All posts in “Entrepreneurship”

Taali takes its popped water lily snacks from Y Combinator to the world

Aditya and Aarti Kochhar Kaji didn’t set out to start the snack food business Taali Foods when they were studying for their business degrees at Harvard.

The couple both hail from Mumbai and met at the University of Pennsylvania . They were married before starting at Harvard’s Business School and initially were interested in other areas — Aarti was exploring a career in venture capital and Aditya was looking at the food and beverage industry broadly in his classes at Harvard.

Addicted to snack foods like chips and popcorn to fuel her Harvard study sessions, Aarti started making popped water lily seeds as a snack — a food both she and her husband had grown up eating in India, she said.

The seeds, which are high in anti-oxidants and low in fat, have been a staple of Ayurvedic medicine — thanks to their purported anti-inflammatory properties, and are a staple of Indian snacking traditions. Now, with American consumers on the hunt for healthier snacks, they’re becoming a big business in the U.S. as well.

Y Combinator is very on-trend, with its decision to invest and accelerate Taali as part of its most recent cohort of startups. But in this instance you may call the accelerator a fast follower rather than a progenitor of this trend.

No less auspicious a food tastemaker than Whole Foods named water lily seeds as one of the top 10 new food trends of 2019. With that attention, competitors to Taali abound.

Bohana and AshaPops are just two new snack food companies floating on the popped water lily seed movement. Bohana even managed to nab the attention of PepsiCo’s Nutrition Greenhouse competitive accelerator.

It’s no secret that technology investors are investing more heavily in consumer businesses — everything from snack foods to period products and baby formula — and startups need only point to the success of Amazon as the everything store to show that there’s always money to be made in the category.

Indeed, at $1.47 trillion, the consumer packaged goods industry dwarfs technology as a share of the nation’s economy.

As Ryan Caldbeck, the head of the consumer-focused investment firm CircleUp noted last year:

The uptick in tech VC dollars going to the CPG market is partly because tech investing is brutally competitive and saturated, and largely because these VCs are awakening to the strong historical returns in CPG, especially with the trend leaning towards small brands stealing market share.

Consumer is a massive market – about 3x the size of tech, as seen below.

Despite the size of the market, the early-stage has historically been underserved by investors due to market inefficiencies like the geographic dispersion of brands and a lack of structured information sources (i.e. there is no Silicon Valley for consumer, and certainly no Crunchbase equivalents – yet).

Strong exits are already possible for consumer brands — and not necessarily from the big-ticket, headline grabbing acquisitions like Dollar Shave Club. Last week This is L. — the condom and period product retailer — sold for roughly $100 million after raising seed funding from investors, including 500 Startups and Y Combinator.

Taali was similarly bootstrapped before it was accepted into Y Combinator. The company is already selling its snacks through Amazon and in retail locations like Fairway in New York and Central Market in Texas. The founders expect to be in stores in California in the next few months.

How to prepare for an investment apocalypse

Unlike 2000 and 2008, everyone in the startup world is expecting a crash to come at any moment. But few are taking concrete steps to prepare for it.

If you’re running a venture-backed startup, you should probably get on that. First, go read RIP Good Times from Sequoia to get a sense for how bad it can get, quickly. Then take a look at the checklist below. You don’t need to build a bomb shelter, yet, but adopting a bit of the prepper mentality now will pay dividends down the road.

Don’t wait, prepare

The first step in preparing for a coming downturn is making a plan for how you’d get to a point of sustainability. Many startups have been lulled into a false sense of confidence that profit is something they can figure out “later.” Keep in mind, it has to be done eventually and it’s easier to do when the broader economy isn’t crashing around you. There are two complicating factors to keep in mind.

You’ll have to do it with less revenue

In a downturn, business customers skip investing in capital equipment and new software. Likewise, consumer discretionary spending goes way down. The result is you’ll likely have less revenue than you do now. War-game a variety of scenarios — what you’d do if you lost 20 percent, 50 percent or 80 percent of your revenue, and what decisions would have to be taken to survive.

Sometimes capital can’t be had at any valuation

When a downturn comes, capital markets don’t soften, they seize. Depending on how bad a hypothetical financial crisis got, there’s a good chance that investors would close up their checkbooks and triage. If you aren’t one of your investor’s favorite portfolio companies, there’s a decent chance you may be left in the cold. Don’t even assume you’ll be able to close a down round. Fortunately, showing a plan with a clear path to profitability will allay investors concerns that you’ll need their capital indefinitely and make it more likely you’ll be able to raise.

Planning around these three realities — the need for profits, while experiencing dropping revenue, in a world where capital can’t be had at any valuation — is going to lead to unpleasant conclusions. A dramatically diminished business, major layoffs, and a decisive drop in morale are likely outcomes. Thankfully, you can take steps now to help soften the landing, or if you’re really successful, avoid it entirely.

Avoid “growth at all costs” mentality

Getting acquisition costs under control will help you in two ways. First, it’ll lower your burn rate. Chasing growth for growth’s sake is always a short-sighted decision, but especially during the late part of the business cycle. Avoid this even if you’re VC is encouraging it. Second, by carefully analyzing the inputs to your acquisition cost, it will force you to examine the dynamics of your business. It gives you an opportunity to decide if a poorly performing channel or lackluster sales reps are actually smart investments. Even cutting your payback period from 12 months to nine will provide an increased measure of visibility and control.

Increase the hiring bar

Instagram took over the web with a team of a dozen. Craigslist is a pillar of the internet with a staff of 40 employees. WhatsApp supported hundreds of millions of daily users with fewer than 50 people. Chances are you need fewer people than you think.

In his new book, Scott Belsky shares an algorithm he used building Behance into a $100M company — automate, automate, then hire. His point was that founders should encourage teams to push hard on improving processes and other labor-saving tools before adding more FTEs.

Don’t institute a hiring freeze or take other actions that might spook the staff, but do send the message that new hires should be the last resort, not the first response to a challenge.

Preach discipline — build it into the culture

Founders often try to change spending habits, and in turn culture, when it’s too late. Is there a fair bit of business class flying among the executive team? Do your employees stretch your free dinner policy by staying just past the dinner hour to take advantage of free food? At most tech ventures, everyone is truly an owner. Try to help the entire team to internalize that they are spending their own money.

Get to know your potential acquirers

The week the market drops 50 percent is not the week to start a M&A conversation. You should be getting to know the five most likely buyers of your company, now. Find out who the decision makers at each of the companies are and build relationships. Make it a point to catch up with these people at conferences and even consider sending them regular updates about your company’s progress (but not too much data). You’re not running a formal sales process, but helping build up the internal desire to buy your company if the opportunity presents itself. It may not be the exit of your dreams, but it’s nice to have options if you need them.

Jettison expensive office space

If you’re coming to a T-juncture regarding office space, you may want to prioritize price and lease flexibility over quality and location. I remember one of our offices at my start-up was a twelve month lease with 6 months free. The landlords were desperate, and so were we!

Front-load revenue

If you’re in the kind of business that will support annual contracts, figure out a way to offer them. Pre-sell credits to consumers at a discount. More fundamentally, think about how you might be able to adjust your business model so you can get paid before you deliver services. Plenty of viable businesses are asphyxiated by delays in accounts receivable, don’t allow your ambitions to be thwarted by accounting.

Diversify your customer base

One lesson learned in the 2000 bubble was that startups that serve other startups tend to be hit hardest. It’s important to think about how a downturn will impact your customer base. If more than 30 percent of your revenue comes from one industry (perhaps start-ups!), or heaven help you, a single customer, start thinking about managing risk by diversifying your customer base.

Raise a pre-emptive round (AND DON’T SPEND IT)

Topping up your balance sheet at this point isn’t a bad idea, provided you have the discipline to treat it as a rainy day fund. Communicate this rationale to your investors. It’s also important to use this moment to reflect on valuation. An eye-popping valuation will feel good when you sign the term sheet, but it’s going to feel like a millstone if the economy turns, and the market for blue-chip tech stocks drops precipitously.

Consider venture debt

Many VCs discourage venture debt. They’ll say “if you need more money, we’ll backstop you.” The problem is when things ugly, they may not be there. Debt providers are a good way to extend the runway. The thing is that it’s best to raise debt capital when you don’t need it. Venture debt can add ⅓ to ½ of additional capital to some funding rounds with minimal dilution and relatively modest interest rates. Do note that when things get bad, some debt funds can get aggressive so do your homework before taking the notes.

Don’t panic

It’s tough to predict the top of the market. CNN, Time, The Atlantic, The Wall Street Journal, and many others argued Facebook paying $1 billion for Instagram was a sure sign of a bubble — in 2012. Reputable commentators have claimed that we’re in a bubble every year since, see 2013, 2014, 2015, 2016, 2017, and 2018. Going into survival mode in any of those years would have been a serious mistake for most startups.

Still, we’re only two quarters away from marking the longest economic expansion in US history. The good times have got to end at some point. Venture capital is a hell of a drug and withdrawal can be painful. Keep in mind that there’s no correlation between how much a company raised and how well they did on the public markets. If you’re struggling to make your startup’s economics work, read up on dozens of “invisible unicorns” who show that you can get big without relying on outsized amounts of venture capital.

If your house is in order when the downturn hits, you may actually be able to grow through it. As unprepared competitors go out of business, you’ll find that talent is more plentiful and customer acquisition costs plummet. Some of the best companies have been founded and thrived in the worst of times — if you’re prepared.

OceanX and the E-Commerce Subscription Wave

Until recently, becoming a subscription provider was a big and expensive task. To get into the game, a vendor needed to build a subscription business model right next to its traditional businesses, so to speak, which typically involved building an e-commerce Web store and member site, organizing an online price list and catalog, and figuring out how to handle subscription business receipts, as well as shipping and dealing with returns.

There’s more, too — like using analytics to understand the business and its relationship with customers. For example, businesses that send unique or curated bundles periodically need analytics to determine the best possible recommendations to ensure customer delight and avoid costly returns.

Early on, vendors had to do all this themselves, and many resorted to piecing together multiple systems available in the market. That was hard enough when e-commerce was a new thing, but any business entering the market today must do so knowing that its competition is already up to speed, so there’s little room for mistakes.

Not surprisingly, e-commerce is commoditizing, with vendors now offering most if not all of the things that businesses need to get going and to remain in the subscription business. OceanX is an interesting company in this regard. It offers an easy way to take any retail business into the realm of subscriptions.

OceanX saw high barriers to entry as an opportunity. If it could build a scalable platform that supported direct-to-consumer retail, then it would be able to lower the costs and, importantly, reduce the risks involved for any company developing an e-commerce business.

Making It Work

Like many startups, OceanX chose Amazon Web Services (AWS) to support its vision. That was nearly three years ago, and the company saw success almost immediately.

One of OceanX’s early advantages was that as a platform it can offer integrated business processes, from on screen shopping to cash. Equally important, all its platform apps capture and share customer data with other apps in the portfolio, and this analysis gives partners important insights at all critical points in the customer journey — something that’s harder to do with a piecemeal approach.

In e-commerce especially, understanding the customer journey is paramount, and having data that partners can analyze is critically important to producing a personalized customer experience.

We can broadly define this as experiences that satisfy customer needs and that keep them coming back — two critical elements of success in subscriptions.

Getting Specific

Supporting a subscription e-commerce model is harder than this general description suggests, of course. For instance, there are two basic subscription models: curation and replenishment. A curated model sends a selected, or curated, box of goods to a subscriber each month, based on information the customer initially supplies, which is augmented later in light of purchase history.

A company engaged in sending curated clothing to subscribers obviously needs to know style preferences, sizes and colors, but also what recently has been recommended and purchased. Sending two pairs of hiking boots in rapid succession is not a winning formula. Neither is offering boots too soon after a rejection.

The curation model is the fastest-growing part of e-commerce, according to the Subscription Trade Association (SUBTA), which estimates that about 65 percent of subscription services use the curation model. So, subscriptions to curated goods provide a great opportunity but also great challenge.

The second model, replenishment, may be more familiar. From shaving supplies to dog food and quite a bit more, subscribers can “set it and forget it,” receiving a just-in-time delivery each month. They still have the opportunity to change order parameters, like content, frequency and quantity. Importantly, only 14 percent of subscription vendors use the replenishment model.

Within these two models, you can see the need for all the components of e-commerce, including data collection for later analysis, member portals, order and change processes, and returns. OceanX provides its partners with a solution for all — one that they don’t have to develop and maintain.

At the same time, it’s important for partners to maintain control of processing, so OceanX runs warehouse and distribution systems, and it picks and packs goods for its clients. However, payments are credited directly to partners’ bank accounts. OceanX is paid by its clients, just as any other subscription supplier would be.

Ideal for Brick and Mortar?

You’d be right if you thought that brickand-mortar retailers could take good advantage of the subscription model. After all, the retailers already have a brand, customers and supply chains, and they know retail and merchandising.

In many ways, this is an ideal setting for an omnichannel approach. However, retailers still have to deal with things like pickups and returns, and such situations as buy online but pick up and return in store. OceanX’s technology extends to all of this.

Importance of Analytics

A lot of any subscription business depends on Key Performance Indicators, or KPIs — measurements that can tell a vendor how many customers come back and what percent leave, for instance.

High retention rates (90 percent-plus, depending on the industry) indicate the vendor is doing well, which limits the investment needed to replace revenue that goes away for organic reasons.

Other measurements include customer lifetime value (CLV), annual recurring revenue (ARR), and much more. Each measure provides insight into the health of the business, both now and in the future, and each depends on having a complete view of every customer and every process. It all comes back to collecting customer data and having the right analytic tools.

Enter Oracle

OceanX initially was successful with hosting its business intelligence and data platform — parts of its entire system — on AWS. It still uses AWS for orders and other parts of its platform.

However, success handed OceanX what you might call a high-class problem. It needed more horsepower for functions like business intelligence, reporting and analytics. That’s why the company began searching for a cloud-based solution that could give it more performance than AWS.

“We were faced with severe performance issues in our data loads and cube builds,” said Vijay Manickam, VP data and analytics.

“We were left with an option to increase the CPUs (with AWS) that would have cost us more license fees,” he recalled. “To scale from there would have cost more. Oracle Exadata Cloud Services enabled better performance at a lower cost. We proved this with a POC (proof of concept) before we embarked on the migration. At a high level, there was a 3x performance gain and about 30 percent reduction in TCO.”

With the POC in place, OceanX selected Oracle to support the lion’s share of the business intelligence platform in the Oracle Cloud. It relies on Tableau for analytics, and takes advantage of Oracle data transformation engines, thus enabling it to maintain a single view of the customer across two clouds.

OceanX’s Vision

The reasons for moving to Oracle Exadata Cloud Services can be summarized best in Manickam’s words: “Our business depends on giving our clients, who are sophisticated brands and retailers, complete visibility into their customers. At the same time, we know how important it is to provide a personalized experience to customers. Both are highly dependent on having a single view of all customer data, and being able to analyze it quickly and accurately.”

Those were the twin drivers at the company’s inception, and the vision for building and operating its platform. However, success also required a platform and infrastructure that could expand easily and provide the performance needed to do all of the back-end processing that few people see but everyone misses when it’s not present. The platform also had to support the greater security needs OceanX faced as a vendor itself.

OceanX’s journey with Oracle is still in its early stages. The company has not yet made a decision to move its order management modules over from AWS, for example. Still, Manickam feels that directionally it is on the right track.

“We help our customers to continuously track and analyze all facets of their businesses, so we do the same with our business,” he said. “We chose Oracle because of their experience in high performance systems.”

So far, it appears that was a good decision.


Denis Pombriant is a well-known CRM industry analyst, strategist, writer and speaker. His new book, You Can’t Buy Customer Loyalty, But You Can Earn It, is now available on Amazon. His 2015 book, Solve for the Customer, is also available there.
Email Denis.

Will the Sharing Economy Kill Personal Ownership?

The social networking era brought about a sharing economy. We share not only our lives, but also everything from cars to clothes to chickens, yes chickens (more on this in a minute). Services like Uber and Airbnb have ushered in a new era, and industries rapidly have been embracing the change to determine how to benefit from the shift in terms of future revenue.

So, will we buy things in the future and just share them with others, or will industries take over with a subscription, or pay-as-you-go, business model?

It is amazing what people are sharing today. You can rent your house or apartment to travelers through sites like Airbnb, FlipKey, HomeAway and HomeToGo. You can rent it by the hour through sites like HourlySpaces.

You can rent your car using Turo. You also can rent camera equipment, camping gear, or just about anything you currently might own through sites like Loanables, Gear Share and ShareGrid.

It is not only easy to share your stuff to creat an alternative revenue stream, but also relatively easy to launch a sharing service through the use of “shared” servers in the cloud, which may account for the number of new sites that seem to be popping up all the time.

With so much invested in high-ticket items that rarely are used — like second homes, boats, RVs, and even specialized tools and equipment, it’s no wonder consumers have been jumping into the sharing economy.

Anything Goes

The sharing economy is not necessarily good news for companies that make or sell things to consumers. Companies would prefer to sell stuff to each consumer. However, in light of the economic shift, businesses have been jumping on board with subscription and pay-as-you-go (essentially rental) business models.

You now can choose subscription or rental for anything from basic necessities — like transportation, shelter, clothing and even food — to entertainment, equipment, and other consumer or luxury items.

For example, Toyota has been experimenting with subscription models for vehicles similar to ZipCar with a service called “Kinto,” based in Japan, and “Hui” in Hawaii.

For more urban environments, there is a rapidly increasing list of companies — like Lime, Bird and Spin — that rent or offer subscriptions to manual or electric bikes, scooters and skateboards.

For clothing, companies like Stitch Fix, Le Tote, and Showdazzle rent the latest in women’s fashion for a fixed monthly fee. And yes, there are companies like The Mr. & Ms. Collection and ThreadThread that rent men’s clothing too.

When it comes to entertainment, just about everything, from movies to gaming, seems to be moving to a subscription model.

It doesn’t stop there. Sharing companies have been renting much more than camping gear, cameras and sporting equipment. The business model extends to food. You now can rent everything from gardening equipment to garden plots and chickens (for their eggs) from Rent The Chicken.

You can even rent a casket for a funeral. According to Everplans, “the body is placed in a simple wooden box and the box is placed inside the casket, giving the appearance that the body is actually in the casket. In fact, the body never touches the casket, and the wooden box is easily removed after the service. The body can then be buried or cremated in the simple wooden box, and the funeral home can re-use the rental casket.” This made me realize just how far this sharing economy could go.

Businesses Fade Into Oblivion

This brings up the question: Is it worth buying anything anymore, or are we better off just divvying up our monthly income to rent the products and services we wish to use?

There are a few things to consider. First, consider how much you plan to use something, such as a car, and for how long. The average car easily will last 200,000 miles with proper maintenance. However, it may be cheaper — and less hassle — to use a ride-sharing or vehicle subscription service than to pay for the vehicle itself, plus maintenance, parking and insurance.

The same has been true for housing in modernized countries for a long time. The sharing mentality offers a sense of freedom from the responsibility of paying for, storing, and maintaining these things, especially for members of younger or older generations who are not concerned about schools and other activities for children.

Even staying on cruise ships has become an alternative for older generations looking to remain on the move, see the world, and enjoy life.

Unfortunately, history has shown that the cost of products and services often can rise faster than incomes, and if you share or rent everything, you have no vested interest that can be bought or sold. As a result, the change does come with some risk — but sharing, subscribing or renting has been changing our economy.

There probably will be many circumstances in which people choose not to purchase some items in the future. As the automotive industry moves toward autonomous vehicles, the business model will change toward a subscription or renting model for a variety or reasons. The vehicles are going to be very complex and more challenging to maintain, for starters, and the experience or driving and owning will be less personal.

In this case, the corner gas station, local mechanic, insurance agent, and even the dealership will be replaced by the third-party auto service provider or vehicle OEM.

Likewise, it seems ridiculous to purchase a bike or scooter if they are readily available on almost every street corner.

When it comes to entertainment, purchasing a physical copy of a game or movie will go the way of the video and music stores of the past. Yes, this means big box retailers will have to fill the physical void, and specialty retailers like Game Stop will follow Blockbuster into obscurity.

As a result, the movement to a shared economy will be accompanied with significant societal changes. Whether this is good or bad is difficult to determine, but it is occurring. Are you ready for the shift?


Jim McGregor has been an ECT News Network columnist since 2017. He is the founder and principal analyst at Tirias Research with more than 30 years of high-tech industry experience. His expertise spans a broad range of product development and corporate strategy functions, such as semiconductor manufacturing, systems engineering, product marketing, marketing communications, brand management, strategic planning, mergers and acquisitions, and sales. McGregor worked for Intel, Motorola, ON Semiconductor, STMicroelectronics and General Dynamics Space Systems prior to becoming an industry analyst and In-Stat’s chief technology strategist. Email Jim.

How students are founding, funding and joining startups

There has never been a better time to start, join or fund a startup as a student. 

Young founders who want to start companies while still in school have an increasing number of resources to tap into that exist just for them. Students that want to learn how to build companies can apply to an increasing number of fast-track programs that allow them to gain valuable early stage operating experience. The energy around student entrepreneurship today is incredible. I’ve been immersed in this community as an investor and adviser for some time now, and to say the least, I’m continually blown away by what the next generation of innovators are dreaming up (from Analytical Space’s global data relay service for satellites to Brooklinen’s reinvention of the luxury bed).

Bill Gates in 1973

First, let’s look at student founders and why they’re important. Student entrepreneurs have long been an important foundation of the startup ecosystem. Many students wrestle with how best to learn while in school —some students learn best through lectures, while more entrepreneurial students like author Julian Docks find it best to leave the classroom altogether and build a business instead.

Indeed, some of our most iconic founders are Microsoft’s Bill Gates and Facebook’s Mark Zuckerberg, both student entrepreneurs who launched their startups at Harvard and then dropped out to build their companies into major tech giants. A sample of the current generation of marquee companies founded on college campuses include Snap at Stanford ($29B valuation at IPO), Warby Parker at Wharton (~$2B valuation), Rent The Runway at HBS (~$1B valuation), and Brex at Stanford (~$1B valuation).

Some of today’s most celebrated tech leaders built their first ventures while in school — even if some student startups fail, the critical first-time founder experience is an invaluable education in how to build great companies. Perhaps the best example of this that I could find is Drew Houston at Dropbox (~$9B valuation at IPO), who previously founded an edtech startup at MIT that, in his words, provided a: “great introduction to the wild world of starting companies.”

Student founders are everywhere, but the highest concentration of venture-backed student founders can be found at just 5 universities. Based on venture fund portfolio data from the last six years, Harvard, Stanford, MIT, UPenn, and UC Berkeley have produced the highest number of student-founded companies that went on to raise $1 million or more in seed capital. Some prospective students will even enroll in a university specifically for its reputation of churning out great entrepreneurs. This is not to say that great companies are not being built out of other universities, nor does it mean students can’t find resources outside a select number of schools. As you can see later in this essay, there are a number of new ways students all around the country can tap into the startup ecosystem. For further reading, PitchBook produces an excellent report each year that tracks where all entrepreneurs earned their undergraduate degrees.

Student founders have a number of new media resources to turn to. New email newsletters focused on student entrepreneurship like Justine and Olivia Moore’s Accelerated and Kyle Robertson’s StartU offer new channels for young founders to reach large audiences. Justine and Olivia, the minds behind Accelerated, have a lot of street cred— they launched Stanford’s on-campus incubator Cardinal Ventures before landing as investors at CRV.

StartU goes above and beyond to be a resource to founders they profile by helping to connect them with investors (they’re active at 12 universities), and run a podcast hosted by their Editor-in-Chief Johnny Hammond that is top notch. My bet is that traditional media will point a larger spotlight at student entrepreneurship going forward.

New pools of capital are also available that are specifically for student founders. There are four categories that I call special attention to:

  • University-affiliated accelerator programs
  • University-affiliated angel networks
  • Professional venture funds investing at specific universities
  • Professional venture funds investing through student scouts

While it is difficult to estimate exactly how much capital has been deployed by each, there is no denying that there has been an explosion in the number of programs that address the pre-seed phase. A sample of the programs available at the Top 5 universities listed above are in the graphic below — listing every resource at every university would be difficult as there are so many.

One alumni-centric fund to highlight is the Alumni Ventures Group, which pools LP capital from alumni at specific universities, then launches individual venture funds that invest in founders connected to those universities (e.g. students, alumni, professors, etc.). Through this model, they’ve deployed more than $200M per year! Another highlight has been student scout programs — which vary in the degree of autonomy and capital invested — but essentially empower students to identify and fund high-potential student-founded companies for their parent venture funds. On campuses with a large concentration of student founders, it is not uncommon to find student scouts from as many as 12 different venture funds actively sourcing deals (as is made clear from David Tao’s analysis at UC Berkeley).

Investment Team at Rough Draft Ventures

In my opinion, the two institutions that have the most expansive line of sight into the student entrepreneurship landscape are First Round’s Dorm Room Fund and General Catalyst’s Rough Draft VenturesSince 2012, these two funds have operated a nationwide network of student scouts that have invested $20K — $25K checks into companies founded by student entrepreneurs at 40+ universities. “Scout” is a loose term and doesn’t do it justice — the student investors at these two funds are almost entirely autonomous, have built their own platform services to support portfolio companies, and have launched programs to incubate companies built by female founders and founders of color. Another student-run fund worth noting that has reach beyond a single region is Contrary Capital, which raised $2.2M last year. They do a particularly great job of reaching founders at a diverse set of schools — their network of student scouts are active at 45 universities and have spoken with 3,000 founders per year since getting started. Contrary is also testing out what they describe as a “YC for university-based founders”. In their first cohort, 100% of their companies raised a pre-seed round after Contrary’s demo day. Another even more recently launched organization is The MBA Fund, which caters to founders from the business schools at Harvard, Wharton, and Stanford. While super exciting, these two funds only launched very recently and manage portfolios that are not large enough for analysis just yet.

Over the last few months, I’ve collected and cross-referenced publicly available data from both Dorm Room Fund and Rough Draft Ventures to assess the state of student entrepreneurship in the United States. Companies were pulled from each fund’s portfolio page, then checked against Crunchbase for amount raised, accelerator participation, and other metrics. If you’d like to sift through the data yourself, feel free to ping me — my email can be found at the end of this article. To be clear, this does not represent the full scope of investment activity at either fund — many companies in the portfolios of both funds remain confidential and unlisted for good reasons (e.g. startups working in stealth). In fact, the In addition, data for early stage companies is notoriously variable in quality, even with Crunchbase. You should read these insights as directional only, given the debatable confidence interval. Still, the data is still interesting and give good indicators for the health of student entrepreneurship today.

Dorm Room Fund and Rough Draft Ventures have invested in 230+ student-founded companies that have gone on to raise nearly $1 billion in follow on capital. These funds have invested in a diverse range of companies, from govtech (e.g. mark43, raised $77M+ and FiscalNote, raised $50M+) to space tech (e.g. Capella Space, raised ~$34M). Several portfolio companies have had successful exits, such as crypto startup Distributed Systems (acquired by Coinbase) and social networking startup tbh (acquired by Facebook). While it is too early to evaluate the success of these funds on a returns basis (both were launched just 6 years ago), we can get a sense of success by evaluating the rates by which portfolio companies raise additional capital. Taken together, 34% of DRF and RDV companies in our data set have raised $1 million or more in seed capital. For a rough comparison, CB Insights cites that 40% of YC companies and 48% of Techstars companies successfully raise follow on capital (defined as anything above $750K). Certainly within the ballpark!

Source: Crunchbase

Dorm Room Fund and Rough Draft Ventures companies in our data set have an 11–12% rate of survivorship to Series A. As a benchmark, a previous partner at Y Combinator shared that 20% of their accelerator companies raise Series A capital (YC declined to share the official figure, but it’s likely a stat that is increasing given their new Series A support programs. For further reading, check out YC’s reflection on what they’ve learned about helping their companies raise Series A funding). In any case, DRF and RDV’s numbers should be taken with a grain of salt, as the average age of their portfolio companies is very low and raising Series A rounds generally takes time. Ultimately, it is clear that DRF and RDV are active in the earlier (and riskier) phases of the startup journey.

Dorm Room Fund and Rough Draft Ventures send 18–25% of their portfolio companies to Y Combinator or Techstars. Given YC’s 1.5% acceptance rate as reported in Fortune, this is quite significant! Internally, these two funds offer founders an opportunity to participate in mock interviews with YC and Techstars alumni, as well as tap into their communities for peer support (e.g. advice on pitch decks and application content). As a result, Dorm Room Fund and Rough Draft Ventures regularly send cohorts of founders to these prestigious accelerator programs. Based on our data set, 17–20% of DRF and RDV companies that attend one of these accelerators end up raising Series A venture financing.

Source: Crunchbase

Dorm Room Fund and Rough Draft Ventures don’t invest in the same companies. When we take a deeper look at one specific ecosystem where these two funds have been equally active over the last several years — Boston — we actually see that the degree of investment overlap for companies that have raised $1M+ seed rounds sits at 26%. This suggests that these funds are either a) seeing different dealflow or b) have widely different investment decision-making.

Source: Crunchbase

Dorm Room Fund and Rough Draft Ventures should not just be measured by a returns-basis today, as it’s too early. I hypothesize that DRF and RDV are actually encouraging more entrepreneurial activity in the ecosystem (more students decide to start companies while in school) as well as improving long-term founder outcomes amongst students they touch (portfolio founders build bigger and more successful companies later in their careers). As more students start companies, there’s likely a positive feedback loop where there’s increasing peer pressure to start a company or lean on friends for founder support (e.g. feedback, advice, etc).Both of these subjects warrant additional study, but it’s likely too early to conduct these analyses today.

Dorm Room Fund and Rough Draft Ventures have impressive alumni that you will want to track. 1 in 4 alumni partners are founders, and 29% of these founder alumni have raised $1M+ seed rounds for their companies. These include Anjney Midha’s augmented reality startup Ubiquity6 (raised $37M+), Shubham Goel’s investor-focused CRM startup Affinity (raised $13M+), Bruno Faviero’s AI security software startup Synapse (raised $6M+), Amanda Bradford’s dating app The League (raised $2M+), and Dillon Chen’s blockchain startup Commonwealth Labs (raised $1.7M). It makes sense to me that alumni from these communities that decide to start companies have an advantage over their peers — they know what good companies look like and they can tap into powerful networks of young talent / experienced investors.

Beyond Dorm Room Fund and Rough Draft Ventures, some venture capital firms focus on incubation for student-founded startups. Credit should first be given to Lightspeed for producing the amazing Summer Fellows bootcamp experience for promising student founders — after all, Pinterest was built there! Jeremy Liew gives a good overview of the program through his sit-down interview with Afterbox’s Zack Banack. Based on a study they conducted last year, 40% of Lightspeed Summer Fellows alumni are currently active founders. Pear Ventures also has an impressive summer incubator program where 85% of its companies successfully complete a fundraise. Index Ventures is the latest to build an incubator program for student founders, and even accepts founders who want to work on an idea part-time while completing a summer internship.

Let’s now look at students who want to join a startup before founding one. Venture funds have historically looked to tap students for talent, and are expanding the engagement lifecycle. The longest running programs include Kleiner Perkins’ class=”m_1196721721246259147gmail-markup–strong m_1196721721246259147gmail-markup–p-strong”> KP Fellows and True Ventures’ TEC Fellows, which focus on placing the next generation’s most promising product managers, engineers, and designers into the portfolio companies of their parent venture funds.

There’s also the secretive Greylock X, a referral-based hand-picked group of the best student engineers in Silicon Valley (among their impressive alumni are founders like Yasyf Mohamedali and Joe Kahn, the folks behind First Round-backed Karuna Health). As these programs have matured, these firms have recognized the long-run value of engaging the alumni of their programs.

More and more alumni are “coming back” to the parent funds as entrepreneurs, like KP Fellow Dylan Field of Figma (and is also hosting a KP Fellow, closing a full circle loop!). Based on their latest data, 10% of KP Fellows alumni are founders — that’s a lot given the fact that their community has grown to 500! This helps explain why Kleiner Perkins has created a structured path to receive $100K in seed funding to companies founded by KP Fellow alumni. It looks like venture funds are beginning to invest in student programs as part of their larger platform strategy, which can have a real impact over the long term (for further reading, see this analysis of platform strategy outcomes by USV’s Bethany Crystal).

KP Fellows in San Francisco

Venture funds are doubling down on student talent engagement — in just the last 18 months, 4 funds have launched student programs. It’s encouraging to see new funds follow in the footsteps of First Round, General Catalyst, Kleiner Perkins, Greylock, and Lightspeed. In 2017, Accel launched their Accel Scholars program to engage top talent at UC Berkeley and Stanford. In 2018, we saw 8VC Fellows, NEA Next, and Floodgate Insiders all launch, targeting elite universities outside of Silicon Valley. Y Combinator implemented Early Decision, which allows student founders to apply one batch early to help with academic scheduling. Most recently, at the start of 2019, First Round launched the Graduate Fund (staffed by Dorm Room Fund alumni) to invest in founders who are recent graduates or young alumni.

Given more time, I’d love to study the rates by which student founders start another company following investments from student scout funds, as well as whether or not they’re more successful in those ventures. In any case, this is an escalation in the number of venture funds that have started to get serious about engaging students — both for talent and dealflow.

Student entrepreneurship 2.0 is here. There are more structured paths to success for students interested in starting or joining a startup. Founders have more opportunities to garner press, seek advice, raise capital, and more. Venture funds are increasingly leveraging students to help improve the three F’s — finding, funding, and fixing. In my personal view, I believe it is becoming more and more important for venture funds to gain mindshare amongst the next generation of founders and operators early, while still in school.

I can’t wait to see what’s next for student entrepreneurship in 2019. If you’re interested in digging in deeper (I’m human — I’m sure I haven’t covered everything related to student entrepreneurship here) or learning more about how you can start or join a startup while still in school, shoot me a note at sxu@dormroomfund.comA massive thanks to Phin Barnes, Rei Wang, Chauncey Hamilton, Peter Boyce, Natalie Bartlett, Denali Tietjen, Eric Tarczynski, Will Robbins, Jasmine Kriston, Alicia Lau, Johnny Hammond, Bruno Faviero, Athena Kan, Shohini Gupta, Alex Immerman, Albert Dong, Phillip Hua-Bon-Hoa, and Trevor Sookraj for your incredible encouragement, support, and insight during the writing of this essay.