Mayvenn is Killing It Because of Community

Today’s GROWTH case study looks at how 500 portfolio company Mayvenn is leveraging one of the most untapped — but high ROI — distribution channels out there: SMS.

Neeharika Bhartiya at Sonar, another 500 company, breaks down how SMS has helped Mayvenn scale reach and conversions to a customer base that’s increasingly post-email.

Mayvenn Is Killing It Because of Community

MayvennToday was a big day for Sonar’s first customer, Mayvenn, a startup that reinvented the distribution channel for hair extensions by allowing hair stylists to sell hair directly to their customers. Mayvenn announced an Andreessen Horowitz led $10mm round of fundraising (including celebs like Serena Williams and Jimmy Iovine), revenue figures in the tens of millions, a community of 30,000 hair stylists, and an order of magnitude more direct customers.

Yesterday, we asked Mayvenn’s COO, Taylor Wang, for the secrets of Mayvenn’s success. His response— community. “Mayvenn is a multi-directional community. We share with our community, they share with us, and they share with each other. To keep the conversation going, we use images, video and SMS.”

A Community Built On SMS

Mayvenn has sales and customer service teams interacting with hairstylists (“Mayvenns”) and customers primarily via SMS.

“Our customers love it,” says COO Taylor Wang, “There’s just no doubt about it.”

In the last month alone, Mayvenn sent and received almost 400,000 text messages through Sonar.

“SMS is just much more personal than any other channel. Our customers know: ‘I have this person at Mayvenn that I text and who is always available to me’. They don’t see SMS communication as marketing or sales. When we send our customers coupons, we get individual, personal, texts back, saying ‘hey, thanks for letting me know!’”

Mayvenn’s “AHA!” Momentmayvenn txt 1

In the early days, Mayvenn’s founders Taylor and Diishan noticed that Mayvenn’s stylists and customers were starting to reach out to them over SMS. Immediately they handed out a bunch of Sprint phones to their customer service reps. “It was driven by our community,” says Wang.

While it made the customers happy to be able to text, it became clear very quickly that the Sprint phone solution wasn’t sustainable. The Mayvenn team had no way to track performance, phones were cumbersome, and there weren’t any solutions to be able to do high volumes of high touch SMS. And that’s when our company, Sonar, was born.

The first SMS campaign Mayvenn tried out just told all their customers they could save the new phone number in their phones and text back if they had any questions. That continues to this day (see above.)

mayvenn txt 2

Next, they used SMS to contact stylists that had not responded via phone to Mayvenn sales reps. They even reached out to stylists who had fully registered, but not made a sale for 3 weeks. (See right.) The results were overwhelming. These two set of text messages alone resulted in 20 to 40% increases in conversion at different points in their funnel, leading to a significant increase in full converted stylists (stylists who have made a sale).

How does Mayvenn Use SMS Today?

Today, with hundreds of thousands of texts going in and out each month, a phenomenal average SMS response time of less than 5 minutes, and close to 100% read rates, SMS has become a vital component of Mayvenn’s community.

It’s not infrequent for Mayvenn to get a text from a stylist saying “Hey, my friend wants to sell as well, her number is XXX-XXX-XXXX”.

It’s also common for Mayven to upsell products through text reminders of online deals. Words of encouragement & status updates remind stylists of how much money they can earn by selling Mayvenn products and image messages let customers know exactly how hair will look before they purchase it.

SMS Marketing / Upselling

SMS Status Updates on Commissions

Onboarding / Sales SMS

Example MMS Message

Why Mayvenn Consistently Chooses SMS over Email:

When we talked to Taylor yesterday, he made the value of SMS abundantly clear.

“Mobile as a platform is an integral part of every individual’s life at this point. If you’re building a community, and can have a way into everyone’s pocket, it’s hugely valuable.”

Taylor Wang, COO, Mayvenn

SMS has much higher open rates than email, and Taylor gets it:

“We do some emails, but it’s not as good as SMS. Not even close. SMS is 100% open rate. Although you may have email accessible on your phone, email is just a terrible platform. The worst. I get 300 day. It’s garbage. There’s just not a lot of need for email anymore (outside of the business context)– it’s really a business tool. When you are building a strong community, you want it to not just be a business relationship, you want it to be a personal one. If you send an email, by the time someone replies, its lost. I have 521 unread emails on my phone and I don’t plan on opening most of them. I have 0 unread texts because I read every single one of them. Do the math.

SMS is instant, short, direct.

Before, sending a message to everyone in your community meant putting together artwork, placement…all those images, approvals etc. and hoping for a 30% open rate, tops. Now, we think about 160 characters and get it out.”

The Right Customer Philosophy

Having people on the line everyday isn’t easy. It requires having great people on the other end, responding with friendly and helpful messages.

For Taylor, though, “It’s just a commitment to the business. It’s like what Zappos always said on their customer service. Make a commitment to make everybody happy. My perspective on making a product isn’t the Silicon Valley dehumanizing approach. It’s certainly not the way to build community, period. I don’t believe in a system where you pick up the phone and have 10 minutes of automated chains to finally find somebody. You should always be able to get a real person. SMS is actually THE technical solution for scaling human availability.

What if a customer had a really simple question and made a purchase. How often is that happening? All the time on the internet. E-commerce hasn’t figured it out because the shopping experience is confusing and there isn’t someone to help! So often, customers are in the boat where ‘If I just knew x, I’d buy.’” Human support allows the purchase to happen.

You learn so much about your customers by talking to them! Certainly at an early stage, and probably later stage too, it’s a much more open dialogue.”

The Future of Community

At Sonar, we think that the creation of a strong user community is going to require more personal channels of communication. SMS and picture messages (MMS) make up one such channel, but Facebook Messenger, WeChat, Line and other messaging platforms represent the next frontier. We are strong believers in high touch communication with users and want to help companies make that happen.

If you’re interested in learning more about SMS as a DISTRO channel, we highly recommend you check out Sonar.

About Sonar

Sonar offers high-touch communication to customers on mobile messaging channels such as SMS and Facebook Messenger. The company helps clients increase revenue, conversion rates, and customer satisfaction by connecting them to their customers on the channels they prefer.

About Neeharika Bhartiya 

Neeharika is currently an engineer at Sonar. She was previously a 500 founder, investment banker, and mechanical engineering graduate from MIT.

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500 Startups Announces First “Distro Dojo” Growth Program based in London

500 Startups is well chuffed to announce the launch of our new Distro Dojo to help post-seed companies in Europe scale growth and close their next round of funding.

Using capital from the previously-announced Distro Fund, 500 startups plans to invest in 20 European companies over the next year at cheque sizes of between £100,000 to £200,000.

 In addition to receiving funding, companies will participate in a three-month program focused on customer acquisition. The first month will be in-residence at the new WeWork building in Moorgate, and program tuition is approximately £30,000 (paid from a portion of the investment).

 WTF is a Dojo?

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Originating back in samurai days, a dojo was a training school where serious students went to study the martial arts under master sensei.

The 500 Startups London Distro Dojo is likewise led by a team of growth marketing sensei who’ve mastered user acquisition, conversion optimization, content marketing, UX, emerging channels, and MOAR — who work hands-on with Distro Dojo companies to kick ass and take names (and user emails).  

“The bar for raising a VC round is higher than ever before. Smart founders today know they need to scale to million-dollar revenue run-rates to raise a Series A — Distro Dojo is how to get there. Our goal is to help founders triple-down on their growth, then get visibility with top institutional investors.” said Dave McClure, Co-Founder and Head Geezer of 500 Startups.

Why Distro in London?

500 Startups has done ~20 investments in UK startups including Brainient, Geckoboard, Skimlinks, and Moonfruit (acquired by Yell Group in 2012).

In addition to being the most active seed investor in the world, 500 Startups is known for DISTRO, a ‘special forces’ team that helps high-potential companies reach the next level through growth marketing investments and hands-on advising.

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“From my experience with local founders and investors, London has a thriving early-stage ecosystem, but many great startups still need help scaling growth and building growth teams as they look to raise their A-rounds. For us that’s a perfect match, because Distro is what really sets 500 apart from other VCs” said Matt Lerner, Distro Partner and head of the new London office.

Lerner, who recently left PayPal to join 500 Startups, will lead the Distro Dojo. Originally hired into PayPal by Dave McClure a decade ago, Lerner built and managed a series of growth teams that generated over two hundred million dollars in additional revenue for PayPal in the US and UK. Most recently he was head of SMB for PayPal UK. Lerner is a member of 500 Startups in-house Distro team, a set of growth marketing experts who partner with portfolio companies to help them build growth engines and scale. Previously, as a 500 Startups Mentor, Lerner helped over 40 companies develop and execute growth strategies.

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And according to Emi Gal, founder of UK-based Brainient, “The 500startups team and network of mentors have been tremendously helpful and supportive, ever since Dave was the first investor to commit to our seed round back in 2010. I’m a bloody huge fan.”

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Alicia Navarro, founder of Skimlinks, said “500 startups is one of the few funds who are openly welcoming of for minorities, women, and non-US investments, and has had great success identifying gems with that strategy. I’m delighted they are expanding to Europe to bring their vision and exuberance to the startup community here.”

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Priya Guha, British Consul General in San Francisco said “I am delighted that 500 Startups are setting up their first European presence in London. Based in San Francisco, I see first-hand the key role 500 Startups plays in investing and scaling early-stage technology companies in the US. The British Government, and in particular UK Trade & Investment, are thrilled to welcome 500 Start-Ups to the UK’s thriving technology ecosystem.”

According to one unidentified, but possibly British, founder, “I was gobsmacked when I heard the Dojo news. The 500 team are cracking chaps, the mutt’s nuts. Growth is their cup of tea, and I’d be gutted if they didn’t come to London. They make growth easy peasy, before we started working with them, our KPIs were the square root of bugger all. Now that they’re on the job we’re sorted. Bob’s your uncle.

The first Dojo will begin September 1, 2015 at the new WeWork office in Moorgate. At the moment, 500 Startups is not planning to accept applications. Instead, post-seed companies with demonstrable product-market-fit and measurable traction will be identified through recommendations and introductions from our network of 3,000 founders and mentors worldwide.

 Like all good Mafiosos, our goal is singular and complete world domination. Therefore, look for other Dojos to be announced in other geographies in the near future.

MOAR About 500 DISTRO

500 DISTRO is 500 Startups’ in-house team of growth marketing experts. 500 Distro helps companies scale growth and close their next round of funding via the 500 Accelerator, a $10M DistroFund, and, now Distro Dojo.

Read the DISTRO Case Studies

GrabTaxi’s Growth Hacks — 7 Lessons on Marketplace Growth from Southeast Asia’s Biggest (and Friendliest) Startup

Growth in Asia: How Shopline Acquired 6X Users in 9 weeks

Things That Don’t Scale: Boatbound Shares 4 Surprising Ways to Turn Random Strangers into (Paying) Fans

Growth Never Sleeps: Life & Distribution After the 500 Accelerator, with Shippo  

More coverage via TechCrunch

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500 NYC ROAD SHOW – Summer 2015

Join our 500 Startups NYC tour! We’re back on the road and want to meet YOU. Come meet members from our investment team and learn more about building your startup. We want to meet some of the world’s most promising startups. Our evening meetups are free to attend and will be followed by a relaxed evening of drinks and mingling. Learn more about 500’s seed fund and accelerator. Have questions? Get answers here.

Can’t join the tour? Learn more about 500’s accelerator program and apply online.

Attendees will:

> Meet 500: Who’s behind 500? You’ll find out. In return we’ll want to meet you, learn more about what you’re working on, and help you out. We think it’s a good deal.

> Ask 500: Chat with the 500 team and its founders to find out how they select who to invest in, and what it’s like to join the 500 family. This will come in handy if you end up joining us!

> Network 500: We’ll be bringing together other great founders and investors from your area, so this will be the perfect time to network and buddy up.

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Evening Events:
> July 6th: Women Founder’s Panel: RSVP
> July 7th: Meet the 500 Family: RSVP
> July 8th: Get a Taste of the 500 Accelerator Program: RSVP
> July 9th: Fundraising in NYC: RSVP

Meet Our Team
Tanya Soman – Principal
Poornima Vijayashanker – Venture Partner

 

 

 

 

 

 


 

Partners

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General Assembly is an educational institution that transforms thinkers into creators through education in technology, business and design. Our global network of students, instructors, and entrepreneurs aims to bring people together to take advantage of a new kind of learning-by-doing approach to education.
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Plum Alley is the first crowdfunding site specifically for female entrepreneurs. By aiming to “connect women entrepreneurs with markets, capital, and advice,” Plum Alley enables users to shop for products, raise funds, and get advice from other female movers and shakers.

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WeWork is a provider of shared workspace, community, and services for entrepreneurs, freelancers, startups and small businesses.

Podcast is the New Blog

Awhile back, Franco Varriano asked to interview me for his startup-related podcast.

Podcast? Do people still listen to podcasts?

Way MOAR than you think.

Apple is well past 1 billion podcast subscriptions, and something around 39 million people listen have listened to a podcast in the past month in the US.

I’m even subscribed to a few myself (like Sinica/Popup Chinese, 500 Startups, Hack To Start, and Tim Ferris.)

Why startups should consider podcasts:

1. Under-tapped channel. Get your name in there as a podcaster or a subject before all the other marketing types pollute the pool
2. Podcast listeners are top tier online users — using a smartphone, know their tech, HIGH VALUE.
3. Get listed and linked on high quality properties like the iTunes store, Stitcher, etc.
4. You have a face made for radio 🙂

How to leverage podcasting as a channel:

1. Get interviewed for a podcast
2. Sponsor a cool and relevant podcast
3. Get name dropped in a podcast (like I did in this Tim Ferris episode interviewing my friend Noah)
4. Make your own podcast (like we do at 500)

I asked Franco if he could tell me how he made the Hack To Start podcast successful —

  • 40 5-star reviews
  • ranked #1 in iTunes for Business News
  • ranked #8 in iTunes for Business
  • ranked in the Top 10 on iTunes under “New & Noteworthy” since launch in October 2014 – January 2015 ahead of Gary Vaynerchuk

And like good marketers, we decided to make a blog post out of it.

Enjoy, ask questions, send fan mail / cashmoney, and check out the Hack to Start podcast when you’re done.

Podcasting Isn’t Dead

Before the launch of Serial and StartUp Podcast, the use of the podcasting medium was a seemingly rare occurrence. Of course successful podcasters have always existed, but the mainstream appeal seemed a bit lackluster – and still is in some ways.

slack released first podcast

But in mid-2014, there was a bit of a renaissance around the art and new podcasts have been springing up like wildfire given the renewed interest. Some, like Fred Wilson, attribute it to better devices for tracking & listening, and simpler tools for distribution and production (like Spotify adding Podcasts to their platform).

Now individuals, startups, and large companies alike have jumped in, seeing podcasting as a new frontier in their social plan. It’s definitely become a new way of reaching fans, building a community, attracting new customers, and building thought leadership in their respective industries.

Podcasting has become the new blog.

Just as the first writers pointing their craft online without knowledge of process, guarantee of readership, or ultimate plan have done in over the last decade, podcasting is the newest authentic medium for sharing your voice, thoughts, and interests in a specific area.

But like any other medium, your intended purpose and value should be clear. As one of our guests Zack Shapiro put it:

“Each product needs a very important why behind it. And if you don’t have a ‘why’ as to why you’re actually working on something, then you probably shouldn’t be.”

( PS: Read about why we started Hack To Start here.)

Podcasts Are An Underleveraged Channel

Incredible growth often comes from under-leveraged distribution channels or gaps in the way existing tools sets intersect (or don’t). Audio and video, thanks in large part to the rapid growth of mobile technologies are now more accessible than ever and fit into an “on-demand” lifestyle of constant connection and entertainment.

Pulling some technology trends from Mary Meeker’s latest report, the market growth for mobile over the last 20 years has gone from 1% to 73% globally:

kpcb mobile usersSource: http://www.kpcb.com/internet-trends

Mobile data – especially video data – is shown to be growing, but I’m willing to guess that audio data is also growing along with it as major platforms like iTunes and Soundcloud continue to grow internationally and into new markets.

This is likely to continue as the report also showed that messaging apps were among the most popular and most used. Podcasts will continue to evolve and will probably find a way to integrate themselves into these messaging platforms as a way of staying in touch – especially as platforms like Slack enable developers to build more on-top of them or through them like Facebook Messenger has already begun doing.

KPCB top apps

Source: http://www.kpcb.com/internet-trends

messenger dot com podcast growth

Source: Messenger.com

Growing a Podcast

Effective podcast growth has yet to be as clearly defined as other media. However, like anything else, it still depends on the quality and personality of the content.

Unlike written blog content, the audio and/or video podcasts must inject additional personality and purpose in order to become “addictive.”

Consistency is also critical to establishing a new community and following. Make sure you have a production schedule and be ready to go.

Before you get started with your own thing, take some time to check out what’s already out there and find things you like/dislike about each show to use as inspiration for your own.

I made a list of some of my favorite shows and discovery resources here you can use as a starting point (note: this is focused on startup/tech podcasts for me, but you should search your areas or industries of interest too).

Here are some of the basic platforms and tools you’ll want to leverage if you’re running/growing a podcast.

Podcast Distribution Platforms

  1. iTunes
  2. Soundcloud
  3. Stitcher
  4. TuneIn Radio

Podcast Hosting Platforms

  1. Soundcloud – http://soundcloud.com/for/podcasting
  2. SimpleCast – https://simplecast.fm/
  3. Libsyn – https://www.libsyn.com/
  4. Podbean – http://www.podbean.com/

Social Media for Podcasts

  1. Twitter
  2. Facebook
  3. Instagram (I’ve recently been exploring this for Hack To Start and have grown over 400% week over week for the past 2 weeks)

Tactics to Grow a Podcast

Step 1: Build an audience

Like launching anything new on the internet, for most new podcasters, building an audience and following will be your biggest challenge (unless you’re already running a high profile website, blog, or are some kind of celebrity). You’ll want to create a landing page with an email capture form powered by something like MailChimp.

Step 2: iTunes will most likely be your new best friend – at least to begin with

All newly submitted podcasts are by default included in a category called “New and Noteworthy” for about a month. We launched Hack To Start in October and had a few episodes ready to be submitted right at launch.

During this period, it’s extremely important to get as many positive review, listens and subscribers to get bumped up through the algorithm and make it as close to the top as possible – at one point, we surpassed one of my business idols, Gary Vaynerchuk and his amazing show @AskGaryVee (see lower right corner).

itunes hack to start gary vaynerchuck

 

Step 3: Get featured

If your podcast is unique (and it should be before you launch!) it could get picked up by iTunes and be featured. Protip: you can always tweet @iTunesPodcasts to get a little extra attention.

Espree Devora of We Are LA Tech did an amazing job with this. Being featured will drive lots of extra download, traffic, and hopefully new subscribers.

get featured podcast

Step 4: Be everywhere

Being on as many platforms as possible is just smart distribution. iTunes isn’t the only place people find podcasts. Create listings for your show on Stitcher and as many others as you can find.

Step 5: New ideas

Don’t be afraid to try out new ideas. The space is completely open, new, and it’s exciting.

try new ideas podcasting

I love seeing how others are reinventing the format, the style, and the approach like The Pitch (designed by Cat Noone) have done:

the pitch vc podcast

Source: http://thepitch.vc/

Do it, Now

So what are you waiting for? In the words of Shia LaBeouf, just do it already!

Being perfect isn’t worth the time (and the longer you wait the more likely you’ll never do it). There’s never been a better time than now to launch a podcast and share your ideas, story, or purpose with the world.

You can reach out anytime to Tyler and myself or shoot us an email Hey@HackToStart.com or Tweet @HackToStart and we’d be happy to help out!

———-

Special thanks to Franco Varriano and Tyler Copeland for contributing this post.

Check out their podcast Hack to Start on iTunes

And for another great read on podcasting speaking to the creator’s perspective, I highly recommend checking out Here’s the Future of Podcasting

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Episode 54 – Brendon Kim & Jacopo Lenzi, Samsung Global Innovation Center

This week, 500 speaks with Brendon Kim and Jacopo Lenzi of Samsung’s Global Innovation Center. Brendon Kim has been investing in early stage start-up companies for over 18 years. He is currently Managing Director and head of the Strategic Investments Group. Jacopo Lenzi is the Head of the Strategic Acquisitions Group and leads Samsung’s efforts in acquiring software and services startups.

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“The mantra used to be that you didn’t want to get strategic investments until later in the lifecycle of a company,” say Brendon Kim and Jacopo Lenzi of Samsung’s Global Innovation Center. “But the lifecycle of a company is shortening. As companies get bigger and raise money faster, it makes sense to look to strategic partners earlier, rather than later.” We’ll explore this and other CVC insights in a corporate takeover panel at PreMoney.”

To hear more insights from Samsung Global Innovation Center & others, join us at the PreMoney conference on Jun. 12, 2015. You can visit PreMoney.co and enter promo code ’SAMSUNG’ to score an additional $150 off the registration price.

Love the show? Don’t forget to rate us and subscribe on iTunes!

Q&A with Marlon Nichols, Investment Director at Intel Capital

Marlon Nichols

Marlon Nichols (@MarlonCNichols) is Investment Director at Intel Capital (iCap) and Founding Partner at Cross Culture Ventures. At Intel Capital Marlon leads investments in women and minority led technology startups through iCap’s Diversity Fund.

Premoney SF is around the corner (June 12th) and 500 caught up with speaker and Intel Capital Investment Director, Marlon Nichols.

Do you think the venture capital industry today is innovative? Is there anything that needs or can be changed for us to keep momentum? 

For an industry that prides itself on identifying disruptors and investing in innovative companies, venture capital itself isn’t very innovative. That said there are new venture firms launched in a somewhat frequent manner, but only a small percentage of those funds look to change the model. I’ve talked to a few GPs that are tinkering with the carry structure, the number of investments made, or the phase of company that they invest in. There are also some firms that attempt to differentiate by the services they offer to entrepreneurs. My feeling is that the biggest disruption is to step out of the me too mentality i.e. investing in companies because the quote on quote top VCs have made or are pursuing an investment in a particular company. The way around this is to hire more diverse teams, particularly at the GP level. What this does is it adds perspective. A general partnership that comes from different backgrounds and has diverse interests enables that venture firm to think out of the box and even make educated bets on “non-traditional founding teams”. The result of this approach include exposure to new trends, unique solutions to existing markets, and the birth of new markets.  All of which contribute to outsized returns.

Let’s talk about the 2 and 20? Is that something we as an industry can move away from? 

I don’t have an issue with the 2 and 20. For small to mid-sized firms it sets proper incentives for the General Partnership. In this structure general partners are paid well enough to focus their attention on the job at hand and are incentivized to be good stewards of capital since their true pay day depends on finding successful outcomes i.e. portfolio companies that experience profitable M&A or IPO opportunities.

What are the top value-adds that VCs provide?

This depends on the firm, but I will only speak about the two firms that I am intimately familiar with.  Intel Capital prides itself on value-add introductions to the Global 2000. This is a huge deal for a startup seeking to land its first or early customer base.  Intel works with just about every company of note and has created a reputation of being an influential partner.  Through its technology days (610+ since 2005), annual Global Summit (attended by ~1k industry executives and catalyst for ~3k connect meetings during 2014), and staff of capable business development managers, Intel Capital facilitates necessary and qualified corporate introductions.  Cross Culture Ventures is adding value to portfolio companies through cultural trend research, unparalleled access to influencers, development of marketing, brand and communications strategy, as well as business development support. It achieves these through a close knit relationship with the Atom Factor, an entertainment management company with significant experience working with startups such as Uber, Lyft, Spotify, Warby Parker, etc.

How are you building a different kind of VC firm? 

I would start with GPs that come from nontraditional backgrounds who have complementary operational experience and strong venture capital track records.  Utilize those unique perspectives to think well outside of the box and to see value/ opportunity in ventures that others without these perspective likely will not see until much later down the road.  Additionally I’d invest in deep cultural trend analysis expertise so that the firm will be able identify emerging movements before they become mainstream phenomena.

Are there common characteristics of someone who is a successful VC? Do you have any examples of people who you think are really pushing the envelope in the industry? 

I’m encouraged and motivated by forward thinking VCs that create investment vehicles/ platforms that allow them to execute their vision and produce positive change.  Successful entrepreneurs balance conviction and having an open mind well.  Maintaining this balance is also an important character trait for venture capital professionals.  Jason Green believed strongly that SAAS was the way forward before Sales Force was successful and before SAAS became “a thing”.  He and his partners founded Emergence Capital with this premise and have built a top quartile venture firm.  Mitch Kapor and Freada Kapor Klein Ph.D have long been advocates of diversity and care deeply about social impact. Kapor Capital consistently invests in diverse founding teams who build businesses that produce rich social impact while driving significant returns. Lisa Lambert understands that diversity presents a significant investment opportunity. She was the catalyst for Intel Capital’s newly formed diversity investment fund.  In the spirit of full disclosure Jason Green, Freada Kapor Klein Ph.D, and Mitch Kapor are mentors/ advisors to Cross Culture Ventures.  Also, I’ve worked with Lisa Lambert for the majority of my career as a venture professional and consider her a mentor.

How has the VC business changed since you joined Intel Capital? 

Three things come to mind:

1. More corporations are launching corporate venturing units and placing more focus on achieving a financial return as opposed to solely focusing on strategic impact to their parent company.

2. About four years ago I watched a consolidation in venture capital and am now seeing an increasing number of new firms being launched in 2014 and 2015.  Markets are cyclical and apparently so is the market’s appetite for venture capital.

3. Venture capital is now starting to realize what corporate American learned years ago, diverse teams create outsized returns.  It’s not completely there yet, but I think some firms are beginning to see diversity as an arbitrage opportunity.  The changing demographic of the United States is helping to change the narrative i.e. it’s a good thing to understand what the soon to be majority of the country are interested in and need.

Let me ask everyone’s favorite question, are we in a bubble? 

I wouldn’t call it a bubble, markets move in cycles and we are experiencing an upward turn at the moment. As a result there is more capital for investors to put to work and consumers have more discretionary income and are spending it on technology and consumer products. There is no doubt that valuations are high, but in most cases these companies are generating revenue to support those high valuations. Burn, however, is higher than I’d like to see. I attribute this to lack of true differentiation in many markets, companies are forced to spend more on marketing and branding to create the illusion of differentiation.

What advice would you offer to founder who is looking to raise capital for their new startup?

Think long and hard about how difficult it is to start and grow a company. Think about how lonely it truly is to be the founder/ CEO of a startup.  Then take a honest and introspective look at yourself to see if you really are “about that life” i.e. cut out to be an entrepreneur. I’d encourage her to ensure that she builds a cohesive team with relevant and complimentary experiences and/ or domain expertise.  Above all else she must have a deep understanding of the space that her and her team are planning to tackle, and an even greater understanding of the business that she is starting. I wrote a relevant blog post last year “The Pitch” Meeting, a VC’s Perspective!In terms of targeting investors, know what kind of help your company needs to succeed and target those firms and partners that can actually provide real help in that area.

– FIN –

To hear more insights from Intel Capital & others, join us at the PreMoney conference on Jun. 12, 2015. Visit PreMoney.co and enter promo code ‘IntelCapital’ to score an additional $150 off the registration price. 

How to Close Investors: Stop Pitching and Start Growing Revenue

By Tanya Soman and Poornima Vijayashanker

In our previous post we talked about the 3 elements every demo day pitch must have, and the biggest takeaway was to show traction: lead with real success indicators like monthly revenue and revenue growth. And this doesn’t just pertain to demo day. Many investors will say they want to see more traction before they’re ready to invest. You might be thinking, “Well, they just aren’t the right investor. They’re too risk averse!”

A lot of founders discard this investor feedback and just keep pitching to others, thinking that they’ll eventually find the right set of investors who are willing to take the risk and bet on a company with little revenue. That might be the case, but if you don’t have revenue, you’re negotiating from a position where you don’t have much leverage.

Founders need to face the new reality that they often must show revenue before an investor will write them a check.

Think about it this way: if you can tell every investor that you meet that your revenue is growing 20-40% month-over-month, you’re set to break even in 3 months, and you’ll hit profitability in 6 months, how do you think they’d react?

They’d recognize that you don’t need their investment, but they don’t want to miss out on an opportunity to invest and fuel your growth.

This is exactly what we did with two companies we advise at 500 Startups: Headout and Pop Up Archive.

Headout helps travelers book experiences on demand using their mobile devices, while Pop Up Archive makes sound searchable through cutting-edge speech-to-text technology.

headoutHow Headout tripled their revenue

When we first met Varun Khona, the CEO and co-founder of Headout, he told us he was having a hard time raising capital. We asked him what the investor feedback had been, and he said that investors were unanimously telling him that he needed to 2X his revenue and grow in excess of 30% month-over-month.

So we recommended that he stop pitching and focus on sales and ramping up on revenue. He was nervous about pausing his fundraising activities, but we reassured him that if he focused on revenue, fundraising would be a cinch come demo day.

Headout, at the time, was operating only in NYC. They needed to think about how they could increase their sales. Here were the methods they used:

  • Added more suppliers to appeal to tourists
  • Increased awareness among tourists with more effective marketing campaigns and doubling down on existing distribution partnerships; counterintuitively, this actually led them to focus on fewer channels instead of more
  • Pushed for repeat sales with a new email marketing campaign, because many people frequent NYC multiple times a year
  • Added one additional city to grow the market: they launched in Vegas, thereby also addressing scalability concerns for the investor community
  • Focused on product-driven innovation to increase conversion rates, including but not limited to intelligent push notifications, relevant pop-ups, and UX-focused revamps

Their focused efforts during a 3-month period in the accelerator led to 3X in revenue. Varun was still pretty nervous about what investors would say, but we reassured him by pointing out that he now had more leverage. With his current run rate he didn’t need investment. He and his team could continue to grow for the next 6-9 months and would hit profitability. But investment could propel him past profitability by helping him open up additional cities and move faster than the competition, and that would be an opportunity no investor would want to miss out on!

Headout ended up closing a $1.8M seed round in February 2015.

popuparchive-logoHow Pop Up Archive closed customers within a month

Sometimes you get stuck because prospects are giving you the run around. So while you’re spinning your wheels trying everything to get traction, you’re stuck in the mud because customers are indecisive.

When we met Anne Wootton, the CEO and co-founder of Pop Up Archive, she told us how she had about 10-15 prospects in the pipeline who were all very eager to sign up, but they were all taking their sweet time to get back to her.

Their indecision was holding up sales, and without sales she was concerned that investors wouldn’t take her seriously.

To help Anne out, we started out by asking her what would be a reasonable price point for her service that would also close customers quickly, without the need for them to go through lengthy internal approval processes. She said around $5K-$10K.

So we suggested she create a pilot program with a clear product offering that would be aligned with what they were looking for, at a price point that would make the decision fly through approvals. And to get them to close quickly, she needed to “SUE” them:

 

  • Scarcity: Anne would open just 10 spots for her pilot program.
  • Urgency: If prospects were interested, they would need to reply by May 15, 2014, no extensions. But she’d of course send out reminder emails to reiterate the value proposition of the pilot and nudge them along.
  • Exclusivity: The program would only be available to customers that met a certain set of criteria. This way, they felt like they were getting premium service and working with a company that cared about their specific needs.

Anne set up a 3-part email campaign series, and after just the first email, her phone started to ring with interest! But unlike before, these customers were ready to move forward and make a decision.

Of course, there were people who said no, but creating a forcing function made it clear whether a prospect was actually interested or just shopping around.

Anne closed her pilot and used the resulting sales to show a 6-figure run rate, which appealed to investors and helped her close a round of funding of $1M+ in 2014.

For more techniques on closing customers, check out Poornima’s latest talk: How to Build a Sales Pipeline with Customers You Can Close. You can find the slides here.

Remember, it’s easier to close checks when you offer investors an opportunity to grow a business that’s already thriving with sales!

Q&A with David Hornik, General Partner at August Capital

David Hornik 600

David Hornik (@davidhornik) is General Partner at August Capital, a venture capital investment firm based in Menlo Park. He invests broadly in information technology companies, with a focus on enterprise application and infrastructure software and consumer facing software and services.

Premoney SF is around the corner (June 12th) and 500 caught up with speaker and August Capital General Partner, David Hornik.

Looking back on your last fund, what are your plans for going forward? 

We just recently closed our latest fund, August VII. Unlike many funds going out to raise capital these days, we decided to keep the amount of money we raised relatively small. Our new fund is $450 Million and will be focused across the information technology spectrum. We will continue to search for amazing entrepreneurs who are building businesses that aim to transform a giant market or, better yet, create a giant market.

Do you think the venture capital industry today is innovative? Is there anything that needs or can be changed for us to keep momentum? 

I don’t think that my investors are looking for us to be innovative. They are looking for us to invest in innovation.

What are the top value-adds that VCs provide? 

I believe that my role is to provide my portfolio companies with whatever help they need. Sometimes they need help recruiting great people to join them. Sometimes they need help raising capital. Sometimes they need help thinking through organizational structures or strategy or product. Sometimes they need us to be true believers and continue to back them even when others will not. Whatever my portfolio CEOs need, I’m there to help!

How are you building a different kind of VC firm? 

We are building a different kind of VC firm at August Capital by not building a different kind of VC firm. We don’t think that entrepreneurs are looking for different. They are looking for engaged and thoughtful and helpful. They are looking for personalized attention and a deep knowledge of company building. We have always provided that and will continue to do so.

Are there common characteristics of someone who is a successful VC? Do you have any examples of people who you think are really pushing the envelope in the industry?

There are a million traits of a great VC, but the one I think is often times the most compelling is to be intellectual curious. If you aren’t naturally curious, you will have a hard time finding the motivation to sift through thousands of companies in order to find the one amazing company you are excited to fund.

How has the VC business changed since you joined August Capital? 

There has been a lot of noise in the 15 years that I’ve been in the venture business. But, fundamentally, the VC business hasn’t changed at all.

You called your fund August Capital because at the time no one would fund anyone in August. Does that still hold true today or is the funding environment so hot there’s currently no “off-season”?

That is definitely not why we called the firm August Capital but I think that’s a great piece of lore. That said, I don’t think that there has ever truly been a down time in the venture business. Great VCs are always looking for amazing companies and that doesn’t stop in August.

Recently you commented on Twitter that today some companies are trading big valuations for not so great terms. Can you elaborate more on that or tell us how founders can balance the two?

There have been a number of high priced rounds of late in which VCs are willing to pay extremely high prices in exchange for having a multiple preference or some sort of ratchet that readjusts ownership if things don’t continue up and to the right, etc. I think the best way that companies can balance these sorts of financings is to just say “no.” Companies are way better off taking a reasonable valuation without the structure, than taking the highest possible bid with a ton of preference, etc.

What advice would you offer to founder who is looking to raise capital for their new startup? 

Recruit great people. Surround yourself by great people. Get introduced to the VCs by someone they know.

You’re one of the few VCs in Silicon Valley who doesn’t dress horribly boring. Can you tell us about some of your style and favorite loud shirts?

For the longest time I wore a different bowling shirt every day. I’m a fan of the bowling shirt and had fun with it. Then one day my wife informed me that the era of the bowling shirt had passed and that I had to move on. I was at a bit of a loss for a while there but have migrated my way to lots of paisley and bright colors.

– FIN –

To hear more insights from August Capital & others, join us at the PreMoney conference on Jun. 12, 2015. Visit PreMoney.co and enter promo code ‘AugustCapital’ to score an additional $150 off the registration price. 

Big (Venture) Data: Winter Is Not Coming – It Was Just A Late Spring

With the PreMoney investor conference quickly approaching, we asked our friends at Silicon Valley Bank (SVB) to outline VC data and trends they’re tracking closely. Given their unique position in the market—as a lender, an investor in startups and funds, and some of the most connected folks we know in tech—we knew they’d have deep insight into what’s really happening, separating the real data from the market hype.

Post by Claire Lee, Managing Director, Silicon Valley Bank

THE BIG 10 TRENDS: FROM VALUATIONS TO LOCATIONS

1. VC’s Have Become More Discerning
More than half of the early stage companies SVB’s California-based team has been tracking were founded within the last two years. A higher % of these startups are surviving and thriving. While deal count overall in venture capital has been declining since Q4 2014, early stage dollars invested are way up, indicating that investors are more discerning about their bets.

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1-1Source: Mattermark

2. Valuations Continue To Trend Up
Mattermark reported in the Q1 2015 U.S. Venture Capital Funding Report that the value of seed rounds increased a whopping 145% on the same period in 2014 – and Series A and B were up 22% and 20% respectively.

2-0 2-1Source: Mattermark

3. Early Stage Is Still Hot

CB Insights gave us more reasons to be cheerful (and not gloomy): While Seed and Series A deal shares have decreased, early stage deals overall still represent almost 55% of all deals in Q1 2015.

SVB 3Source: CB Insights

4. Corporate Venture Trending Up

Our friend, the Corporate VC, has shown us they are serious about funding innovation early: Series A CVC deals rose to a five-quarter high of 28% in Q4 2014 (from 21% in Q3 2014) and continues to rise into 2015.

Corporates are more active investors and acquirers of startups, but they also make great customers and routes-to-market. In April, SVB and 500 Startups co-hosted a custom demo day for 25 corporate innovation execs to meet 1:1 some of the best 500 Startups companies in the eCommerce, FinTech, Video, Mobile and SaaS sectors. To learn more about the insights and strategy shared at that event, check out Dave McClure’s presentation on corporate innovation investing.

There are now 1,100 CVCs globally (double the number there were in 2009), and they are in 30% of all VC deals. Participation is way up – in Q4 2014, 96 CVCs were in deals – a 32% increase from Q4 2013 and a 60% increase from Q4 2012. According to Global Corporate Venture, we saw $17.7B invested in 783 deals by corporates in 2014.

Capital invested by the big guys was up 39%, while deal sizes average $23.9M—and 51% had deal sizes of $16.7M.

5. Everyone Wants a Piece of Tech…Yet Exits Are Down

Mega rounds are also on the rise – later stage investors, such as hedge funds, private equity, corporate VC, mutual funds and sovereign wealth funds, are fueling growth in dollars invested pre-IPO. Mind you, exits are down too — 138 exits in Q1 2015, representing a 19% decrease from the previous quarter.

SVB 5Source: CB Insights

6. California Rules, While Massachusetts Beats Out NYC

California companies still comprise the majority of top companies getting Seed and Series A rounds, according to our research. The state of California leads in total fundings and share of most active investors.

While California deal share decreased for the third straight quarter, Massachusetts has been gaining on New York since Q3 2014, and surpassed the Empire State in Q1 2015.

SVB 6Source: CB Insights

7. The Bay Area Remains the Undisputed Center of Disruption

Urbanization is definitely a thing: A large majority of top companies have their HQ in major cities, including California and other top states (New York, Massachusetts, Texas, and Illinois). Pitchbook illustrated the spread of capital invested across the different US states:

SVB 7

To capitalize on this collision of startups & geography, SVB hosts startup partners at Galvanize, an urban community workspace with some prime real estate in what happens to be the No.1 zip code for venture capital investment in the world — San Francisco, Calif.

SVB 7-1

While the abundance of capital is still concentrated, we are hearing more about the ‘rise of the rest’ and a slightly larger spread of VC dollars across the US. (Shout-out to Ian Hathaway, whose research pointed out that more cities in 2014 provided ‘first fundings’ than in 2009.) Marginal, but still heading in the right direction.

SVB 7-2Source: Pitchbook and Ian Hathaway (HBR)

8. Sector Analysis: Internet Is Down While Energy & Healthcare Are Trending Up

The share of Internet deals decreased for the fifth straight quarter, while Healthcare and Energy deal shares increased in Q1 2015.

SVB 8Source: CB Insights

9. Power To The Founder

The founder has the power these days – giving up less equity at the early stages. SVB’s analytics research on equity comp in February confirms this. What’s more, we are seeing greater awareness and appetite for debt financing, alongside the equity financing, with savvy founding teams these days.

SVB 9

Source: SVB Analytics

10. The Top Performers

Not surprisingly, NEA and Andreessen Horowitz top the list of most active investors in Q1 2015, with activity across all stages. Interestingly enough, our friends at 500 Startups seem to know a little about picking winners, too.

SVB 10

Source: Pitchbook

To hear more insights from SVB Capital & others, join us at the PreMoney conference on Jun. 12, 2015. Visit PreMoney.co and enter promo code ‘SVBCAPITAL’ to score an additional $150 off the registration price.

For more information about any of the data above or to get connected with SVB, contact Claire Lee at CLee at svb dot com or send her a tweet at @Claire0h.