After an intense two days at the Dublin Web Summit, a few thoughts and reflections:
- Real tech is everywhere. I did spend some time walking the floor and meeting companies, but I also did about 25 pre-planned company meetings with startups selected from the roughly 750 company descriptions emailed out by Paddy and his team prior to the conference. The quality is very impressive – both technically and commercially. My focus was on Enterprise, Cloud, and Data companies, and I was absolutely blown away by the tech being built in Estonia, Bulgaria, Greece, Germany, Slovenia, and the UK. Not only that, but I met a number of unfunded startups with several hundred thousand Euros of enterprise revenue (not professional services revenue – real product revenue). If you strip away the SF-style hipster hype that’s all too prevalent in the main start-up hubs of Europe, you are left with a set of absolutely fantastic and truly inspirational entrepreneurs that are highly distributed across the continent and building some very cool stuff.
- Lean is getting real. The “lean start-up” movement is not a new phenomenon, but it seems to be finally hitting home in a meaningful way across Europe. Lean doesn’t really mean “pivot until a VC funds you and keep pivoting.” Lean means “build a real company in as capital efficient way as possible.” I see more and more entrepreneurs doing this in a way that emphasizes product revenues and results in companies that are self-sustaining in the sense that they are not desperate for VC investment in order to survive – but, rather, could leverage VC investment in order to skyrocket. Nothing could make me happier.
- Some European winners still suffer from unconventional financing histories. It breaks my heart, but I see it all too often. Angels holding over 50% of a company, entrepreneurial teams with less than 10% of a company between them, corporate investors with rights that might block an optimal exit, etc. I know raising money in Europe is not easy – but unless entrepreneurs start to push back on suicidal investment terms, the investment community will never learn. At the very least – before you take weird terms, call me.
- Accelerators are absolutely everywhere. I seem to meet a new one every day. Some of them are absolutely fantastic (I don’t want to name names…) but the sheer number of accelerators out there does, I think, contribute to the “seed stage chaos” that Fred Destin has described.
- Valuations are sky-high for late rounds on companies with healthy revenues. Not sure what to make of this, but it’s making me a bit nervous as an investor. Intellectually, I can understand the valuations based on profitability and growth. Emotionally, I can totally understand the “fear of missing out” on the next big European IPO. In truth, the IPO window does appear to be open, but I fear that investors are under-estimating the risks associated with getting from $20M in revenues to a $1B Nasdaq IPO. As is normal, a few winners seem to be pulling up the valuations for everyone, which is going to push down VC returns for everyone and limit the amount of VC funding available in the long run. From an entrepreneur’s perspective, my advice is to not believe the hype. Raise the money that you need at a valuation that balances minimizing dilution with ensuring that investors will still be there to back you if things don’t go as well as planned. Keep breakeven in sight, and always be able to get there if you need to. Remember that the valuation of your previous round sets an artificial floor for the valuation of your next round. If things don’t go to plan, they can get ugly really fast.
- The Series A crunch has created a massive early stage opportunity. Entrepreneurs seem to be picking up on the fact that A-round money is harder to come by, and that – therefore – seed funding has partially dried up for all but the most well-connected start-ups. This is pushing more and more early-stage companies to focus on building “real businesses” with revenues (see above). I try look at early-stage companies with the same attention that I look at late stage companies, so I’m hunting for early stage opportunities with a rifle, not a shot-gun. With that approach in mind, I’m immensely excited by the early-stage opportunities I see. There are more and more “real businesses” out there that could really benefit from an injection of VC capital.