BlaBlaCar Founder on Raising Money

Nicholas Brusson, co-founder of BlaBlaCar:

First, do as much as you can to gather evidence that your concept has potential. Even if you are not able to offer the full vision of your product, because you have limited resources, whittle the idea down to its bare bones so you can test it in the market. Get your first customers as soon as possible, find out how much they need what you offer them. This will be proof for investors. It will validate what’s called market need.

 

Second, and especially if this is your first business, try to get as far into this process as you can without raising too much money. Think “capital efficiency” rather than “raising capital”. The more you have been able to prove your concept the higher your chances of raising money from the right people.

 

Of course, you will probably need capital at some point down the line, so, build relationship with angels and VCs early on. Discussions are always easier when you are not (yet) negotiating.

 

Great advice – validate market need, bootstrap, and cultivate relationship with VCs and angels early.

Read the full interview here.

 

 

Valuation vs Ownership

Fred Wilson:

We recommend that entrepreneurs keep the funding amounts small in the early rounds when the valuations are lower and then scale up the amounts in the later rounds when it is a lot more clear how money can create value and when the valuations will be higher. This model has worked out pretty well. David Karp raised $600k, then $4mm, then 5mm, then $25mm, then $80mm (or something like that). And at the time of the sale to Yahoo!, he owned a very nice stake in the business even though he had raised well north of $100mm. He did that by keeping his rounds small in the early days and only scaling them when he had to and the valuations offered were much higher.

I made a similar point at Echelon Ignite in Sydney couple of months back. Entrepreneurs should be realistic about valuation in the earlier rounds. The higher the early round valuation, the greater the expectations, and the harder it is to justify the valuation that is going to be even higher the next round (nobody wants a down round). Here’s an example. A startup I invested in was valued at $3m post-money after raising its seed round. Shortly after the initial raise, they did a bridge round at the same valuation ($3m pre bridge money). Realistically, they need a pre-money valuation of at least $5m to do an A round, which requires significant traction in terms of user and revenue growth to justify the increase in valuation. Not easy, bearing in mind this is in South-East Asia where valuations and exits are much smaller than in the Valley. The entrepreneur took what was on the table, and you can’t fault him for it. On hindsight though, perhaps it would have been better for him to have raised a smaller seed round at say half the valuation (so $1.5m post-money), then do a post-seed/Series A at $2-3m pre-money. A $2-3m valuation is a lot easier to justify than a $5m valuation, so chances of closing the post-seed/Series A at the lower valuation are much higher.

The point of all this is, raising a boatload of money too early at an artificially high valuation puts the entrepreneur under a lot of pressure to up the valuation even higher to raise the next round. Doing small rounds at smaller valuations is not a bad thing, especially since raising less money forces entrepreneurs to become more disciplined about how they spend the money.

A Response To ‘Dear Dumb VC’

Mark Suster:

‘The industry is dying, except for the top 2%’

The industry isn’t dying. It is changing. And reinventing itself. And some firms will go under. And others will emerge. That’s normal. It’s a market, after all.

‘The best VCs don’t try to help entrepreneurs’

Great VCs create the fabric of their success by backing the best entrepreneurs they have access to and then helping them to lean on the scales.

‘VCs Spend Too Much Time Deciding’

Some of the most bizarre sounding deals end up being huge winners. Some of the most obvious companies and talented entrepreneurs end up not working or burning through too much capital.

VCs are wise to go slowly

‘VCs shouldn’t call their entrepreneurs once they invest’

So the VC’s job is to challenge. Cajole. Debate. Offer contrasting views. Play Devil’s Advocate.

And then step back.

‘VCs often don’t use the products of the companies in which they invest’

It’s hard for me to imagine investing in companies in which you don’t use and understand the products and markets.

‘VCs should never be late’

In a perfect world everybody would be on time. In reality, that is seldom the case.

‘You suck if you don’t have 2+ $1 billion exits’

And as John Doerr has noted, “your lemons ripen early” so I like to say that if I had a ton of exits it would be because I haven’t done my job as well as I would have liked.

The Only Thing That Matters

Marc Andressen:

The only thing that matters is getting to product/market fit.

Lots of startups fail before product/market fit ever happens.

My contention, in fact, is that they fail because they never get to product/market fit.
Carried a step further, I believe that the life of any startup can be divided into two parts: before product/market fit (call this “BPMF”) and after product/market fit (“APMF”).

When you are BPMF, focus obsessively on getting to product/market fit.

Do whatever is required to get to product/market fit. Including changing out people, rewriting your product, moving into a different market, telling customers no when you don’t want to, telling customers yes when you don’t want to, raising that fourth round of highly dilutive venture capital — whatever is required.
When you get right down to it, you can ignore almost everything else.

Thanks Chintaka for sharing this.