A few days ago, I shared that Bessemer Venture Partners posts the deal memos of some of their most successful investments online. Along the same lines, I recently found an interview in which First Round Capital Board Partner Chris Fralic talked about the firm's thinking when it invested in Roblox. First Round Capital is a seed-stage venture capital firm and often writes the first institutional check into a company. Roblox is an online gaming and game-creation platform. Per Fralic, Roblox was one of the firm’s best-performing investments. 

A few interesting takeaways from the interview:

• In early 2009, First Round passed because the $10 million valuation was too high
• Chris watched his son and his son’s friends spend increasingly more time on Roblox throughout 2009
• Chris maintained a relationship with Roblox even though his firm had declined to invest
• Six months after declining to invest, the firm wrote a $500k check at a $14 million valuation
• In May 2011, the firm wrote a $3 million investment at a $40 million valuation
• Roblox was a company that was mostly substance, not hype, so it flew under the radar of many venture capital investors for many years
• First Round sold some of its shares along the way before Roblox went public
• First Round owned more than 5% when the company went public via direct listing in 2021

Roblox went public via direct listing in March 2021. Its market capitalization (i.e., valuation) was ~$35.5 billion when it began trading on the first day. According to Roblox’s S-1 filing (page 172), First Round owned 6.8% of Roblox when the company went public. Its position was worth ~$2.41 billion when shares began trading.

It was interesting to hear a VC firm partner recap how he decided to invest at the seed stage of what ended up becoming a very large company.

For those interested in learning more, Chris did a great job of detailing his reflections, lessons learned, and more about First Round’s partnership with Roblox in this blog post too.

A few days ago I shared my big takeaway from an article about Andrew Bialecki, founder of Klaviyo: he bootstrapped his company at first and advises founders to raise the least amount of capital needed to get traction in the early days.

Andrew owned 38% of his company when it went public, which is a bigger share than you normally see. I usually consider 10% to 15% a big win for the founder.

Digging into Klaviyo’s early fundraising, I learned that the company was founded in 2012 and didn’t raise capital until 2015. In that three-year period, it surpassed $1 million in revenue and became profitable, per Forbes. The company then received a $1.5 million investment from Accomplice and a few angel investors, according to a press release.

Andrew’s advice about raising minimal capital early on sprang from his own experience in doing so, which likely was a material factor in his ability to maintain a large ownership stake. Andrew’s advice and his outcome are useful things for early-stage founders to consider when they’re thinking about their fundraising.

This is my one-hundred-eighty-second weekly reflection. Here are my takeaways from this week:

• Valuation – I spent time enhancing my investing framework. Valuation is part of that framework. Traditional valuation approaches don’t make sense for some business models or companies. Digging into the data, using common sense, and applying a valuation approach tailored to the situation more accurately captures their value. In fact, doing so can uncover value that others are overlooking (or don’t understand).
• IPOs – Arm Holdings, Instacart, and Klaviyo have completed their public offerings. Time will tell how receptive public markets are to these companies. Recently, I dug deeper into a few IPOs and the liquidity they generated for the early-stage venture capital firms that backed them.
• Solopreneurs – I chatted with a few solopreneurs recently. Anecdotally, more people are wanting control of their professional trajectory and their time and are considering solopreneurship.

Week one hundred eighty-two was another week of learning. Looking forward to next week!

I read an article about Andrew Bialecki, founder of Klaviyo. He started the company in 2012, and it went public this week. As of the writing of this post, the company has a market capitalization of $8.5 billion. Bialecki owns approximately 38% of the company— shares worth over $3 billion.

In the article, Bialecki gives a simple, but important, piece of advice: “My advice to founders: Raise as little as you need and prove some traction with customers. Once you do that, fundraising for the rest of your life gets a lot easier.”

Bialecki and his cofounder didn’t have venture backing when they started the company; they bootstrapped it. They focused on getting to profitability and then went out to raise capital after they had 1,000 customers and $1 million in revenue.

That approach put Bialecki and his cofounder in the driver’s seat with investors and ultimately led to their owning an outsize percentage of the company when it went public.

I like this advice and their approach. It drives founders to focus on building something customers will find value in and pay for—versus building something investors are interested in. If you create value for enough customers and they pay for it, investors will always get on board. But if you’ve had your eye on investors instead of customers, you may be disappointed.

A few months back, I shared that 2021 was a gargantuan year for IPOs, with 1,035 of them—the highest number I could find in the last quarter century. 

In 2022, we saw just a fraction of that number of IPOs, 181 to be exact. As of the writing of this post, we’ve had 114 IPOs in 2023, which means we’re tracking for fewer than in 2022.

A few weeks ago, I shared my thoughts on the draft S-1 filings by Instacart and Klaviyo in anticipation of going public (see here and here). This week, both companies held their IPOs (NASDAQ: CART and NYSE: KNYO). Both offerings are complete, and the companies are now trading on public stock exchanges.

I suspect that venture capital investors and founders of late-stage tech companies will closely watch how both companies perform in the public markets over the next few weeks. If their stock prices are flat to up, we could see an increase in the number of technology companies filing to go public and maybe even see more IPOs in 2023 than in 2022. If their stock prices fall materially, I wouldn’t be surprised if 2023 is another year of declining IPO activity as companies elect to wait for better conditions in early 2024.

For better or worse, these companies will likely have a material impact on upcoming IPO activity and technology investor sentiment.

When early-stage founders pitch investors, the process can be long and exhausting. They end up pitching countless investors in hopes of one or two saying yes. By employing a bit of scheduling strategy, they can improve their chances of getting a yes.

Great pitches are the result of practice. The more you pitch, the better you get. The more you pitch, the more you realize what isn’t resonating and adjust. The more unanticipated questions you get, the more you incorporate the answers into your deck (or an appendix). After countless reps, the pitch flows smoothly and you’re more confident. The chances of getting a yes are better.

Most founders aspire to have a particular investor on their cap table. Maybe it’s an angel investor or venture capital firm with industry expertise and relationships. When you pitch your first-choice investor, you want to put your best foot forward. You want them to be blown away by your pitch (or at least interested enough for another meeting).

Because practice leads to a great pitch, it may not make sense to schedule your preferred investor early in the fundraise process. If you do, they’ll get a pitch that still needs work. Instead, pitching the investor you really want to land after you’ve done more reps pitching other investors and fine-tuning the pitch can be a good idea.

Scheduling meetings with several investors is great, but you want to be thoughtful about when you reach out and schedule time with your first choice.

One thing I’ve noticed is lots of media reports about IPOs being priced at valuations below their most recent private fundraising round. Instacart is an example. A few founders and friends trying to make sense of this asked me about it. Why would you take a company public at a valuation materially below its valuation in your last VC fundraising round?

The answer can sometimes be related to needing to raise more capital but being unable to do so privately because of cap table complexity. I recently listened to Bill Gurley, a famous VC investor, articulate why IPOs can be the easiest way to raise capital when a company has a complex capitalization table.  

For anyone interested in understanding this topic better, Bill shares his thoughts in this clip and this one.

Today a friend sent me a link to an interview on a topic I’m interested in. I’d never have known about this interview if he hadn’t shared it. I listened to it, and it was terrific. I got lots of ideas from it and shared it with others. We ended up having a great text exchange about the interview.

Today was a reminder of the power of sharing links to interesting information. (I define “interesting” as being about a topic the recipient has expressed interest in.) It’s such a good way to build and maintain relationships. Essentially, it’s curation. Sifting through information, selecting the most value-added items, and presenting them to others gives them something of value and leaves a positive impression of you in their mind. It also saves them a massive amount of time. Said differently, it’s a simple way to offer value to others and stay top of mind with them.

I came across a press release announcing Instacart’s Series A funding round. The 2013 post noted that Paul Buchheit participated in the round and that he was the creator of Gmail. I wasn’t familiar with Buchheit and did some research. He not only created Gmail but also cofounded FriendFeed, which Facebook acquired, and is a Partner at Y Combinator. I also found a chat he gave to Y Combinator founders several years back.

Buchheit gave background info about himself and how he went from midwestern college student to Y Combinator. And he shared what he learned as one of the first twenty or so Google employees and from building a social start-up that competed with Facebook.

One of the insights he shared during his chat has stuck with me. The thing that helps companies become $100 billion giants: sitting on top of an exponential change in the world. A massive shift in society has happened or will happen. These companies recognize this and build a solution that capitalizes on the change. In this portion of his chat, Buchheit went on to give examples of companies and the exponential change they benefited from. 

Buchheit’s insight is spot on. To take it a little further, the companies recognize an exponential change that will create a new market that will expand rapidly. They build a solution for this new market and ride the wave. As the market leaders and hopefully first movers, the companies get pulled along as the market grows because of this exponential change in the world.

A great insight from someone who’s been inside multiple billion-dollar companies as an early employee (Google/Alphabet) and investor/advisor (Instacart, Doordash, Coinbase) and been acquired by one (Facebook/Meta).

This is my one-hundred-eighty-first weekly reflection. Here are my takeaways from this week:

•  Surveying B2C – I had a great chat with a few entrepreneurs who own businesses that sell to consumers (B2C). These conversations provided ground-level information in real time on what’s happening with consumer spending habits. Anecdotal, but still helpful.  
• IPOs and fundraising – Arm Holdings, a semiconductor company, went public this week. Next week or the one after that, Instacart and Klaviyo could go public. A few early-stage founders I know officially kicked off their fundraises this week. The next few weeks of IPOs and fundraising will likely have an impact on public and private market investor sentiment.
• Rational decision-making – I’ve been thinking about a conversation I had with a seasoned entrepreneur. I think I’m going to start asking myself and others, “Is this a rational decision?”

Week one hundred eighty-one was another week of learning. Looking forward to next week!