As an entrepreneur, if you’re running a venture capital fundraise effectively, you’re treating the process like a sale process: identifying a set of prospects to fill the top of the funnel, cultivating those relationships over a series of meetings, then narrowing down to a handful of contender firms who will ultimately make an offer to invest with a term sheet. Of key importance, which we emphasize with our NextView portfolio companies when they’re out raising their Series A, is to run the conversations in parallel rather than serially. In other words, as much as feasible, to gate all of the VC discussions so that they’re progressing along essentially the same pace – with the goal to receive multiple terms sheets near simultaneously in order to best select the best offer and best partner, with full information.
But reality doesn’t always play out as neatly. Often for a myriad of often idiosyncratic reasons, an entrepreneur is introduced to an attractive new potential VC partner late in the game. The founder CEO is already a couple meetings deep into the process with others, at or nearing the final partner meeting decision, and somebody new is all of a sudden interested. Really interested. Is it worth paying attention to this potential “come-from-behind” VC investor?
The risk with engaging with an investor who isn’t as up to speed is a waste of the most valuable limited resource – time – when a CEO is concentrating on figuring out the best fit among the remaining candidates AND while simultaneously running a company, after all. There is also risk that the supposedly strong interest isn’t as sincere and the VC is merely “hanging around the hoop” and maintaining optionality to see if/what the contour of the round looks like, so that they can jump in front of the train at the last minute if validated by another fancier VC.
However, in my personal experience, the come-from-behind lead investor is worth incorporating into the process, as it turns out more often than you’d expect that they end up leading the round. This situation happens because a genuine come-from-behind lead investor is:
- Self-selecting in because they’re really interested, not just going through the motions of whatever the most intriguing investment opportunity currently on their plate. If they’re fully aware of their initial position in the running, and despite that fact, they’ve decided to still push forward, they’re more likely to get to yes than the average firm in the process.
- Driving their own internal decisioning process quickly, forgoing the unnecessary (internal political) steps, in an effort to reach a definitive yes-or-no sooner rather than later.
- Cognizant of their position, they tend to be overly aggressive on company-attractive terms to win the deal.
The best litmus test to suss out whether or not a potential come-from-behind investor is worth paying attention to is if they’re “doing work.” And a lot of it in a short period of time: making diligence calls, using the product, striving to understand your market, engaging with questions to learn more about business. While often there’s a requirement to juggle schedules to meet other members of the firm, meeting other folks in the shop shouldn’t be the only activity going on the VC if s/he is truly getting up to speed. It should be clear that the come-from-behind investor is making every effort to fully appreciate the business as quickly as possible.
With the right motivation, abbreviated but ample time for conclusive diligence, and a willingness to overcommunicate to get to know a startup’s founder, the come-from-behind investor isn’t always the underdog in the VC financing process.
It’s official: now two months after the IPO, HubSpot has surpassed the $1B market cap threshold and has become that “pillar” company that the tech ecosystem long anticipated. The benefits have been touted previously: an anchor for attracting and retaining talent in Boston, as well as a breeding ground for the next set of great Boston entrepreneurs and founders.
Already, a handful of groups have spun out to start new ventures, like the teams at Driftt, Bedrock Data, Grokky, and NextView-backed InsightSquared. As HubSpot co-founder and CTO Dharmesh Shah recently told BostInno, “We’ve wanted to not just build a great company, but also build some great entrepreneurs.”
Talk with my fellow venture capitalists, and they’ll no doubt confess how they’re “tracking” a potential founder or a given team set at the company in order to be ready with funding when it’s time for them to spin out. This entrepreneurial HubSpot spirit has — and will continue to have — a ripple effect throughout the Boston early stage startup ecosystem.
The HubSpot “Mafia” Will Have a Bigger Contribution Than Founders
In addition to these founding teams, there’s an even bigger contribution which HubSpot is already making to this same landscape: the proliferation of skilled marketing talent into a broader set of startup companies.
Historically, one of the (admittedly fair) critiques of Boston as a tech ecosystem is that the community is just that: a very tech-focused ecosystem, often at the expense of good marketing. “Build it and they will come” has been the philosophy. The focus is on creating some awesome technology, which is critical, except that the sales and marketing piece has been an afterthought in many cases. I can’t tell you how many pitch decks from local startups I’ve received over the past decade that barely even touch upon the key subject of distribution. And that thinking has carried out into the companies as they were being built.
But all of that is quickly changing. HubSpot has trained everyone in the company incredibly well (not just future founders), and many will eventually move on to other roles and be oriented towards distribution first. The marketing training ground that is HubSpot creates a local DNA which will begin to pervade all companies in the area.
In a world which is increasingly won by startups who reach and then accelerate their product-market fit, not technology-market fit, this matters. A lot. I’m not just talking about B2B SaaS companies that feel similar to HubSpot either. This culture of being noisy about what you’re doing and implementing the right tactical techniques to get noticed will spread to consumer-facing startups as well.
I’ve begun to notice this effect first hand. With Jay Acunzo, HubSpot’s former head of content marketing, joining our team at NextView from HubSpot to support our investments in a platform role, he’s pushed the thinking about marketing across the entire portfolio. Former HubSpot marketing leader Rick Burnes also recently left for consumer-facing BookBub, where I’m on the Board, as VP of Content Products. (Here’s Rick’s take on HubSpot’s company DNA.) It’s becoming obvious that HubSpot marketing instincts span both B2B and consumer, and these are spilling into our entire community of companies following the IPO.
The above were just two immediate examples for me, but there are many more individuals adding to this emerging “Marketer Mafia” phenomenon. Jay and I took a look and created a graphic below depicting this HubSpot marketing talent which is starting to penetrate the Boston ecosystem:
Yes, HubSpot is going to spawn many successful startups, which will have a real impact onto the Boston ecosystem, which hopefully creates another set of pillar companies. But the more immediate and arguably more important contribution which the company is making is the marketing talent which is leaking out and flooding the local startup community, elevating the entire startup ecosystem.
When Chad Pytel introduced me to Bryan Helmkamp, CEO/Co-founder of Code Climate, I knew that I had to pay attention. Chad is the CEO of thoughtbot, a consulting firm that makes web + mobile apps for early-stage startups. The two companies had been working together for a while, especially as both are deeply embedded within the Ruby on Rails developer community, with a strong following for their respective offerings. As an Advisor to thoughtbot the past couple years, I’ve come to place a lot of weight and trust in Chad’s opinion.
The stats behind what Bryan and the team had accomplished while bootstrapping the business were incredible, including signing up over 1,000 paying accounts and analyzing over 30,000 code repositories EVERY DAY. In the three years since launching the business, they’ve become the clear market leader in SaaS static analysis.
But what impressed me most is what happened next.
I shared a link to Code Climate with a number of CTOs/VPs of Engineering in my network, both inside and outside the NextView portfolio, just asking for their quick opinion. I expected to hear a balanced set of positive and negative feedback, after which it’s my job to sort through it as part of our diligence process. Instead, the response was overwhelmingly positive. Their teams were either already customers or they had immediately become customers after learning about it. Just a sampling of quotes from these responses:
- “I think it’s a great service for developers. I consider it a must-have default for most projects.”
- “I’m quite bullish.”
- “I can definitely see it being pretty big.”
- “I really like CC, and we’ve integrated it nicely into our workflow.”
- “It’s indispensable.”
Today Code Climate is announcing that they’ve raised a $2M round of financing, led by us at NextView Ventures. Joining us in the syndicate are Lerer Ventures, Trinity Ventures, and Fuel Capital.
Code Climate talks about a world where static analysis is as critical to every developer as GitHub and their text editor/IDE… and this new capital will help make that vision a reality. Chad Pytel at thoughtbot, many of the NextView portfolio companies, tens of thousands of developers, and I are already believers.
Mass transportation is the largest single source of travel within metropolitan areas across the globe, but our current fixed infrastructure approach hasn’t changed since the 19th century. Here in our innovation hub of Boston, the country’s oldest subway tunnel built in 1897 is still in use as part of the MBTA Green Line. Each day thousands of people commute to work on a system that is literally over a hundred years old.
This year, though, a local startup called Bridj has been making headlines by taking a fundamentally new approach to thinking about mass transportation. On the surface, the company is running mini-busses between popular commuter pickup and drop-off locations. More fundamentally, however, Bridj is leveraging layers of technology including mobile connectivity + big data coupled with flexible vehicle assets to create a dynamic transportation network. The startup utilizes machine learning algorithms to become smarter as more users enter the system, striving towards the goal of a “living, breathing, and thinking” transportation system.
Today Bridj announced that it has raised $4M from our team at NextView Ventures, alongside Atlas Ventures, Suffolk Equity, and many of the original ZipCar investors like Jill Preotle, Andy Ross, and Peter Aldrich.
Coming straight out of my first meeting with Bridj’s Founder, Matthew George, I called both of my partners to share my excitement about what I had been immediately convinced was our next investment. Not only did Matt share a crisp and articulate vision about transforming the future of transportation, he was an extremely authentic founder who had discovered the opportunity through operating his own profitable bus shuttle business which he had started literally out of his own college dorm room. And it is clear given the reception that the company has received since launching the beta service that it has struck a chord with consumers – I see it daily in the feedback tweets of riders using the service.
All investments which we make become a journey along with the Founders. I know that this one is going to be particularly special because of Matt, his vision, and the real impact he’s going have on the lives of people living in cities around the world.
As the VC seed market has institutionalized, especially over the past five years, there has emerged a prototypical seed round profile: $1M-$1.5M raised, the first non-friends-and-family capital, comprised of one to three institutional seed investors or larger VC funds, on a priced equity structure (though sometimes convertible note), with a valuation mechanism in place priced in the single digit millions.
While there has been much discussion about the variances on syndicate composition and structure, and of course pricing variance, but essentially the “deal” is becoming fairly standard for all parties. The standard seed round will buy the company 12 to 18 months of runway as it looks to prove out early-stage milestones to raise a Series A before running out of cash.
However, also occurring are a set of “seed” rounds which don’t look like the above, despite involving most of the same players. They’re common enough to become sub-categories in and of themselves, but they are just atypical enough that they’re not as commonly discussed.
The following is a list of somewhat unusual (or at least less common) seed-like rounds. Note that some institutional VC investors who invest at the seed stage may also make these investments: