Duet Partners
Tel: +44 (0) 20 7416 6630 / Email: partners@duetpartners.com


Weekly Briefing Note for Founders

27th August 2020

This week on the startup to scaleup journey:

  • Too many founders are invisible in the public sphere
  • The most critical slide in the deck: 'Why now?'
  • Why VCs will pass on your startup
  • Why startups fail - feedback from post mortems
  • Despite the flood of talent, hiring hasn't become easier

1. Insights of the week

Invisible founders

One of the first things an investor will do when you approach them is to check out who you are. Not your company, but YOU. It's never been easier to interrogate someone's profile with just a few clicks online. Yet too many founders are practically invisible in the public sphere. Other than a minimalist LinkedIn bio, they are a big unknown. Investors don't like unknowns.

Investors have access to incredibly powerful datasets that can aggregate a profile within seconds. Other than all the obvious publically available data (you may be surprised at the hundreds of data points that are instantly discoverable!), they can see your social media presence and virtually everything you have authored. As they diligence your background they are going to be particularly interested in triangulating your public image with what you are saying to them in private. Are you a thought leader? Someone with a conviction? An agent of change?

See this as an opportunity. There are many ways to build - and control - a public image. if you're a serial entrepreneur with some big exits in the bank, the press will be happy to do some of your work for you. But if you're still working your way there you'll need to roll up your sleeves. One of the most effective ways of shaping your profile is to write a blog, have some articles published, or at the very least develop a regular online presence. Get noticed, then they will start calling YOU.

This all takes time, so the sooner you start the better. Don't be worried about putting yourself out there - writing can be cathartic. And this is not such a big hill to climb as you might think. In the words of @david_perellgood writing is just bad writing with lots of editing. 


The most critical slide in the deck: 'Why now?'

We've overseen the development of dozens of pitch decks over the years. Our insights on the structure and flow have been well documented:  What do investors want to see in your pitch deck? So too our advice on how to manage the pitch meeting itself: The golden rules of the investor pitch meeting. But we now need to add a new insight.

Based on our recent experiences since Covid, we have seen the rising importance of the Why now? slide. Whilst always a key slide, especially in Series A pitches when asking for big money to accelerate early growth, we hear over and over how this is now the key slide that investors are drawn to. It has become an essential qualifier to the 'Solution' slide as the timing of many markets has either been delayed or accelerated by Covid.

At Seed/Pre-Series A, we are observing that in successful presentations, investors are generally spending more time on the Problem - Solution - Why Now? elements of the pitch. In unsuccessful presentations investors seem to dwell more on the Team - Business Model - Financials sections. In particular, business models that are complex and take a lot of explaining can become time sinks and cause the most confusion, leading to higher rejections.

Simplicity of messaging is paramount - we must remember we are trying to EXCITE not educate the audience, so should try and defer the gory detail until later meetings or even into due diligence.


Why VCs will pass on your startup

In our latest blog this week, A framework for ensuring investment readiness, we discussed how founders can better prepare their startups for funding success. The core framework was originally set out in one of our most read blogs, Why VCs will pass on your startup. This earlier blog then describes what happens when you begin the process of engagement with investors. The words of VC Mark Suster, quoted back in this original post, have been foremost in our minds this week:

Remember that fundraising is a sales process. The investor is a customer and they have money to spend but only for a limited number of companies. They are buying trust in you that you will build a large business that will be valuable. The first “Blink” evaluation they’ll make is about YOU and only when they’ve subconsciously decided whether they find you smart, likeable, credible, a good leader, inspirational, competitive and all of the other subconscious attributes they’ll look for, do they begin to truly think about whether your business idea has legs.”

When the preparation is done and you have draft slides ready, founders then need to take the 'blink' test. This is a 1/1 dry run pitch to a close friend, a respected business peer, or trusted advisor that will give you brutally honest and personal feedback. Not on the pitch per se, but on YOU. Why? Even if you have the most stellar slides in the world, the most amazing investment proposition and a product to die for, if there are blink test issues in how you come across, it could all be for nothing.

Leave your ego on the door and seek this critical feedback. Listen to it, internalise it, then act on it. Ignore it at your peril.


Why startups fail 

Finding reliable, quantitative data on why startups fail is difficult. Failure analysis is far from an exact science and when there are limited data points to analyse it can become mostly anecdotal guesswork. US market research firm, CB Insights, keeps track of post mortems where they occur and now has a dataset of 354, compiled since 2014. This requires mult-year cohort analysis over an extended period - usually 10 years - long enough to monitor the fallout all the way to sustained profitability and/or eventual exit.

They have found that 70% of upstart tech companies fail — usually around 20 months after first raising financing (with around $1.3M in total funding closed). For consumer hardware startups, the stats are especially brutal, with 97% of seed or crowdfunded companies eventually dying or becoming “zombies.” Their dataset is for US companies, so we need to apply with caution, but it does provide some useful insights.

So why do these companies fail? There is rarely one reason for a startup to fail, but in studying the top 20 reasons within the entire CB Insights cohort, there is a pattern. The number one reason (42%) is no market need. A great founder quote from one of their post mortems sums it up: “Startups fail when they are not solving a market problem. We were not solving a large enough problem that we could universally serve with a scalable solution. We had great technology, great data on shopping behavior, great reputation as a thought leader, great expertise, great advisors, etc, but what we didn’t have was technology or business model that solved a pain point in a scalable way.”

If you would like to dig into this dataset further go here to begin your journey!


Despite the flood of talent, hiring hasn't become easier

With many tech companies letting go of staff in recent months, there is an increasing pool of talent for hire. Yet founders looking to scale their teams should be as wary as ever before about picking the right people. Those early hires have a hugely disproportionate influence on business outcomes. In the CB Insights report into why startups fail, reason number 3 was Not Hiring the Right Team. 

Our experience is that founders that create a strong and open culture provide the foundation for hiring highly diverse and effective teams. Cultures will vary, but those where people feel safe to speak their minds - without fear of recrimination - are always critical in a startup.  The principles of 'constructive confrontation' from my Intel days are as fresh in my mind today as they were 35 years ago.

Where people issues are endemic we often find deep rooted cultural dysfunction. This is a failure of leadership. That is not to say that hiring mistakes won't get made - but when they do they should be corrected without delay.

Two great interviews on this subject can be found in techleap's People and Culture Scaleup Guide. In Steven Schuurman's interview he talks about how the team has to gel and how each person has to 'scale themselves' as the company grows. "When someone can't [scale] I believe there's only one right answer - replace."  In '8 lessons on building a company people enjoy working for' - Patty McCord, the iconic former chief talent officer at Netflix, provides some gems that will resonate. This is an avalanche of solid common sense that should be required viewing for all managers! 

2. Other pieces that are really worth reading/listening to this week: 

Going public via a SPAC
A definitive article by legendary VC Bill Gurley of Benchmark Capital on the resurgence of the SPAC, the Special Purpose Acquisition Company (aka "a cash shell").

In the UK, there was a surge in SPACs shortly after the financial crisis from 2009 to 2011 where sponsors sought alternative sources of capital that was otherwise unavailable in the private markets and investors sought alternative investment opportunities. However, following a series of high profile failures (with the odd notable exception) investment demand for the model dwindled. More recently SPACs are re-emerging in the US and the UK as a viable investment for institutional investors and there is a growing surge in activity.

US investors in Europe & Israel
We mentioned last week that Angular Ventures has just produced a market report and this is an insightful read for Deep Tech entrepreneurs. This week they publish league tables of US VC activity, asking: Who are the most active US venture investors in Europe and Israel?

According to their analysis, "US VC participation in Europe remains extremely rare. Only about 12% of all rounds include a US VC fund — a number that has been very consistent over the past few years — despite the widely reported increase in attention paid to Europe by the US VCs. It’s also worth noting that US VCs are more active at later stages. Over 30% of rounds north of $20M in size involve at least one US VC. But US VCs account for only 18% of VC rounds, 7% of early venture rounds, and a vanishly small 3% of seed rounds."

Life Science funding spikes In 2020 
In the first half of 2020, investors globally put $16.55 billion to work across over 450 deals in biotech and life science sectors tracked by Crunchbase at Series A and beyond. That’s up considerably from the same period in 2019, when investors put $13.4 billion to work across nearly 600 known funding rounds.

Healthcare: The Great Unlock
Very rarely—perhaps even just once a generation—an extraordinary event or force comes along that completely transforms a stagnant industry. We are experiencing that moment right now in healthcare, in what is a mass acceleration of opportunities for company creation across the care delivery space. A US centric piece but with global relevance, by Andreessen Horowitz (a16z).

Why Trump's freeze on immigrant work visas could harm US tech firms and help European startups
Donald Trump's new visa restrictions could make international residents and H-1B visa holders look for jobs elsewhere, which presents a unique opportunity for Europe's growing tech hubs to land top talent, experts say.

The Future Fund publishes new advice
The British Business Bank has published advice for investors and companies applying to the Future Fund. In some cases incomplete and/or inaccurate information has slowed down or stopped a number of applications from progressing. This is a very helpful guide to getting it right first time!

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