Eric’s blog:  startuplessonslearned.blogspot.com

Twitter: @ericries (tag with #leanstartup)

Presentation Notes:

• Most startups fail catastrophically
• How many startups have lived up to their employees, founders and investors?
• Most startups that succeed turn out to be something totally different from the initial vision of the company
• Difference between a successful startup and a failure is the number of iterations the company could afford before death / success
• Eric’s new company - IMVU - bring avatars and digital goods to the USA

IMVU:

• shipped in 6 months - a horribly buggy beta product
• charged from day 1
• Visionary Customers can be just as or more valuable to the business as the founders
  - must be in constant dialog with those visionary customers
  - those visionary customers live with the same pain that the founders did when they came up with the business idea
• Iterate constantly.  IMVU pushes to production 50x per day
• No PR, no launch
  - this way you only focus on what your customers think
• 2007 revenues of $10mm, still growing nicely

Lean Startups Go Faster

• Full-scale refactoring of how software is developed.
• Commodity technology stack - easy, cheap: EC2, grid, cloud, etc etc
• Customer Development (find out what customers want before you build it)
• Agile (lean) product development (fast iterations)
  - Principles drawn from Lean Manufacturing and Toyota Production System
  - Where problem is known but solution is not
  - Meetings are waste, revising code is progress
• Product development at a lean startup:
  - problem and solution both unknown
• get rid of departments.  2 teams:  problem team, solution team
• Problem team constantly asks what the problem is and is there a business here if we can solve it?
• Solution team constantly asks what the problem is and if the product is sufficiently solving it (constantly iterate)
• The biggest source of waste in any startup is building something nobody wants.

Disclaimer (AJ):  My notes don’t do Eric’s presentation or concepts justice.  Please watch Eric’s recorded presentations and look at his actual slides.

This perspective is from the smaller seed / angel investor perspective.

Panel: Dave McClure, Joyce Kim, Ryan Pipkin, David Troy

• Downturn has been worse for VCs than for startups (harder for VCs to raise money relative to the valuation hit for startups)
  VC as an asset class has performed terribly and many of their LPs are “overweight” in the class.  All bad for VCs
• Lots of VCs will be disappearing over the next few years.  The good ones will survive (CRV, August, etc)
• New environment:
  - more focus on getting revenue, get to break even cash flow
  - get to sustainability on the Series A so you don’t have to raise money later (usually won’t be the case)
  - Seed Funds (SoftTehc, Maples Investments), and Incubators / Angels (YCombinator, TechStars) are gaining traction in this environment
  - much cheaper to prove concept these days - < $50k 
• Troy - making 100-250k investment in 1-3mm pre-money companies in BWI area only
• Pipkin - makes software that helps angels manage / syndicate their deals.  
• Angel Capital Association: 160 member organization of angel investor groups
• Due diligence process is much more arduous now
• Startup valuations down 33-50% on average in the Valley
• VCs taking 50% longer to close investments, on average
• Legal:
  - not a lot more convertible notes going around (except for McClure)
  - they’ve started capping these notes (cap the Series A valuation) in the last year and a half
  - terms are very pro-investor.  Less term sheets, less room for negotiating
  - easier to take a board seat on A round or get a liquidation preference
• Series B’s are impossible to do right now.  Best you can do is likely 50% down round or worse.  Many are dying now - too speculative.
• Trend for Micro-Seed ($0-$100k to get a prototype built and start proving a market):
  - panel is bullish on micro-seed model
  - Pipkin:  there may too many micro-seed incubators out there, Paul Graham has a secret sauce 
•  Troy:  You have just as good a chance at good returns in a small startup than you do in the public markets
• Panel agrees outlook for Angels are looking much better than VCs right now, at least from an ROI perspective
• Kim:  Seed round expectations have completely changed.  Try-and-see not as viable now - must be building a real business.  Less R&D investments.
• Is there still room for no-revenue, pure-growth companies in the VC model?
  - Kim - not really, unless it is a proven entrepreneur
  - McClure - seed yes, VC less so
  - Concensus: we must be at break-even by next round.  We’re basically bankers now.  
• Net-net:  Fail fast and move onto the next one.  Don’t waist too much money proving/disproving what you think will work.

Startonomics / Startup Metrics:  (Dave’s AARRR)

• Acquisition:  what channels do customers come from?
• Activation: do they have a good 1st experience?
• Retention: will they come back?
• Referral: do they tell other people (net promoter score)
• Revenue: will they pay / how to make money?

       - crucial for startup to track these things to take some of the risk out of the business for their investors.
       - We’re seeing the professionalization of the low end of the investment market

Q: How do angels feel about a quick exit at a smaller valuation (as opposed to the larger, follow-on deals ending in larger exits)
A: There is more of an oppty for angels and seed funds for deals like these since the VCs aren’t interested in them.  It really depends on the fund size … all about ROI.  Someone managing a 10mm fund would be happy with a smaller exit. 

The slides: