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What's 🔥 in Enterprise IT/VC #324
The world has fully reset on round sizes at early stages - what does it mean for founders?
If you’re wondering what VCs were doing over the holidays, I’d say they were collectively 🤔 about how to deploy capital prudently with the right founders building the rights kinds of businesses (efficient). As I always have a few portfolio companies out in market talking to investors, what I can unequivocally tell you is that the world has finally reset for round sizes (click for comments as well).
Yes, just like that!
Anything which is out of band from above in terms of round size requires much more scrutiny from the partnership. As we all know, especially in the earliest stages, round size dictates valuation as the same amount of the company will be sold regardless (15-25% with anomalies of course). If a founder raises less 💰, the valuation is lower. If you’re a founder holding out for a larger round, you better be that top 1% of companies with the team, vision, and execution to boot as you’re likely to fall flat on your face without that.
Another important data point for founders is that FOMO is gone and actually works in the opposite direction as before. No partner wants to bring deals to the firm which have to move in 24-48 hours - it’s simply not happening any more, thankfully. Founders should also expect diligence processes to be much more extensive as time is now on the side of investors.
Ultimately, founders should strive to build relationships with some select investors months before they need capital, kiss more 🐸 to get a round done, and right size the round size for where the business truly is. Finally, when raising capital, founders need to screen out the tire kickers who want to meet every company in a “space” and waste your time without ever writing a check. Trust me, there are lots of investors out there who are twiddling their thumbs wanting to write a check but too scared to invest at the moment. You don’t need to be market mapped, you need to raise cash so screen quickly and move to the next conversation.
As always, 🙏🏼 for reading and please share with your friends and colleagues.
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💯 particularly in enterprise startups - when creating a brand new category most folks will dismiss your idea…
PSA on value of stock options, structure…article from Matt Levine here
from Brian Armstrong at Coinbase letter on 20% reduction in headcount - the challenge of many a startup which raised capital too quickly - how to maintain scrappiness while headcount scales. Even if you have 3+ yrs runway, you need to ask yourself if "you are still moving as fast as you can"
This is also a moment where I'd like us to focus on our startup culture, and remember what it feels like to have small, nimble teams that are able to get more done. As Coinbase grew so quickly in 2021, we all felt the coordination headwind that caused us to move more slowly. Over the past ten years, we, along with most tech companies, became too focused on growing headcount as a metric for success. Especially in this economic environment, it's important to shift our focus to operational efficiency.
Despite everything we’ve been through as a company and an industry, I’m still optimistic about our future and the future of crypto. Progress doesn’t always happen in a straight line, and sometimes it can feel like we’re taking two steps forward and one step back. But just like we saw with the internet, the most important companies not only survive but thrive during down markets by being rigorous with cost management, and continuing to build innovative products.
State of software investing 🧵 w/Patrick interviewing Buck on Software - some 💎
💯 what 2023 will look like for crypto startups from TechCrunch - shared some of my thoughts…no change for us, continued investment in infrastructure w/security top of mind - stay tuned for some announcements in coming weeks 😃
Five takeaways from SaaS CEOs 2023 from Nick Mehta (Gainsight)
What McKinsey is advising CIOs for 2023 - important because McKinsey is definitely not a trendsetter but is advising lots of Global 2000s on cloud strategy and understands where IT 💰 Spend is going - take a look. Also, got to love focus on security automation and security as code - great to see it getting C-level visibility
Make the most of your security opportunity, Jan Shelly Brown, Partner
I like to think that 2022 was the year that security became one of the cool kids in tech. For years, security was treated as a blocker—albeit a critical one—that slowed progress to ensure security protocols were in place. In 2022, that changed, with companies making much greater commitments to modernizing their tech through moving to the cloud and rethinking the security role so it could act as a real enabler.
Peering ahead to 2023, that trend will accelerate as security itself becomes much more automated, in part thanks to the investments cloud service providers (CSPs) are making in their own risk capabilities and tooling. Code that developers submit will automatically be scanned for cybersecurity issues and rejected unless it complies, while providing clear recommendations for what fixes to make. Because most security issues are the result of code and system misconfigurations, this process will radically reduce the number of security breaches at many large companies. At one large bank, for example, breaches dropped 70 to 80 percent after implementing security automation. The other benefit is simply the pace of development. With engineers able to submit code and update it based on automated feedback, the pace of development can increase as much as ten times. The key point isn’t that the cloud is more secure; it’s that moving to cloud provides companies with a huge opportunity to rethink their security posture…
and how big and important is developer first security? Take a look at the growing Snyk TAPP partner program with cos like MongoDB, Rapid7, docker and more as partners
As Satya highlighted in his earnings report in October, OpenAI/ChatGPT will be embedded into every single Microsoft applications. Founders, as you start cos with the same models everyone else can use, you must differentiate on something else…Also from my Predictions for 2023 (What’s 🔥 322)
Cybercriminals are usually first in line when it comes to new tech so no surprise that Checkpoint research highlighted their use of OpenAI to write malware or ChatGPT for phishing…
CPR’s analysis of several major underground hacking communities shows that there are already first instances of cybercriminals using OpenAI to develop malicious tools. As we suspected, some of the cases clearly showed that many cybercriminals using OpenAI have no development skills at all. Although the tools that we present in this report are pretty basic, it’s only a matter of time until more sophisticated threat actors enhance the way they use AI-based tools for bad.
Some great advice on product pricing from Naomi (Menlo Ventures)Fun chat w/ product & growth content 🐐 about data-driven approaches to pricing. Teams improve product, yet set-and-forget monetization. Especially in this macro climate, don’t treat pricing as an afterthought ⬇️Naomi Ionita (@npilosof) was one of the first leaders in B2B PLG, helped Reforge build their early programs, and now as a full-time VC spends her time helping founders with growth, pricing, and monetization strategies. Here's my conversation with Naomi 👇 https://t.co/qJ4Ctc626LLenny Rachitsky @lennysan