With 825 startups registered on AngelList in the wider Southeast European region, and with 100+ accelerators active in Europe, it’s interesting to see how those numbers will convert to great startups taking over the world as we are heading into 2014.
How do you measure that conversion, you’d ask. How many companies reach compelling market traction, with or without raising (early) Series A or super-angel deals? That kind of statistic is hard to track. By my personal account, out of the 825, probably 20 could be qualified to have reached the next level. One of those is the champion of the Bulgarian startup scene, Flipps, who received seed funding from the great guys at LAUNCHub, after which my Teres Capital partner Ivan Genadiev led a pre-A round, with Hasan Aslanoba and Tim Draper joining LAUNCHub and us as investors. But that’s only one story, and the other 19 are all very different. A few go through accelerators, but a vast majority does not. Some get mentioned in the press, but many more don’t.
Give-or-take 20 out of 825 comes down to 2.4%. If I were a startup founder in the SEE region in 2014, I’d want to be in that 2.4%.
Those 20 champions have very little in common: 10 or so are cash-flow positive businesses that have never taken VC money, another 5-ish have raised unreported rounds from vertical or local angels, or from untypical investment funds. Then there are a few that disappear from the statistic by relaunching in a different place, with a different team, like Layer. However, having met almost all of the founders involved, there is one thing that definitely stands out as a common denominator: they are all formidable founders who hustle. Summarized: “formidable hustlers”.
Back in the day when I was 100% involved with selecting teams at Eleven Startup Accelerator, the only thing I’d really look at would be how formidable a founder is. Truth be told, I had heard the term before, but it was Paul Graham’s masterful post “How to Convince Investors” that really made me stick with it. A formidable founder is a likeable person, humble, determined, having done their homework, skating to where the puck is going. A couple of criteria, not exhaustive, which generally win me over are:
- 100% commitment. This doesn’t mean no side projects, or no 9-5 jobs. It means being ready to drop side projects and 9-5 jobs when investments or growth are coming in.
- Hard work. Yep, working 18 hours a day. An astonishing number of startup founders I meet don’t even come close to that.
- With-or-without-you attitude when pitching to investors. “We’ll make XYZ a great company, whether you invest or not, but we’d love to have you onboard”.
- No fear of unorthodoxy. I’m going to talk more about this below, but the general “we’re old friends, I’m the CEO he’s the CTO, and we’re like [famous startup] but for [hot market]” usually doesn’t cut it.
- Anti-lifestyle. Funny thing, but most great founders I know are socially awkward. They don’t like to hang out in fancy cafes and don’t appear at every tech event. Most don’t blog and don’t pitch at startup competitions.
- Tech-centric teams. Full stop. I’ve never seen teams without a developer co-founder AND a product designer either as full-time employee or co-founder get anywhere.
Ah, my favorite topic. The biggest differentiator. Hustle. Here’s another non-exhaustive list, this one with signs you’re talking to a hustler:
- First focus on shipping product. Monthly at least.
- Second focus on hacking distribution. From the first 10 friends who test before beta launch, to getting a meeting with a large vendor after 10,000 MAU or items shipped (if physical product).
- Timeline obsession. Hustlers are always keen to explain what has to happen by when, and which scenarios follow either outcome.
- Why always comes before what. Great hustlers will tell you why they want you to help out with A, B, or C, before talking about what they need from you.
- Full control of what’s going on. This is one of those “you know it when you see it” qualities that’s hard to describe. Hustlers know every single detail of what they’re doing, but can zoom out from the numbers to give you a clear picture of the order of milestones and priorities.
Making the 2.4%
The reality of the accelerator phenomenon is that, by my estimate, there is around EUR 100 million in equity funding deployed for the acceleration and pre-seed stage in Europe. More than 80% of it is government or corporate money, and the figure is simply massive. With many more programs launching in 2014, that amount of money is only growing. Opinions differ on whether it is a bubble or not, but the truth is that any startup in the pre-traction phase can get funding without too much trouble. At least in 2014, we’ll see what happens after that. I recently did a post on how to select the best accelerator program and make the most out of the experience, and I would suggest anyone looking for funding to follow just that. Just don’t forget the part about being formidable. 🙂
The consequence of such massive funding availability at the earliest stage, is that getting private money from big-name angels and VC funds for the next stage has become much harder. This makes perfect sense from a market perspective: if you’re investing someone’s hard-earned cash, you’re not going to compete with governments and corporations, but instead focus on the next step, leveraging the outcome of accelerator programs. Call it our own Eastern European version of the “Series A Crunch”. The main differentiator for the next step? Initial traction. The formula I use for validating investment targets is:
investment readiness = formidable hustlers + traction
As we are heading for the launch of our new fund at Teres Capital, this is the kind of thing we’re looking for in our pipeline. And it’s not just us: all the VCs I know that are interested in the region seem to be using the same metric.
For founders, there are two simple outcomes from this development:
- If you’re pre-traction, you should bootstrap, raise FFF, or apply to an accelerator. Take the opportunity of easy money to build and validate your product, and make sure to not get distracted too much by the startup lifestyle and the generally mediocre but well-intentioned mentors you’ll meet along the way.
- Pitching and demo day performance aren’t that important anymore. Why? Because you’ll be judged on your numbers by follow-on investors. Brian Balfour wrote great posts recently on what kind of metrics to focus on when showcasing PMF and traction (Traction vs. Growth and The Never Ending Road to Product Market Fit). You want to show that kind of numbers if you want to talk to investors that can bring you to new markets and support your startup beyond acceleration and launch. Or as Dave McClure said: the best pitch is not a pitch but a tagline. This is our product. This is our traction. Boom.
Wherever you are in terms of startup progress, one thing you should always try to avoid is looking like everybody else. Too many startups look the same, sound the same, and frankly do the same, not because being like everybody else is the right thing to do (which it sometimes is), but because they’re only doing it BECAUSE everybody’s doing it. That’s just insane. If I’d rewind to 2009, when I was chasing advisors and investors for my first company, these are the tactics I would use for standing out from the (then almost non-existent) startup crowd:
- Hi investor, it’s great to meet you. Probably it’s early for you now, but I would love to send you monthly updates about our company, because when we’re ready, I’d love to have you as our investor. Would you be ok with that?
- I looked at the portfolio of companies you advise/invest in, and there’s a great startup in my hometown that I think would be very interesting for you. Would you like me to introduce?
- Actually, both me and my co-founder are co-CEOs at the company, and that’s just fine. We take all decisions together at this stage. This works for us, and I don’t see any problem with that. Look at what we have achieved so far.
- I’m sorry, but I don’t feel like pitching at your event. Do you want me to send you our monthly stats for the past three months? I’m sure you’ll be impressed.
- Wow, I heard great stuff about your accelerator/VC fund. Would you mind if I come to your town and sit with you for a week to see if it’s what our company needs?
- Yes, I still work at my 9-5 job right now. I’m waiting for our startup to hit milestone X before I leave my job, and my boss is aware of that.
- I’ve tried doing a startup twice, and both times we ran out of steam at a point. I have three versions about what we did wrong, could I have your opinion on those briefly?
- Hi, we’re a copycat of X for market Y. We believe it’s a great business, and we already asked X and a couple of Y corporations what they want to see before they can consider acquiring us. Here’s how we’ve been growing over the past 6 months.
- Hi, we’re doing something that nobody has done before. What would you suggest us to do?
- Hi, I saw on LinkedIn that you are connected to [number] of people who are our target users. Could we ask you to distribute test accounts to them?
And I could go on and on. As you can see, most things involve being nice, realistic, giving before getting, and doing homework. It is said that one of the things that made Napoleon stand out as a young military commander on Corsica, was that he would always be informed about the troops he was going to meet, stunning subordinates as he asked them about their family members by name. All I’m saying, it often just takes a bit of preparation to make huge impact.
Happy 2014 to you. Use opportunities and tools to get post-traction, be unorthodox, and make everyone proud by making the 2.4%.