Fork in the road for entrepreneurs

Twilight Zone startups – not so small to be bootstrapped, not so big for VC funding

I had a chance to meet 4 startups at the LunchBox event this week, at Startup Hall. There were 4 startups that were vying for $10K in prizes. Each startup was given 5 minutes to pitch with 4 judges and 5 min for Q&A. Lisa from Frog Design, Todd Paris and Krish Gopalan and me were the judges.

The 4 startups that presented were, FasterBids.com, which brings catalogs and pricing information from home improvement product manufacturers online, Siren.mobi, a dating site for women, Crelate, a CRM for recruiters to help manage interviews and Camp Native a campsite booking eCommerce site.

All of the presenters stayed under their 5 min pitches, were crisp, very focused on what their traction, team and unique value proposition was. I was really impressed to see the up-leveling of the presentations, even though many had not been through an accelerator program where you practice your pitch till you perfect it.

Most of them were looking to raise some money – between $500K to $750K and some were close to finishing their round with angel investors.

The thing that struck me was how many of them were solving a good problem, had great traction and some were even solving a meaningful problem that exists in a mid-sized, but very competitive market. I think most of them will raise some angel investment, which is pretty good, but getting to their series A and later will be a challenge for all of them.

When you did the bottom’s up back-of-the-envelope calculation for most of their markets, they were largely mid-sized – $500M to about a $1B. In these Unicorn chasing days of VC-land, most of them will end up raising multiple seed, post seed and bridge rounds before they get to a series A from an institutional VC.

Which means if they are very capital efficient and smart about their growth, they will be a good business, but will unlikely excite a VC unless they change their pitch to talk about much larger market sizes.

The 3 key parts of the market – size (is it big enough), growth (will it grow fast) and scale (can you grow it in a capital efficient fashion) are no for less than 1% of the companies who want venture capital. Which is why less than 1% of companies that start get any form of VC funding, but nearly 3%-5% of companies (or more ) get angel funded. Since it costs lower to get companies started, the money required might be much less to get a sizable exit (greater than $50 Million), so that’s the opportunity really for Micro VC funds and angel syndicates.

For entrepreneurs, though, the road to getting some angel investment and then executing well enough towards a larger market potential might be the sure way to a “Unicorn” – after all, most Unicorns probably did not know they were going to be one, were they?

On the other hand, just raising enough to get a good exit might be the best option for others.

Either ways, the fork in the road is post your seed round, but having a sense of the map so you have a good framework for that decision is a good thing to think about.

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2 thoughts on “Twilight Zone startups – not so small to be bootstrapped, not so big for VC funding”

  1. Hi, Hello Mukund Mohan THANKS for being my knowledge mentor. Your each email, teaches me what is not taught among best schools of the world. Regards / Surya Mahadeva

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