Category: Broderick on Entrepreneuring

Unicorns Require Capital (Duh)

If you are putting together a deck or pro-formas that show that you intend to be a unicorn (> $1B valuation) at some point, please do be thoughtful about how much it’s going to cost you to get there. Entrepreneurs are optimists by nature, which is wonderful. But don’t be silly, please. The below chart shows total capital raised for all of the unicorns and near-unicorns as of yesterday as tracked by Crunchbase. The Y axis has been artificially constrained to $100M (only $100M raised!!!!!) to make a point.

unis

That point is, it’s a lot of fucking blue, huh? Your odds of raising $3M and becoming a unicorn are effectively nil. Breathe in all that blue, my fellow unicorn-hunters and unicorn-striving friends. Take it to heart. Eat it up.

  • N = 203
  • Average Raised = $474M
  • Median Raised = $250M

Finally, the numbers are interesting by country. Ignoring the countries with < 3 unicorns we get the data below, suggesting that (A) it’s REALLY expensive to build a unicorn in India or China and (B) we should all move to or start investing in London ;-).

numbers

Too Hot – Raise Enough for 6+ Months of Data!

In the last three months I’ve seen more than half a dozen young startups looking to raise 6-10 months of capital. This is a common rookie error and I’m not sure why it still persists given all the extant education available on the topic, alas…

You should assume it will take you six months to raise money. Then you need to prove something. Then you should assume it’ll take six months to raise the next round of (hopefully bigger) money at a (hopefully higher) new valuation based on all the cool shit you proved with the first money! This is the life of a seed-stage ceo.

Hunter Walk at seed investment firm Homebrew posted a great article about the Goldilocks situation of “second seed rounds”. In it he talks of the “Too Hot” firm, and his description is dead-on perfect with regards to not having enough runway to prove what your business needs to prove:

Ooh, these are tough ones. This startup usually has a chart that’s up and to the right, but with just 2-5 months of data because it took them longer to find product-market fit than they originally anticipated. The best Series A investors are telling them there’s lots of potential here but would want to see 6-9 months of data to better assess cohorts and repeatability of whatever seems to be working.

Try to aim for “just-right”. Too-hot is a crappy place to end up – sometimes even worse than “too-cold”. While variety is the spice of life, as a guideline you want at least six months of burn to prove things, and then six months to raise – so one year at minimum. 18 months is a good target.