GROWtalks in Toronto Feb 21


Debbie Landa, Clare Ryan and the Dealmaker Media team are part of the reason that I love GROWConf and GROWtalks. They put on amazing events by putting entrepreneurs first, foremost, and front and centre. They are bringing GROWtalks to Toronto (Feb 21) and Montreal (Feb 19). And we have a discount code at the end of the post.

“A hands-on playbook for creating startup success”

I like learning by example. It’s a mixture of seeing what worked for someone else, and then trying the appropriate tactics customized for my situation. The challenge is trying to do with more efficiently than 9 or 10 coffee meetings. GROWtalks brings together the best entrepreneurs, who are killing it, and has them present what is working for them. THis is what GROWtalks is, an event for entrepreneurs with entrepreneurs sharing their strategy, tactics, metrics and successes, even the failures. (Full disclosure: I am MCing the GROWtalks event, however, I am not being compensated for this, but I do get the opportunity to participate and learn).

Check out photos from the 2012 GROWtalks event in Vancouver:

It’s rare we get this many awesome startup founders all talking about the hard part of their business. I know that all of these folks will be around throughout the day, they’ll be hanging out, answering questions. It’s going to be a fantastic day. Check out the line up:

I might be biased. My employer is an investor in some of the presenters. My cofounder is one of the presenters. But I’m honestly stoked about the speakers. I’m really looking forward to hearing Beltzner, Rutter, Fitton and Morrill. The mix of product, early customer acquisition and understanding lifetime value are converations I have with almost every founder. I’m very curious to hear the opinons, experiences and thoughts of this group.

Part of my MCing was to request StartupNorth logo tattoos for all the speakers (we’ll see if that happens), and a discount code. Register before Februrary 1, 2013 and get 10% off (use promotional code: startupnorth). It reduces the ticket price from $195 to $175.50.

GROWtalks Toronto

February 21, 2013, 10am-4pm

Size: 200-300 people
Speakers: 9 Industry leaders
Time: 10am-4pm

GROWtalks is a one day conference focused on how to create simple, actionable metrics, and use them to make better product and marketing decisions for startup success. Industry experts will share actionable advice to startup teams on how to improve design, product and customer development, acquisition, retention, and more.

Topics Covered:

  • Customer Development
  • UX/UI Design
  • Growth Hacking
  • Customer Retention
  • Fundraising
  • Customer Engagement
  • Product Development

Fundraising, Valuation and Accretive Milestones

CC-BY-ND  Some rights reserved by HappyTramp87
AttributionNo Derivative Works Some rights reserved by HappyTramp87

I keep having a similar conversation with early stage entrepreneurs about fundraising and valuation. “Do you think a $1.5MM valuation is good?” “How much should I be raising?’ Well, it depends.

I’m finding more and more, the conversation about valuation is one that resembles not being able to see the forest because of the trees. Early stage entrepreneurs tend to fixate on valuation and assume product is the biggest risk at the seed stage thus defining product launch metrics as key metrics. Often, valuation and risk mitigation are tied together. And the milestones or traction metrics required to mitigate risk can help establish valuation. 


Fortunately, valuation is a topic that others have covered. Nivi and Naval, on VentureHacks, have provided incredible insight into early stage fundraising over the past 5 or 6 years. The advice is often summarized, “as much as possible is especially wise for founders who aren’t experienced at developing and executing operating plans”. The translation means that founders see rounds of seed stage companies raising $4.2MM at what must be a huge valuation.

 “‘As much as possible while keeping your dilution under 20%, preferably under 15%, and, even better, under 10%.’ ” – Nivi

You can make some basic assumptions about the valuation. Most seed stage companies should be looking keep dilution in the 15-20% range. The specifics will be determined in fundraising but you can start to do some back of the napkin estimates:

You start to see a range for how much a company will raise at what valuation. The numbers aren’t set in stone but they provide a framework for estimating the amount valuation. As Nivi points out the difference between a seed round and “a Series A which might have 30%-55% dilution. (20%-40% of the dilution goes to investors and 10%-15% goes to the option pool)”. The more you raise early, the more dilution you can expect. The goal becomes managing the different risks associated with startup. You also see why raising debt early, which allows companies and entrepreneurs to delay valuation until certain accretive milestones, is attractive.

“The worst thing a seed-stage company can do is raise too little money and only reach part way to a milestone.” – Chris Dixon

So given the back of the napkin dilution terms, what are the milestones that you will need to hit in order to raise the next round.

Raising the next round

So you’ve raised a round, how much should you raise at the next round?

I like the rule of thumb that Chris Dixon uses. “I would say a successful Series A is one where good VCs invest at a pre-money that is at least twice the post-money of the seed round.” The expectation is that companies are roughly going to double their valuation at each raise. This isn’t to say that a 2x increase in value is your target, it’s the minimum, the floor. The art of raising a round it to raise enough money to get to a significant milestone, and not too much money taking too much dilution too soon. So how do you define the milestones. The milestones

“partly determined by market conditions and partly by the nature of your startup. Knowing market conditions means knowing which VCs are currently aggressively investing, at what valuations, in what sectors, and how various milestones are being perceived.” – Chris Dixon

So part of the market conditions, i.e., raising money in Canada is different than raising money than in Silicon Valley, New York , Tel Aviv. You are measured against your peers, and this might be defined by geography of the company or the VC. Being connected with other companies, advisors and investors can help provide insight in to the fundraising environment. The second part is determined by the nature of your startup, but generally expressed as measures of traction. We’ve talked a lot about getting traction and what traction looks like to a VC.

“The biggest mistake founders make is thinking that building a product by itself will be perceived as an accretive milestone. Building a product is only accretive in cases where there is significant technical risk – e.g. you are building a new search engine or semiconductor.” Chris Dixon

Entrepreneurs tend to focus on the product early. This is usually because the product is something that entrepreneurs can directly affect. But the product risk, is may not be the  biggest risk that entrepreneurs need to mitigate early. The trick is figuring out which risk you need to eliminate to satisfy potential investors. And you can try to figure this out yourself, but I like to see entrepreneurs engage investors and other founders to get their opinion. The discussion usually is a combination of what other startups are seeing in the market place as milestones from investors (yay, market place data). Then you can work backwards the necessary resources and burn rate to reach those milestones.


Additional Reading

Surviving The Cash Crunch (Part 1)

Photo by © 2008 Daniela Hartmann

Photo by © 2008 Daniela Hartmann

You are 3-6 months away from running out of cash.  Your current business model & strategy isn’t going to make it happen over that same period.  You are unable to raise a new round.

This is another classic stage for mid-stage startups I’ve heard nicely referred to as “controlled burn”.  You either need to pivot onto something new or give your current strategy time to break-even, whatever it is you need to do, you don’t have the cash to do it without doing something about costs.  So you need to turn 3 months of money into 12 months of money or more.

I’m speculating, but the number of start-ups who hit a cash crunch over all-time probably approaches infinity.  Annoyingly though it doesn’t get written about often and there isn’t a lot of useful advice I’ve found.  Having seen this a few times and talked to a many companies with this type of problem, I thought I’d try and touch the topic with some useful tactics.  One key note – all of this needs to be done in advance of running out of cash, not once you have run out of cash.

Do NOT Raise Too Much Money, Too Early

My first advice is preventative.  I’ve been part of teams that have raised $0, $80mm and $20mm as the initial round.  So I have some very real world experience with both ends of this argument.

Photo by Stephen Poff

Photo by Stephen Poff CC BY-NC-ND 2.0

There are two problems.  The first is that if you raise a lot of money, your investors expect you to do something with it, not sit on it.  You are expected to get “fat”.  Hire a great mgmt team, hire middle mgmt, hire depth, have project managers, have tons of software firepower, big marketing plans, big markets, etc, etc.  This means that your burn will probably be stupidly high and you’ll probably hit cash flow problems marginally past that of a team that raised much less capital.  It means your cuts are more painful and the “paradigm-shift” is larger.

On the other side, you eliminate options for handling cash flow issues by raising too much, too early.  Imagine each $5mm increment as chopping off a tier of the investing market for your company.  Somewhere past say $20-$30mm you need to have the financial results to match your valuation to enter into these new “investment markets”.  You can end up pigeon-holed into a tiny corner of the investment world – need lots of money, have a great team/idea, but don’t yet have the results to justify the results…. uh oh.

This is where founder-killing down-rounds and inside-rounds happen and equity disappears.


For most startups, the biggest cost is people.  If you want to control burn, there’s probably no way to get around dealing with this.  So here’s a few ways to actually bring down people cost:

  1. Cross the board pay cuts – CEO goes to $1, mgmt team takes large cuts, staff take smaller cuts.  Keep the team together.  (Usually you talk yourself into this strategy because you have like a half a percent chance at having some big company who you’ve met once buying you)
  2. Big layoff day.
  3. Offer packages, options to furlough or take time off – “anybody want to take 6 months off to travel the world and want to come back to a full paying job?”

Generally, I’m a fan of cut deep, fast and once.  If you try to be the “nice guy” and retain people for less money, etc – you are screwing everybody.  Many employees will get a new job before your notice period ends and it’ll probably pay more than they made now.   You are not being nice by offering them a chance to stick around at reduced pay.  Others have big enough bank rolls to live without income for a bit and will take time off and deliberate about jobs – e.g. senior mgmt.  For some, layoffs are common territories – for instance accounts and analysts, often the first to go as they are nice to haves, not must haves in a cash conscious company.  Other folks will use this as the impetus to do their own entrepreneurial adventure and will get rich because you laid them off.  So really, don’t get all teary and sad about laying folks off – many will be able to handle it and you aren’t doing them a favour by keeping them around.

My “nice guy” layoff tactic would look something like this.  Do all your layoffs at once and give a reasonable notice period (4-8 weeks??).  Don’t spend much time deliberating and talking to folks – morale dies quickly and people stop working when waiting for a decision.  Do it and make sure to do it deep enough the first time.  Then, go out and help the people you laid off find new jobs.  Reach out to your vast startup network – for every startup laying off, you can probably find a new one hiring, especially folks with startup experience.  Then, give some time, say 4-6 weeks.  Then and only then, if some folks seem to be in trouble financially and unable to find work – offer them contract work to get them past the hump, a few grand a month, something like that.  Double down in helping them find them new roles.  Ask your VC for help in placing them.

Partners & Creditors

Before I write what I am about to write I want to make some things very clear.  Always do honest business and never screw your partners intentionally.  Your name is everything.  When you are starting to get short on cash talk to them and look for options, some will have experienced similar and will be helpful.

So my first advice is preventative.  When you negotiate every contract, take it from the lens of “what happens if I run out of cash?”.  Can you terminate?  Can you adjust pricing?  Are the terms 30 days or 90 days?  Can they kill my business if I am short on cash?  Don’t bet on a long future and sign-up for 2-3 year deals.  Business flexibility is probably more important than scaling costs downwards off the bat.

Once you are in the cash crunch situation, here is a golden rule I once heard “Pay your customers, not your creditors”.  I.e. in a world of limited money and limited choice of how to apply it, remember that paying creditors won’t result in your business generating cash,  it will result in your business dying and all your creditors getting $0.  You are helping your creditors by helping yourself (presuming you don’t spend it stupidly).

The key date to remember when negotiating with any partner is their fiscal year end.  If you are past 90 days due on payments, you have to pay something otherwise your partner is basically forced to write you off as bad debts.  If you pay anything, they can keep it as revenue.  Also remember that if you have global partners that standards of non-payment are very different.  Payables past 90+ days may be more the norm than a “business faux pas” in certain countries.

No matter what this is going to result in you hating your job for a while.  Negotiating and settling with partners is not fun.  Nor is stringing out payments.  People will not say very nice things to you.


In part 2, I’ll look at customers & pricing, and operating your business once in the cash crunch.