Startups | Alessandro Perilli

Failure is massively overrated

peris — Fri, 01 Mar 2024 18:12:17 +0000

Q: How important is failure in business?

A: Well, I think failure is massively overrated.

Most businesses fail for more than one reason.

And so when a business fails, you often don’t learn anything at all because the failure was overdetermined.

You will think it failed for reason number one, but it failed for reasons numbers one through five.

And so the next business you start will fail for reason number two and then for three and so on.

And so I think people actually do not learn very much from failure, and I think it ends up being quite damaging and demoralizing to people in the long run.

My sense is that the death of every business is a tragedy.

It’s not some sort of beautiful aesthetic where there’s a lot of carnage, but that’s how progress happens, and it’s not some sort of educational imperative.

So I think failure is neither a Darwinian nor an educational imperative.

Failure is always simply a tragedy.

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What founders owe to startup investors

peris — Fri, 26 Jan 2024 13:13:20 +0000

Pitch the way VCs think

peris — Mon, 20 Nov 2023 18:17:16 +0000

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How do you know people want this?

peris — Sun, 13 Feb 2022 09:28:27 +0000

What YC looks for, above all, is founders who understand some group of users and can make what they want. This is so important that it’s YC’s motto: “Make something people want.”
…
Who are your first users going to be, and how do you know they want this? If I had to decide whether to fund startups based on a single question, it would be “How do you know people want this?”

The most convincing answer is “Because we and our friends want it.” It’s even better when this is followed by the news that you’ve already built a prototype, and even though it’s very crude, your friends are using it, and it’s spreading by word of mouth. If you can say that and you’re not lying, the partners will switch from default no to default yes. Meaning you’re in unless there’s some other disqualifying flaw.

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Angel, Early-Stage VC, and Late-Stage VC deals size 2011-2021

peris — Thu, 10 Feb 2022 17:29:53 +0000

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Value of equity vs crypto tokens

peris — Sun, 19 Dec 2021 14:18:26 +0000

Here’s a table that summmarizes the similarities and differences of equity and tokens. They are in fact, very similar.

Voting & Dividends
Many of us have bought and sold equity; it’s familiar. If I buy one share of a public company stock, I can vote in the shareholder decisions and receive dividends if the board elects to issue one.

A token provides voting rights when it is a governance token that governs a DAO (Decentralized Autonomous Organization). A DAO is the governance organization of a crypto company. It functions like a board and shareholder base. A DAO manages the roadmap and the treasury of the business and evaluates ideas for the business that are submitted by the community. Should the DAO elect to distribute profits from the treasury, a token holder would receive a share of those earnings.

Yield
I can lend the stock to short sellers in a practice called securities lending for stocks. If a trader would like to short stock, they must borrow it from someone – me! For the service, the trader pays a me fee communicated as an interest rate.

The same is true of tokens. Traders can borrow them to sell them short and pay a fee. Different tokens command different rates, like stocks.

Minting
A company’s board can create more stock simply by passing a motion. Poof! 10 million more Google shares. These new shares are often granted to employees as compensation.

Tokens work similarly, though it’s called minting. If I work on behalf of a crypto company, I receive tokens as part of my compensation.

But being an employee isn’t necessary to mint. I can also mint tokens if I participate in the network to help it along. If I operate a Solana validator to verify transactions or buy a Helium router to distribute internet in my city or stake Ethereum to verify transactions, each network would reward me with tokens. The network pays members with tokens much the same way a corporations pays employees in stock.

Public companies can choose to increase or decrease the number of shares outstanding through pool expansion or share buybacks. Tokens have their own mechanisms for controlling the total quantity of tokens.

Some tokens are inflationary (over time each token is worth less) and others are deflationary (over times each token is worth more). The same could be said of company stock. For example, Apple is a deflationary stock. There are approximately 1/3 fewer shares of Apple in circulation today than in 2012 because the company has used their cash to buy them back and retire them.

Utility
Unlike equity, tokens have a utility. I can use a Ethereum token to transact: buy an NFT, sell an NFT, execute a Defi contract to exchange Compound tokens for Aave tokens for example. If I arrived at a Microsoft store seeking to buy an Xbox Series X with a two Microsoft shares, the clerk would be more than befuddled.

To use my Microsoft stock and walk out of the store with the XBox, I’m required to swap my stock for US dollars and pay in cash or a credit card.

Valuation Driver
Most companies in the public market are valued on revenue or EBITDA; if revenue increases, so does the value of the stock.

As for tokens, it’s an open question.

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SaaS business performance in 2021

peris — Thu, 25 Nov 2021 12:26:22 +0000

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How many startups are out there?

peris — Sun, 14 Nov 2021 21:32:51 +0000

The FTC report says that there were 86 US exits to GAFAM for over $50m from 2010 to 2019. According to the NVCA, there were 2,100 US VC exits for over $50m in that period. Selling to those five companies was 4% of decent-sized exits.

(People sometimes suggest that entrepreneurs start companies and VCs fund them in the hope that they will be bought by Google. This data should make it clear why VCs think this is hilarious.)

The same point applies to the total data set. GAFAM bought 400 US companies from 2010 to 2019 for over $1m, of which 86 were over $50m and 314 were between $1m and $50m. In the same period, the NVCA reports 3,600 US VC exits where a value was disclosed (and 9,600 total).

This prompts a broader observation: I’m not always sure how many people understand just how many startups are being created now. From 2010 to 2019, YCombinator alone backed 1,561 US companies (353 have died and 253 were acquired, while 955 remain independent). In the total US market, the NVCA reported 32,000 companies raising their first funding. This, really, is the context for those 400 US GAFAM acquisitions.

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Nobody wants a big idea

peris — Thu, 11 Nov 2021 20:44:45 +0000

No one is going to steal it. Not if it’s actually a big idea.

One thing that big ideas have in common is that they’re almost impossible to give away.

You could have bought Amazon stock for lunch money, been an early backer of Acumen, financed part of Spike Lee’s first movie, had front row seats to Hamilton, bought BTC for $2… you get the idea. Even insiders usually take cash instead of stock options. And early customers almost never race out to build a competitor.

When big ideas show up, almost no one sees what’s possible. All they notice is that change is risky and new stuff might not work.

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How the meaning of Annual Recurring Revenue (ARR) has changed over time

peris — Thu, 04 Nov 2021 20:22:21 +0000

I was taught that ARR is the value of the currently paying, deployed, and contracted customers, annualized. In other words, the ARR is a guaranteed annuity. The guarantee implies predictability, which investors prize and value at high multiples.

Over time, the definition of ARR has slackened. First, SaaS companies modified it to include customers who weren’t contractually obligated to pay, but did pay the same amount regularly.

Next, infrastructure companies, which charge by use (by CPU hour used, API called, or GB stored), and amassed customer bases’ with spending habits that vary by the month, adopted ARR. They argue that though customers’ usage wasn’t predictable on a small scale, over a large enough customer base, customer behavior is similarly predictable to contracted spend.

Then, consumer subscription businesses began pitching using ARR. After all, there’s not much difference between an SMB paying monthly and a consumer paying monthly. However, there is a meaningful difference in net-dollar retention because most consumer companies have negative NDR, and most SaaS companies benefit from positive NDR (accounts that expand over time). But let’s set that aside.

And then, marketplaces shifted from GMV to annualizing net transactional revenue and calling it ARR. Tom-ay-to / tom-ah-to.

To come full circle, there’s a newer ARR metric for SaaS companies called cARR, which is contracted ARR, or the annualized value of the contracts signed but not deployed. That number is typically larger and provides a bigger number to multiply, hence a higher valuation.

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