Silicon Valley Investors’ Advice to Young Startups


Young Startups

At Boxworks 2013, Box CFO Dylan Smith led a lively discussion with a panel of Silicon Valley investors from newcomers The Social+Capital Partnership to blue chip General Atlantic.

The Future of Venture Capital:

With so many VCs entering the full-service arena, the question was poised: is VC now a platform offering a multitude of services to entrepreneurs?

The panel chimed in that the role of a VC is to impart knowledge, instill confidence in the market and dole out capital. VCs can assist in PR, marketing and recruiting its additive, but it is definitely not their core expertise. Entrepreneurs should be managing their expectations.

Growth Strategy: 

As the IPO market is beginning to firm up, many entrepreneurs wonder if an IPO is the right path for their company. Former Verisign CFO and seasoned board member (Omniture, acquired by Adobe; MySQL, acquired by Sun, Box, Survey Monkey, Criteo, Everyday Health, Linden Labs, Fusion-io and Proofpoint) Dana Evan pointed out that it took Verisign $5 million in capital to get to their IPO. Today, more capital would be needed before a company could reach IPO status. Let’s not forget it took over $300 million before Facebook was ready to make its public debut.

Evan also points out that an IPO is not the end game some entrepreneurs believe it to be. She cautions that once a company goes public, they lose flexibility. To some degree, Wall Street analysts become Big Brother.

Companies are not able to execute on creative ideas that may interfere with profitability, as Wall Street analysts are closely watching EPS and ready to stamp a “sell” recommendation on any company that doesn’t perform to expectations. If you are thinking that an IPO is the only exit strategy, you may want to cast a wider net.

It’s true that the cost of building a company has never been lower, however the cost to exit has never been higher. Entrepreneurs need to be mindful of the Series A crunch, which evolved when the market was flooded with seed capital without a corresponding increase in Series A capital. If it is increasingly difficult to secure a Series A round, you may not make it to a Series B or C. Hence, your long-winded exit strategy may be cut short.

Now more than ever, entrepreneurs need to focus on a broad exit strategy. If an IPO is not feasible, they should be open to a merger or acquisition, and they should understand this strategy early.

Go Big or Stay Home:

The panel underscored the need for companies to think big and go global. “Silicon Valley is limited, and companies need a global market to scale,” noted Brett Rochkind of General Atlantic.

As Rory O’Driscoll of Scale Ventures pointed out, “Playing safe is the riskiest part of building a tech company.”

Entrepreneurs need to think big to get people motivated. Dana Evan points out that the culture at Box in the early days is one of the things that got her to join on as a board member. When teams are working on big ideas, there is a distinct excitement in the air that others can feel. It’s contagious.

If you are building a company today, be sure to shoot for the moon, but be flexible in your exit. It’s critical to look at your competitive landscape, macro capital markets and internal goals to determine the optimal exit strategy for your company.

This post originally appeared on Atelier Advisors. Lili Balfour is the founder and CEO of the SoMa-based financial advisory firm, Atelier Advisors, creator of Lean Finance for Startups and Finance Boot Camp for Entrepreneurs. All AlleyWatch readers are automatically eligible for a 50% discount on either of the courses using the preceding links.

Image credit: CC by Anita Ritenour

About the author: Lili Balfour

Lili Balfour is the founder and CEO of the SoMa-based financial advisory firm, Atelier Advisors, creator and host of Finance for Entrepreneurs, author of Master the Finance Game, and host of the Finance for Entrepreneurs broadcast on Spreecast.

After spending fifteen years in investment management and investment banking, she decided to develop a firm to cater to the specific needs of early-stage companies. At Atelier Advisors, Lili advises leading brands across industries: from tech to consumer goods. In the past, she has advised over 100 brands, including:

Bag, Borrow, or Steal, Visual IQ, Alpha Theory, Derivix, Practice Fusion, Peeled Snacks, Sustainable Minds, Firescope, Chix 6, Duchess Marden, Erin Fetherston, Eckart Tolle, and Stuart Skorman (founder of Reel.com, Elephant Pharmacy, Hungry Minds, and Clerk Dogs (sold to Netflix)).

While advising companies at Atelier Advisors, she observed a common theme – -brilliant founders avoided finance. She began writing about entrepreneurial finance to solve this problem.

As a native of Silicon Valley and a first generation Mexican American, Lili understands the importance of imparting wisdom learned in Silicon Valley to the rest of the world. Her goal is to teach the entire planet about entrepreneurial finance.

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