UPDATE 2020: I have moved away from Medium! You can find this article and all the new ones >>>__HERE__<<<

Over the past few years, the world's best entrepreneurs and investors have released highly valuable articles about SaaS startups. Christoph Janz wrote about funding, Neeraj Agrawal wrote about growth, Jason Lemkin wrote about… well, everything.

One thing, in particular, makes those readings great: they contain a ton of numbers and metrics that are helpful to understand what a successful startup looks like at each step of the growth journey.

So what happens when you put those numbers together in a spreadsheet? Can you paint the big picture of a SaaS startup in Silicon Valley, from inception to IPO?

Yes, and here is the result:

This article will walk you through the different steps that lead us to the chart above. (Update April 2019: By popular demand, I added a link to the spreadsheet fully editable by all. Feel free to play around and geek out, I have another copy somewhere safe 😛 )

Bear in mind that the numbers presented here are orders of magnitude rather than hard rules. They mostly apply to Silicon Valley-based, VC-backed, SaaS startups. Take them with a grain of salt :)

1. Timeframe: 6 years to a SaaS unicorn, 9 years to a SaaS IPO

Starting a startup is a long-term game.

Steve Blank, Morgan Brown, Brian Balfour, and Reid Hoffman have all described their own vision of the startup lifecycle. When looking at it, we notice that a successful startup goes through 3 phases during its life:

• Garage — Going from problem to product-market fit
• Growth Machine — Expanding channels, product lines, and geographies
• Unicorn — Stabilizing and becoming liquid (IPO or acquisition) above a $1 billion market value

In 2016, the TTU (time-to-unicorn) was stable at 6 years in the US, courtesy of the good people at fleximize. A unicorn, as originally defined by Aileen Lee of Cowboy Ventures, is a tech company, public or private, that reaches $1 billion in valuation. More recent definitions exclude public companies from the scope for obscure reasons. Regardless, joining the blessing of unicorns remains a big deal, if not the mark of success for most founders.

What about SaaS IPOs, then? Data from Pitchbook suggest a median time of 8.2 years between first VC funding and IPO. Throw in an extra 12 months of existence before the first funding round (purely speculative), and we are looking at a TTI (time-to-IPO) of nine years, give or take. So much for the quick buck!

2. Growth: triple twice, double thrice, then 82% growth persistence

In a 2015 article, Neeraj Agrawal suggested that SaaS growth follows a clear pattern.

First, you establish a product market fit. First, you establish product-market fit (PMF) either instantly or within up to two years. Second, you reach $2 million in annual recurring revenue (ARR), which is another one to two years. From there on, things become pretty predictable and Neeraj puts forward the T2D3 rule (i.e. revenue triples twice then doubles thrice in the 5 following years).

Bottom line: you should pass the $100 million mark in ARR six to nine years after starting.

What about after that? According to Rory Driscoll of Scale Venture Partner, “for a best-in-class SaaS company, the growth rate for any given year is [82] percent of the growth rate of that same company in the prior year”.

In a nutshell:

• ARR: PMF -> $2M -> $6M -> $18M -> $36M -> $72M -> $144M -> $262M -> $438M
• Growth rate: 0% -> 200% -> 200% -> 100% -> 100% -> 100% -> 82% -> 67%

3. Profit at scale = 40% — growth rate

Now that’s the top line is clear, let’s look at the bottom line.

In the early days, it is safe to assume that the company grosses in little to no profit. Once you are above $50M ARR, however, things change.

In a 2015 article, Brad Feld formulates the 40 percent rule: your growth rate + your profit should add up to 40%.

(The graph is originally from Pacific Crest Group, found via this article by Dave Kellog. Kudos to both of them).

We will assume that you run your infrastructure in the cloud, so profit = EBITDA. But as Feld points out, reality may be more complex if you run your own infrastructure.

4. Funding: Seed, Series A, Series B, and then some

Fundraising also follows patterns. Based on Chris Janz’s world-famous napkin, a SaaS startup can expect to raise:

• A seed round at $0–1M ARR and 0% annual growth
• A series A at $1–1.5M ARR and 200% annual growth (x3)
• A series B at $5M ARR and 150% annual growth (x2.5)

Let’s assume that you raise funds every 18 months for seed, series A and B. After that, things become blurry.

Janz also offers typical valuations and round sizes in his article, so you can easily assess whether your $10 million ask for a seed round is realistic (hint — it’s probably not).

5. Exit: sell at $1 million or $10 million ARR, or IPO at $100 million ARR

As your startup grows, you may be presented with opportunities to sell.

Perhaps a competitor with deeper pockets wants to clear up space — Hired and Match.com are really good at that. Or perhaps a large corporation will see a “strategic fit” with your team, product and/or clients. Think GM with Cruise or Microsoft with Linkedin. Most of the time, it’s both.

These opportunities, however, are not equally distributed during the startup lifecycle. According to Jason Lemkin, there are two local maxima for an acquisition:

• At $1 million ARR, when you are “hot and cheap”.
• At $10 million ARR (and decreasing until $100M ARR), when you become meaningful but still affordable.

So if you feel like you won’t make it to the next milestone, it may make sense to sell at a local maximum. Or is there an alternative?

If you want to go big, you want to IPO. But what makes a SaaS IPO? A successful IPO follows a line that O'Driscoll calls the “Mendoza line”, with ARR on the x-axis and forward growth rate on the y-axis.

In short, this is what your metrics should look like before you go public:

• $100 million ARR
• 25% forward growth rate

These numbers are incredibly hard to achieve, and that’s what the author calls “the realistic low bar to IPO”. Unsurprisingly, there have been only 21 tech IPOs per year over the last five years.

To put it in perspective, let’s look at what it means in terms of sales.

6. Sales: $100M ARR = ARPA x number of customers

Our target is $100M ARR. Now, your ARPA (average revenue per account) is a constant by definition. So you can derive the number of clients that you need following Chris Janz’ chart.

At $10 million ARPA, you need 10 clients to IPO. At $1 million ARPA, you need 100 clients to IPO. … At $100 ARPA, you need 1 million clients to IPO.

Say you address a market of “prosumers” like Wix, Typeform, Evernote or Mailchimp do. You charge on average $100 per year per customer. Not only do you need 1 million paying customers to IPO, but you also need to add 250,000 more customers next year (and/or upsell by as much).

Still looks like something feasible? Then let’s look at how much people it takes to build this kind of company.

7. Headcount: $200,000 ARR per employee

The headcount increases as you move forward through the startup lifecycle.

Conveniently enough, Tom Tunguz from Redpoint has already done the math for us. In SaaS companies at scale, the average revenue per employee stands at $200,000.

True, this is for 2012 and this is for companies at scale. If you have better numbers, hit me up and I’ll update them!

At the end of the day, that is what our roadmap to a SaaS IPO looks like. You can also check out and play around with the spreadsheet if that's your thing :)

Keep in mind that this is “unicorning your way to $100M ARR” i.e. it’s the (supposedly) perfect trajectory. Obviously, it’s a super wide generalization. Not one startup will follow this roadmap strictly, and counterexamples abound. But frameworks are useful, and hopefully this one will be useful too.

We hope that you enjoyed this reading. If so, hold the 👏 button and give it 50 claps! To read more, you can also check out this article presenting 9 methods for startup valuation.

Sources

• Reid Hoffman — Blitzscaling
• Morgan Brown — 5 phases of the startup lifecycle
• Steve Blank — What do I do now
• Brian Balfour — Traction VS Growth
• Fleximize — The Speed of a unicorn
• Adley Bowden — VC investing still strong…
• Neeraj Agrawal — The SaaS travel adventure
• Rory O’Driscoll — Understanding the Mendoza line for SaaS growth
• Brad Feld — The rule of 40% for a healthy SaaS company
• Dave Kellogg — The SaaS rule of 40
• Christoph Janz — The SaaS Funding Napkin 2018
• Jason Lemkin — Acquisition: If you do sell,…
• Karen Firestone — Ordinary investors are the real losers…
• Christoph Janz — Five ways to build a 100…
• Tom Tunguz — Revenue per employee benchmarks…

Roadmap to a SaaS IPO: how to unicorn your way to $100M revenue was originally published in The PARISOMA Review on Medium, where people are continuing the conversation by highlighting and responding to this story.

UPDATE 2020: I have moved away from Medium! You can find this article and the new ones >>> __HERE__ <<<

Update August 2019: I recently got to know Taylor Davidson, who developed an awesome — and FREE — template to model startup valuation. It's here: "Cap Table & Waterfall Tool". Bonus point: it works on Microsoft Excel AND Google Spreadsheet. Great stuff!

A startup is like a box. A very special box.

The box has a value. The more things you put in the box, the more its value increases. Add a patent in the box, the value increases. Add a kick-ass management team in the box, the value increases. Easy, right?

The box is also magic. When you put $1 inside, it will return you $2, $3 or even $10! Amazing!

Problem is, building a box can be very expensive. So you need to go and see people with money — let’s call them investors — and offer them a deal that sounds a bit like this:

“Give me $1M to build a box, and you get X% of everything that comes out of it”

But how much should “X” be?

It depends on the Pre-Money Valuation, e.g. the value of the box at the moment of the investment. But calculating the Pre-Money Valuation is tricky. This article will take you through 9 different valuation methods to better let you understand how to determine Pre-Money Valuation.

Please note that most valuations methods are based on data such as comparables or base valuations. How to find such data is an issue per se, and will not be addressed in this paper, but most likely in a future paper.

1. Value your startup with the Berkus Method

The Berkus Method is a simple and convenient rule of thumb to estimate the value of your box. It was designed by Dave Berkus, a renowned author and business angel investor. The starting point is: do you believe that the box can reach $20M in revenue by the fifth year of business? If the answer is yes, then you can assess your box against the 5 key criteria for building boxes.

This will give you a rough idea of how much your box is worth (AKA pre-money valuation) and more importantly, what you should improve. Note that according to Berkus, the pre-money valuation should not be more than $2M.

The Berkus Method is meant for pre-revenue startups. To read more about the Berkus Method, click here.

2. Value your startup with the Risk Factor Summation Method

The Risk Factor Summation Method or RFS Method is a slightly more evolved version of the Berkus Method. First, you determine an initial value for your box. Then you adjust said value for 12 risk factors inherent to box-building.

The initial value is determined as the average value for a similar box in your area, and risk factors are modeled as multiples of $250k, ranging from $500k for a very low risk, to -$500k for a very high risk. The most difficult part here, and in most valuation methods, is actually finding data about similar boxes.

The Risk Factor Summation Method is meant for pre-revenue startups. To read more about the Risk Factor Summation Method, click here.

3. Value your startup with the Scorecard Valuation Method

The Scorecard Valuation Method is a more elaborate approach to the box valuation problem. It starts the same way as the RFS method i.e. you determine a base valuation for your box, then you adjust the value for a certain set of criteria. Nothing new, except that those criteria are themselves weighed up based on their impact on the overall success of the project.

This method can also be found under the name of Bill Payne Method, considering 6 criteria: Management (30%), Size of opportunity (25%), Product or Service (10%), Sales channels (10%), Stage of business (10%) and Other factors (15%).

The Scorecard Valuation Method is meant for pre-revenue startups. To read more about the Scorecard Valuation Method, click here.

4. Value your startup with the Comparable Transactions Method

The Comparable Transactions Method is really just a rule of three.

Depending on the type of box you are building, you want to find an indicator which will be a good proxy for the value of your box. This indicator can be specific to your industry: Monthly Recurring Revenue (Saas), HR headcount (Interim), Number of outlets (Retail), Patent filed (Medtech/Biotech), Weekly Active Users or WAU (Messengers). Most of the time, you can just take lines from the P&L: sales, gross margin, EBITDA, etc.

The Comparables Transactions Method is meant for pre- and post-revenue startups. To read more about the Comparable Transactions Method, click here.

5. Value your startups with the Book Value Method

Forget about how magical the box is, and see how much 1 pound of cardboard is worth.

The book value refers to the net worth of the company i.e. the tangible assets of the box i.e. the “hard parts” of the box.

The Book Value Method is particularly irrelevant for startups as it is focused on the “tangible” value of the company, while most startups focus on intangible assets: RD (for a biotech startup), user base and software development (for a Web startup), etc. To read more about the Book Value method, click here.

6. Value your startup with the Liquidation Value Method

Rarely good from a seller perspective, the liquidation value is, as implied by its name, the valuation you apply to a company when it is going out of business.

Things that count for a liquidation value estimation are all the tangible assets: Real Estate, Equipment, Inventory… Everything you can find a buyer for in a short span of time. The mindset is: if I sell whatever the company can in less than two months, how much money does that make? All the intangibles, on the other hand, are considered worthless in a liquidation process (the underlying assumption is that if it was worth something, it would have already been sold at the time you enter in liquidation): patents, copyright, and any other intellectual property.

Practically, the liquidation value is the sum of the scrap value of all the tangible assets of the company.

For an investor, the liquidation value is useful as a parameter to evaluate the risk of the investment: a higher potential liquidation value means a lower risk. For example, all other things equal, it is preferable to invest in a company that owns its equipment compared to one that leases it. If everything goes wrong and you go out of business, at least you can get some money selling the equipment, whereas nothing if you lease it.

So, what is the difference between book value and liquidation value? If a startup really had to sell its assets in the case of a bankruptcy, the value it would get from the sale would likely be below its book value, due to the adverse conditions of the sales.

So liquidation value < book value. Although they both account for tangible assets, the context in which those assets are valued differs. As Ben Graham points out, the liquidation value measures what the stockholders could get out of the business, while the book value measures what they have put into the business.

7. Value your startup with the Discounted Cash Flow method

If your box works well, it brings in a certain amount of cash every year. Consequently, you could say that the current value of the box is the sum of all the future cash flows over the next years. And that is exactly the reasoning behind the DCF method.

Let’s say you are projecting cash flows over n years. What happens after that ? This is the question addressed by the Terminal Value (TV)

Option 1: you consider the business will keep growing at a steady pace, and keep generating indefinite cash flows after the n years period. You can then apply the formula for Terminal Value: TV = CFn+1/(r- g) with “r” being the discount rate and “g” being the expected growth rate.

Option 2: you consider an exit after the n year period. First, you want to estimate the future value of the acquisition, for example with the comparable method transaction (see above). Then, you have to discount this future value to get its net present value. TV = exit value/(1+r)^n

Although technically, you could use it for post-revenue startups, it is just not meant for startup valuation. To read more about the DCF method, click here.

8. Value your startup with the First Chicago Method

The First Chicago Method answers to a specific situation: what if your box has a small chance of becoming huge? How to assess this potential?

The First Chicago Method (named after the late First Chicago Bank — if you ask) deals with this issue by making three valuations: a worst case scenario (tiny box), a normal case scenario (normal box), a best case scenario (big box).

Each valuation is made with the DCF Method (or, if not possible, with internal rate of return formula or with multiples). You then decide of a percentage reflecting the probability of each scenario to happen. Your valuation according to the First Chicago Method is the weigthed average of each case.

The First Chicago Method is meant for post-revenue startups. You can read more about the First Chicago Method here.

9. Value your startup with the Venture Capital Method

As its name indicate, the Venture Capital Method stands from the viewpoint of the investor.

An investor is always looking for a specific return on investment, let’s say 20x. Besides, according to industry standards, the investor thinks that your box could be sold for $100M in 8 years. Based on those two elements, the investor can easily determine the maximum price he or she is willing to pay for investing in your box, after adjusting for dilution.

The Venture Capital Method is meant for pre- and post-revenue startups. To read more about the Venture Capital Method, click here.

And the best valuation method is…

Congratulations! If you made it this far, you know 9 valuation methods. So you must be screaming from the inside: what is the best valuation method ?!

First, keep in mind that the only methods really used by VCs are comparables and a rough estimate of how much dilution is acceptable by the founders — e.g. giving out 15% to 25% for a seed round comprised between €300k and €500k, or making sure that the founders remain majority shareholders after a Series A.

Second, let us remember that valuations are nothing but formalized guesstimates. Valuations never show the true value of your company. They just show two things: (1) how bad the market is willing to invest in your little red box, and (2) how bad you are willing to accept it.

Having said that, I find that the best valuation method is the one described by Pierre Entremont, early-stage investor at Otium Capital, in this excellent article. According to him, you should start from defining your needs and then negotiate dilution:

The optimal amount raised is the maximal amount which, in a given period, allows the last dollar raised to be more useful to the company than it is harmful to the entrepreneur.

Valuations are a good starting point when considering fundraising. They help building up the reasoning behind the figures and objectify the discussion. But in the end, they are just the theoretical introduction to a more significant game of supply and demand.

Update August 2019: You can download a robust template for startup valuation by following this link: “Cap Table & Waterfall Tool”. The valuation template is 100% free. If you buy other templates from the website, I will get a referral fee, which helps me write articles for you for free :) Thanks in advance!

We hope that you enjoyed this reading. If so, hit the ❤ button and share the love. To read more, you can check out my latest "big" piece called Roadmap to a SaaS IPO: unicorning your way to $100M revenue.

Valuation For Startups — 9 Methods Explained was originally published in The PARISOMA Review on Medium, where people are continuing the conversation by highlighting and responding to this story.

UPDATE 2020: I have moved away from Medium! You can find this article and all the new ones >>> __HERE__ <<<

What is the typical journey of a successful startup? Four experts took a shot and tried to answer this question.

• Steve Blank — What do I do now
• Morgan Brown — 5 phases of the startup lifecycle
• Brian Balfour — Traction vs Growth
• Reid Hoffman — Blitzscaling

The illustration below sums up the startup lifecycle according to each of these authors.

After the obligatory “garage” phase, all models converge to a single common point: the PMF, or Product-Market Fit. Then the startup gradually expands into several channels, several countries and several products, and becomes a scale-up, or growth machine in the words of Brian Balfour. Eventually, the last stage is a stabilization of the startup, because of the growth slowing down (Morgan Brown) and/or because of a liquidity event (Steve Blank).

So a typical startup lifecycle consists in 3 major stages: the Garage, the Growth Machine, and the Unicorn.

This article was originally published in French on Medium.

If you like this article, hit the ❤ button and share the love. To read more, check out this article that introduces 9 Methods For Startup Valuation

From the Garage to the Unicorn — Unfolding the startup lifecycle was originally published in The PARISOMA Review on Medium, where people are continuing the conversation by highlighting and responding to this story.

A startup nation shaped by public initiative and the military

FABERNOVEL and PARISOMA are publishing a series on global innovation ecosystems, as part of a research project. We look at the world’s most influential ecosystems through 3 lenses: Money, Talents, and Culture. After focusing on Silicon Valley with Csaba Szabo (Part 1), we interviewed Valerie Zarka, Founder & CEO of More Than Digital.

Valerie came from a world of digital communication agencies and started her career in companies such as BBDO, Ogilvy, and Carat (Dentsu). This is where she learned the challenges to innovate in large organizations. Three years ago, after many trips between France and Israel, she decided to bridge the gap between Europe and the Tel-Aviv innovation ecosystem. She planned to start with both acculturation and partnerships.

Together, we discussed first the key role of the army in the creation of top-notch engineers. Then, we talked about how the government invests in tech companies. Finally, we dealt with how military conscription has an impact in networking.

1. The rise of a new innovation wave influenced by public policies

1990–91: A tipping point

Between 1990 and 1991, the Tel-Aviv ecosystem experienced the convergence of several factors. First, the country was in the middle of a conflict who left many skilled workers without a job. Then, after the collapse of the USSR, Israel saw an intense wave of immigration. Approximately 37% of 900,000 immigrants had a graduate degree. Finally, many R&D centers from foreign companies such as Motorola and IBM had already started to set up shop in the area. They did so to take advantage of a large pool of talents.

To leverage this dynamic, the government decided to structure the ecosystem with new infrastructures and ambitious investment plans.

Public infrastructures and public funding

On the infrastructure side, they created 24 public incubators, managed by the Office of the Chief Scientist, a public entity part of the ministry of economy. On the investment side, the government created a $100M fund of funds called YOZMA. The purpose was to irrigate public money into the ecosystem. To create this new generation of Israeli VCs, investments were required to involve YOZMA, Israeli private funds, and foreign venture capital funds, especially many American ones.

A successful impact 20 years later

These actions created a fertile ground for the rise of successful tech companies. Tel-Aviv went from an ecosystem with 500 startups in the early 90’s to more than 5,000 startups in 2017. Moreover, most of the global tech companies now have an office with a strong willingness to be part of the ecosystem. Google, Facebook, and Amazon have followed a first generation of American companies: Cisco, Microsoft and Qualcomm have an office in the region. There are now more than 300 local R&D centers. For example, Apple has 1,000 employees in its R&D centers around Tel-Aviv. They were used to work on the development of the iPhone 8.

2. A unique ecosystem influenced by the army

The Israeli army, a “school” for entrepreneurs

“The army plays an important role in the innovation ecosystem, both in terms of culture and talents.” At 18, everyone has to spend between 2 to 3 years of military service. There, they “quickly” work on concrete projects where they get trained on the job. Promising students in mathematics and science go to departments where they will learn about computer science.

Then, at 20, some of these “kids” are able to manage teams, sometimes of over 100 people. For these reasons, they evolve in a culture built around peer-to-peer learning, critical thinking, and reactivity. Furthermore — and contrary to what we can think, they have the liberty to not respect orders as long as they can bring solutions to the table. This environment creates generations of « autonomous » minds encouraged to take initiatives.

Importance of networks

“The army is the place where everyone creates its network.” Each year, each adult under their 40’s needs to give two weeks to the army. As a result, it strengthens connections between people who work in the private sector. According to Valerie, these networks of army “alumni” make it easier to get introduced to tech executives.

Business-driven universities

She also highlighted the importance of universities and their connection to the army and the local network of startups. They encourage researchers to do applied research and incentivize them through patents registrations. Each university has technology transfer centers to connect with external players and commercialize their IPs. For researchers, the bridge to join the private sector is also important and valued by companies.

If we look at Tel-Aviv through the lenses of Talents, Culture and Money, we can consider the Israeli ecosystem as Silicon Valley’s little sister. It’s a complete ecosystem with only its size as its limitation. Its talents are trained on top-notch skills early on in their careers. They grow in a military environment encouraging autonomy and entrepreneurial values. And the government has always been supporting the ecosystem to connect to local or external investment pipes. Yet, the Israeli ecosystem is currently reinventing itself. Initially known to be the startup nation, Israel is aiming to become the scale-up nation. There is a strong desire to go bigger. It does not necessarily want to see its startups acquired by large tech companies. Instead, American or other large markets are targeted from Tel-Aviv.

This article was originally published on FABERNOVEL Insights.

More about Valerie Zarka:
Valerie Zarka spent 14 years in digital agencies in France (B2L BBDO, Ogilvy One, Dentsu Aegis Media…) serving key accounts and French public authorities to design, manufacture and manage their digital ecosystems. She is now assisting the same companies towards innovation through her company, More Than Digital. She lives between Paris and Tel Aviv.

The Secret Sauce Behind Innovation Ecosystems — Part 2: Tel-Aviv with Valerie Zarka was originally published in The PARISOMA Review on Medium, where people are continuing the conversation by highlighting and responding to this story.

A TALENT AND FINANCIAL MAGNET FOR THE WORLD’S BRIGHTEST MINDS

FABERNOVEL and PARISOMA are publishing a series on global innovation ecosystems, as part of a research project.

We are interviewing entrepreneurs, venture capitalists, and academics, from the world’s most influential ecosystems to understand what they have in common. By discussing regulation, investments streams, universities’ influence, and entrepreneurial mindsets with these experts we are trying to identify what really nurtures organic innovations. In our research, one of our assumptions is that innovation ecosystems are structured around three main pillars: Money, Talents and Culture. In this interview with SRI International (Stanford Research Institute), we discuss the specificities of Silicon Valley related to these three pillars.

Csaba Szabo is a pure product of Silicon Valley. After graduating from a university in Cluj, Romania, he came to the US to study at Stanford. Following executive roles in large companies, he is now in charge of global partnerships at SRI International (former Stanford Research Institute), a nonprofit and independent research institute behind the creation of the computer mouse and more recently Siri.

We discussed how government funded research projects are a catalyst to innovation, and how the workforce’s model in Silicon Valley is unique.

I. A federal regulation that primed the R&D pomp to fuel the innovation ecosystem

To our own surprise, Csaba started our discussion by sharing that one of the key moments in the history of Silicon Valley was linked to a regulatory change made in Washington, DC. Indeed, adopted by the Congress in December 1980, the Bayh-Dole Act was crucial to creating an environment fostering growth in Silicon Valley. It stated that universities, small businesses, and nonprofit institutions such as R&D centers, were able to pursue ownership of inventions made with federal funding. It concretely means that these players are able to commercialize IPs coming out of government funded research projects. The new law redistributed economical value created with public money to innovation ecosystems, and in the case of innovations in the computing world, to Silicon Valley’s ecosystem.

Siri: The perfect case study

A great example of the implementation of this regulation is Siri. It started as the US government commissioned the SRI International to create a AI cognitive assistant. The program was a $150M budget over the course of 5 years. During the project SRI developed a Cognitive Assistant that Learns and Organizes (CALO), and concurrent with the legislation mentioned above it was still able to patent and use the technology they developed for commercial purposes. Thus in 2008 it took the technology to market by launching the start-up Siri, which was acquired by Apple in 2010 for a couple of hundred million dollars.

R&D breakthroughs were leveraged by emerging tech giants

Many universities and the venture community benefited from the Bayh-Dole act, especially in the bay area where there is a dense network of research one universities including UCSF, UC Berkeley, Stanford, UC Davis. Moreover, it attracted top talent of people who wanted to work on funded applied research projects, which later could be spanned out or licensed.

Finally, it contributed to the development of the Silicon Valley eco-system. Tech entrepreneurs and large tech companies found this pool of talent attractive and strived to transforming government funded and thus de-risked / proven technology into concrete applied R&D projects and new innovative products. As mentioned by Csaba, large tech companies emerged as they leveraged these technological breakthroughs, such as robotics surgery (Intuitive Surgical, Verb Surgical) speech to text technologies (Nuance, SIRI), etc. Even Facebook was able to scale where many thought it wasn’t possible and that is because they leveraged cloud computing unlike Myspace.

A model where capital and R&D incentive converged

It is interesting to observe that this regulation, in early 1980’s, arrived at the same time as the maturity of venture capital. Each element complementing each other, it created a good breeding ground for upcoming waves of tech companies. Now, of course, venture capital is seen as one of its main assets in Silicon Valley but it is important to be reminded that it is not the unique match to light the fire. Regulation was also a key component.

II. In an innovation ecosystem, Talents are a scarce and liquid resource

Workforce is required to be a liquid asset in the innovation sector as you need different skillsets at each phase of technology development, for example for research, early feasibility and proof of concept you need top notch research scientist with advanced degrees. These are hard science problems that only few minds can crack. While for prototyping, testing and validation you need less Principal Investigators and more Systems Engineers and Product Development people. The labor market in Silicon Valley has adopted to this need as tech companies acquire or hire or acquihire specific skillsets in a finite amount of time to solve hard challenges. However, once the challenge is solved, people move on to fund their next venture or join another team on the bleeding edge, rather than stick around and support the same product for the next 5–10 years. For example, some members of the original SIRI team left Apple in 2014 and while some came back to SRI others went on to fund Viv a next generation Personal Assistant, which was acquired by Samsung in 2017.

Tech engineers as a rare commodity

As the technical skills’ offer is low and demand is really high, people have the possibility to move around a lot in Silicon Valley. The average time of an engineer in a company is 2 years. Csaba gave another clue of why this is the case. In the tech industry, technical jobs do not evolve much over the years. An engineer who joined Facebook in 2010 would still be working on the same core project in 2017. There is a willingness to apply the same technology, but to a different problem set, vertical or environment. Just think of FinTech, EdTech, ConstructionTech, etc. start-ups often leverage the same Machine Learning technologies to solve different data problems.

The importance of solving big challenges

In Silicon Valley, the choice to work for a company is mainly based on the type of projects that will be offered. To attract top talent, it needs to have a large enough problem, whether it is a technical problem or to executing a large vision. Silicon Valley is a magnet that attracts talents from all around the world because companies here are able to offer the most exciting problems and the right environment to solve them.

Analyzed through the lenses of Talent, Culture and Money, Silicon Valley is the richest and the most powerful innovation ecosystem in the world. Entrepreneurs and technological experts are converging to the Bay area to find the financial supports they need and the required entrepreneurial mindset to build disruptive innovations. For each of these pillars, we found top-notch players. Stanford, Berkeley and UCSF are among the best universities. IDEO, the agency behind the Design Thinking methodology, was founded in San Francisco. The open source movement started among coders here as well as the makers movement. Lastly, Silicon Valley invented the venture capitalist model 60 years ago and now hosts the most powerful VC firms. A key information that was brought by Csaba during this interview is the importance that regulation had to initiate the change in the structure of the ecosystem. It explains its current reign.

This article was originally published on FABERNOVEL’s website.

More about Csaba Szabo:

Csaba holds a B.S. degree in economics and an M.S. degree in corporate finance fromthe University of Babeș–Bolyai, as well as an M.S. degree in management from StanfordUniversity. he’s a senior manager of global partnerships at SRI International.

His role at SRI International leads him to identify large corporate’s pain points and seehow SRI’s pool of PhDs and experts can build a solution that would provide them with asubstantial ROI. As part of a non–profit research institute, he is at the center of theecosystem where private — tech companies, Stanford, industry leaders — and publicplayers — government, universities — are gathering to build innovative projects.

The Secret Sauce Behind Innovation Ecosystems: Part 1 Silicon Valley with Csaba Szabo was originally published in The PARISOMA Review on Medium, where people are continuing the conversation by highlighting and responding to this story.

ICO stands for Initial Coin Offering. The term has recently been made famous after several new ventures raised $50M+ in a short amount of time. In this series, we will explore the market’s recent fascination with ICO by explaining why it exists, how it works, who the main ICO players are, and why the ICO market may be in a bubble. In this episode, we took the opportunity to have Andrey Zamovsky, CEO of Ambisafe, as member of the PARISOMA community to ask him a few question.

PARISOMA: What is Ambisafe? What is your positioning in the cryptocurrency ecosystem?

Ambisafe: Ambisafe is a company of pioneers in blockchain technology. We’ve started with developing and licensing white label cryptocurrency wallet software and now providing wide rage of blockchain-based financial market services, including issuance of new tokens, ICO’s exchange integrations and much more. The last big one is a new kind of exchange, called Orderbook.

Where did the idea come from?

I have developed an idea and a prototype of cryptocurrency on my own back in 2010.

How do you see the crypto currency market now? Are we in a bubble?

The cryptocurrency market is currently exploding due to the first blockchain killer app that got wild — the concept of ICO. It allows investors and companies from the opposite part of the globe connect and trade shares for cryptocurrency. Until blockchain the share issuance was normally done through secretary of state or some form of government agency, like a central securities depository.

It costed hundreds of thousands of dollars to list shares on multiple exchanges or do cross-border crowdfunding. Blockchain made it possible to issue shares literally for $1 miner fees, and send them to investors worldwide instantaneously. Nobody could imagine that this is possible before.

“Blockchain will become the default place to issue shares for most companies in the world within 5–10 years.”

Like in an early days of any exploding market, a lot of people are trying to make money in fraudulent ways or buying products without proper due diligence, so I think that the bubble exists at the moment but the concept of ICO itself is not a bubble. Due to dramatic cost reduction and faster speeds, I anticipate that blockchain will become the default place to issue shares for most companies in the world within 5–10 years.

How would you explain the current fame behind ICOs? Where do you think it is going?

What’s happening at the moment is very similar to what’s been happening to internet companies in 1998. People saw the potential and everyone is trying to get in. Not every dot com has become an Amazon, but it does not mean that there are no next Amazons among ICO’s that are happening now. I expect the market to get more sober and mature within a year.

Who are your main clients right now? What do they do with your services for?

We are talking to a very wide variety of clients, ranging from fishing companies to AI-managed hedge funds. We are trying to select the highest quality ones with the highest odds of successfully multiplying the investments.

Ambisafe is normally responsible for all matters related to blockchain, smart contracts and logistics of the ICO for each of our clients.

Can you tell us about success stories?

Yes, some of our success stories from earlier:

• Chronobank — an Australian startup, that have raised $6M to build a decentralized recruitment platform.
• Taas Fund — One of the first cryptocurrency hedge funds, raised by a group of professional traders.
• Polybius — An Estonian company, that have raised $33M via an ICO to build a blockchain-based bank.
• Propy — A global real estate title registry and marketplace, that is launching an ICO on Aug 15.

More about Ambisafe

Ambisafe is a pioneer of blockchain technology and provides wide set of services, related to blockchain-based financial markets. Learn more at http://ambisafe-financial.com.

In the next episode, we will talk about regulations and how it could affect this uprising ICO market. Follow our publication to stay in touch.

ICO Series: The state of a bubble — Episode 3 was originally published in The PARISOMA Review on Medium, where people are continuing the conversation by highlighting and responding to this story.

ICO stands for Initial Coin Offerings. The term has recently been made famous after several new ventures raised $50M+ in only a short amount of time. In this series, we will explore the market’s recent fascination with ICO by explaining why it exists, how it works, from where ICO players are emerging, who these main players are, and why the ICO market may be the next bubble. This second episode is where we will deep dive into the building blocks of ICOs — technologies such as Blockchain and Ethereum, etc.

Several innovations have led to the emergence of ICOs. The main one is blockchain technology. But what is it? As described by Don Tapscott, co-founder and Executive Director at Blockchain Research Institute, “the blockchain is an incorruptible digital ledger of economic transactions that can be programmed to record not just financial transactions but virtually everything of value.”

Blockchain and the collaborative spreadsheet analogy

Imagine you have a Google sheet that everyone has access to. The same spreadsheet is duplicated thousands of times and these copies are hosted across a network of computers, meaning it is stored in more than one single location. This, in addition to continuous “syncing” of these copies, prevents file corruption because majority of servers in the network will know if the spreadsheet has been altered. Everyone can suggest entries into the spreadsheet, but entries have to be validated by a consensus among all the users of the spreadsheet. The spreadsheet becomes then a decentralized, distributed, incorruptible database — or ledger. This analogy describes a basic picture of what blockchain is.

Why is blockchain technology interesting in our internet world?

The internet does not provide a trustworthy infrastructure for assets and value transfer. For this reason, intermediaries such as banks — but also Paypal, Ebay, Uber, AirBnb, etc. — are needed to make sure both parties in a transaction oblige to some pre-specified terms and conditions. This is the case for money transactions but also, to some extent, for any transaction having to do with an exchange or contract of value.

Blockchain technology deletes the need for a middleman by creating an “incorruptible” database of contracts.

Once a contract between two parties is added to the blockchain ledger, it can’t be undone. Previous hackings have been linked to human errors, vault password hacking, and vulnerability in codes, but never by breaking the consensus between servers, given the network has now reached a significant size.

New opportunities to develop blockchain applications

The first application of blockchain is Bitcoin — a currency where banking intermediaries are noticeably absent due to consensus. However, many other applications emerged when people realized that blockchain could be valuable for things other than financial transactions. Coders then decided to create protocols that would facilitate the development of other blockchain applications. Ethereum was created for that purpose. It is an open source blockchain project providing developers with the tools to build decentralized applications. It made blockchain accessible to everyone — or at least to coders. After the release of Ethereum, people started to find new applications of the technology: file storage, sharing economy applications, IP protection, supply chain tracking and… crowdfunding.

ICOs are blockchain applications, mainly built on Ethereum protocols, and allows companies get the funding required to start their business.

Ethereum opened the way to the ICO boom, and one of the first ICOs was the launch of Ethereum itself. People were able to get Ethers (Ethereum cryptocurrency tokens) in exchange of bitcoins. These ethers would be used to transact on the new blockchains applications.

What is going on in the ICO space?

ICOs became famous last year with the launch of “The DAO” — The Decentralized Autonomous Organization. The DAO was a smart contract system built on Ethereum and its purpose was to jumpstart a community managed venture fund. They raised $160M by gathering 12.7M ethers. In June 2016, users exploited a vulnerability in the code to enable them to siphon off one third of The DAO’s funds to a subsidiary account. DAO was later unlisted from all exchange platforms.

It has recently accelerated with massive $50M+ ICOs. For example, Bancor, a protocol enabling liquidity for new cryptocurrency tokens* has attracted more than $150 million in just three hours.

* with the explosion of the number of cryptocurrencies, there is a need to make them liquid enough to facilitate trading.

Overall this year, $1.3B+ has been raised through ICOs.

Another metric of ICOs success in the market is the number of ICO sales concluding each week. According to Smith and Crown data, there were 2.75 sales a week from January to May.

Why has it gained so much tractions recently?

In our point of view, there are two sides to this story. On one side, the technology simply became mature enough. Infrastructure has been developed and big efforts have been made to democratize and open the technology to more and more developers. On the other side, the volatility of cryptocurrencies makes it attractive to investors. When people saw first investors gained gigantic returns with the first ICOs, more and more people decided to join the game. When you consider that ICOs are under not well-defined regulation, you can see why there has been a large influx of capital, with investors trying to gain their piece of the pie. (See Episode 1 to understand better why ICOs have short term gains).

ICOs and the threat of being regulated

The latest news in the space might slow this harried pace of investing. On Tuesday July 25th, the Securities and Exchange Commission concluded that tokens offered and sold during “The DAO” initial coin offering were securities. Their message was a gentle warning to the industry and market participants that although the SEC will not pursue any charges or findings of violations:

“The federal securities laws apply to those who offer and sell securities in the United States, regardless whether the issuing entity is a traditional company or a decentralized autonomous organization, regardless whether those securities are purchased using US dollars or virtual currencies, and regardless whether they are distributed in certificated form or through distributed ledger technology.”

In the next episode, we will publish the transcript of our discussion with Andrii Zamovsky, CEO of Ambisafe and member of the PARISOMA community. Follow our publication to stay in touch.

ICO Series: The state of a bubble - Episode 2 was originally published in The PARISOMA Review on Medium, where people are continuing the conversation by highlighting and responding to this story.

The beauty of co-working is the products, platforms, and startups that are built right next you. Fortunately enough, we had the opportunity to sit down with Mayank Mehta and Andad Thaker, co-founders of Pulse, to learn about what they do.

PARISOMA: What is Pulse?
Pulse: Imagine you could instantly tap into the collective wisdom of thousands of professionals to power your decisions. Pulse is about growing the world’s professional knowledge and understanding in the form of Q&A to help people make better business decisions. In the process we also enable a platform for the world’s professionals to share their insights, grow their profile, and get recognized for their work.

PARISOMA: Where did the idea come from?
Pulse: Access to experts and expertise at the right time is still quite challenging. We’re big fans of LinkedIn, and wanted to take the platform one step further where it’s not just about where you’ve worked, but what you’ve done, how you think, what you’ve learned, and how you’ve applied it.

PARISOMA: What issues are you looking to solve with the bot?
Pulse: With PulseBot, the collective wisdom of thousands of professionals is just a chat away. Messaging is a natural way for our users to ask, answer, and learn from each other. The bot uses AI to route questions to the right users at the right time. The initial focus is on data-driven questions that can act as a decision engine for executives.

PARISOMA: What was the most difficult part of starting Pulse?
Pulse: For us it was to stay true to our vision. It’s really easy to get caught up in buzzwords, massaging your investor deck, reading TechCrunch articles and ooh-ing at other companies that are doing well. It’s hard to tune all of that out and focus on what you want to build. Having a cofounder and good team that is bought into the vision goes a long way here.

PARISOMA: What were you doing before Pulse?
Pulse: I was VP Product at Capriza (a16z company), prior to which I cofounded Cooliris (acqd by Yahoo!) and Ambient Technologies (acqd by Zeo ITech). Anand was the lead mobile engineer at Warner Bros. gaming studio, lead mobile engineer at Cooliris, and senior engineer at Qualcomm. Di was an artist for multiple gaming companies and then decided to take up the dark art of coding.

PARISOMA: Any tips or recommendations you can give an entrepreneur starting out?
Pulse: This is our third startup — our most recent one, Cooliris, was acquired by Yahoo! For entrepreneurs just kicking things off, it’s easy to get disillusioned and discouraged, especially after a few unsuccessful VC meetings. It’s critical not to lose focus on what got you started on the idea. The best way for me to stay pumped is to write and read/re-read stories on how users will use the product and how it will improve their lives. For b2b ideas, it also helps to have 2–3 friendly customers that can encourage you and keep you grounded.

Parisoma Portrait: PULSE was originally published in The PARISOMA Review on Medium, where people are continuing the conversation by highlighting and responding to this story.

ICO stands for Initial Coin Offerings. The term has recently been made famous after several new ventures raised $50M+ in only a short amount of time. In this series, we will explore the market’s recent fascination with ICO by explaining why it exists, how it works, from where ICO players are emerging, who these main players are, and why the ICO market may be the next bubble. This first episode is about giving a broad overview of ICO with a beginner’s eye.

Concretely, an ICO is a fundraising tool where investors give dollars (technically bitcoins or altcoins) in exchange of a new cryptocurrency issued by a startup wanting to develop a new product/service.

It’s similar to crowdfunding in the way investors give money to finance a company’s new service/product but don’t receive any share — I am not talking about equity crowdfunding here. And it’s similar to IPOs because investors give money to a company and hope the value of their investments will go up in time.

Let’s take an example. Imagine you want to build Upbox, a storage software startup. You have a kick-ass team and want to raise money to develop your platform. Going for an ICO will be a way to issue Ups, a new currency to buy storage space on your soon-to-be storage platform, in exchange of dollars to build your company. The magic being, as a founder of Upbox, you won’t have to give away any equity in the process.

So why investors are so interested in buying these new coins? Because they hope that successful projects will cause the new cryptocurrency’s value to rise. Remember, investors bought coins of a new cryptocurrency that is volatile and depend on demand and supply. If the demand for Ups rises, the value of the currency will increase as well and you will get more storage space with the same initial investment. Then, you would potentially be able to sell this additional storage you wouldn’t use and make a profit out of it.

So far, ICOs are completely unregulated, highly risky and have been targeted by non industry experts investors seeing the opportunity to gain short term returns. Of course, in an ideal world, investors in a company issuing an ICO would be its future users. But what we see is that investors are mainly speculating on the value of these new ICO-based currencies without really thinking or understanding the business case behind it. These new coins are resold on exchange marketplaces even before the product they are aimed for are even created(our storage platform in our example). Potentially, this dynamic leads us to a dotcom bubble type of situation where non expert investors want to be part of a business opportunity by investing in things that don’t have any business case.

In the next episode, we will talk about ICO’s history and why it has recently come up now. Follow our publication to stay in touch.

ICO Series: The state of a bubble - Episode 1 was originally published in The PARISOMA Review on Medium, where people are continuing the conversation by highlighting and responding to this story.

The hardware accelerator HAX held its annual ‘Hardware Trends’ conference yesterday in San Francisco. A good occasion to keep an eye on what’s happening in the hardware ecosystems in Silicon Valley and Shenzhen, before the release of the Hardware Trends 2017 report.

A new industrial revolution

Connectivity, robotics, and 3D printing are the main factors impacting the manufacturing industry. As highlighted by Duncan Turner, Managing Director of HAX, labour economics will no longer drive production.

“Cheaper manufacturing areas will not be able to compete with robotics for high value manufacturing. China has to invest heavily in robotics to keep the production in China.”

Augmented agriculture

Industry isn’t the only sector to be shaken by automation and big data: vertical and indoor farming, connected livestock… the face of agriculture is dramatically changing. In addition, cannabis tech is set to boom in 2018 thanks to better growing systems and broad legalization in the US.

Crowdfunding still rules

Crowdfunding remains the preferred funding and early distribution option for hardware startups. Is it safe? Despite epic failures, most of products backed on Kickstarter and Indiegogo are shipped. Not to mention that some infamous fails, such as the $400 Juicero juicer, were VC-backed.

Data, data, data

Connected devices are going beyond tracking, particularly in health tech and the smart home category. Utility companies see value in IoT startups to gather data, as well as to better manage power usage and efficiency.

“Consumer devices play a role as Trojan horse for high value data.”

Will connected mean smart, at last?

AI agents are booming, opening new coaching capabilities for connected devices like Peloton or Trainerbot. The first wave of domestic robots–vacuum robots such as Roomba, robot mowers, etc.–is mature yet still basic. Get ready to a next wave of autonomous, learning robots.

VR and AR on the path to mainstream

VR is heading towards standalone, bridging the content gap and solving main challenges, including interactions or 3D sound capture. Regarding AR, the most notable trend is the second coming of smart glasses: Snap’s Spectacles, Vue… the new generation is betting on a less awkward, more pragmatic approach.

Meanwhile, on the other side of the Pacific

Giving an overview of trends in China, Cyril Ebersweiler, Founder of HAX, confirmed the continued rise of Shenzhen as the Silicon Valley of hardware. “China today is like Japan in the 60s,” Ebersweiler says, mentioning the fast growth of global leaders like Xiaomi, DJI, and Midea.

“China is both copycat and innovator, at high speed.”

China’s rise as a leader is already a reality: Chinese VC investment is #2 globally, and the country is set to set to overtake on Japan as #2 in patents. The backlash? Startup valuations are at an all time high, with an overflow at seed stage and mega late rounds.

One last thing

Hoverboards are so 2016, 2017 is the year of Ninebots.

The second age of hardware: A sneak peek at the 2017 Hardware Trends from HAX was originally published in The PARISOMA Review on Medium, where people are continuing the conversation by highlighting and responding to this story.