNCH Festival in Sydney again this year, from June 17–20. We’re giving away the first 1000 tickets to founders (free!) → https://www.launchfestivalsydney.com/founderpass

PPPPS — We’re all set for Angel Summit 2019. 75 angel investors & venture capitalists, two days of discussion, debate, learning & late-night poker. Learn more → http://launchangelsummit.com