Wednesday, April 20, 2011

SuperAngels running out of cash...Startups asked to deliver User Sustainability

The word coming out these days from the dozens of incubators launched in Silicon Valley and other Silicon "corners"  across the U.S.  is that many of the Demo Day showcased startups are not finding many takers. Each incubator graduates a dozen or so startups every 3 to 6 months, and while the first batches of graduates in 2009 and 2010  were quickly financed by Venture Funds, it seems that that fever may be cooling off in 2011.

Two reasons are frequently cited. The first is on quality; many venture capitalists are finding innovations to be more like evolutions rather than revolutions. Many founders are jumping on the incubator bandwagon with one-trick-poney startups, and even the poney is a warmed-over idea from 1999-2000 with a social networking sauce to it. I've had venture colleagues who like me have been around in venture for more than 15 years complain that it is the same PowerPoint pitches of 10-12 years ago except that the 1999 "B2B Marketplace" buzzword has been replaced by the 2009 "Social Networking" buzzword.

The second reason is quantity; Venture Capitalists are complaining that some startups have commoditized the MVP go-to-market strategy (Minimum Viable Product). They focus on getting those first 100,000 users without necessarily focusing on their sustainability. So VCs have gotten wise to that and have asked a number of startups to go back to the drawing board and figure out their model on the basis of user sustainability, not user recruitment.  The argument here is that you build companies on recurring revenues based on a sustained user base.

So with the slowing Venture Capital uptake of incubator graduates, SuperAngels and angels-alike have to dip deeper in their pockets to sustain their companies longer, rather than invest in new ones. And as we all know it, Angels are investing out of their own finite cash pocket, which is not all that deep when you have a dozen investments and you have to re-up on each one of them.
Stay tuned...