Entrepreneurs must die? The reason for the death of C-round

Entrepreneur: I don't want to die.

Death: Based on these days of micro-letter Brush screen article to see, this is not up to you.

Entrepreneur: What can be done by me?

Death: which round dies.

A few days ago, Ecapital Capital founder ran in the entrepreneur issued "Vigilance!" C-round death, said the entrepreneur may be the death of C round.

Then, the nine-Xuan capital partner Liu Yan in the entrepreneur released "from the Angel to a round of entrepreneurs to go over the 9 major life and death," a article that entrepreneurs may be a round of death.

Yesterday, Blue Chi Venture partner Chen Wei in the blog world "died in the B-round," the article, said the entrepreneur may be the death of B-round.

The entrepreneur wants to say: Stop! Let's take a look at the following 3 articles first, perhaps to avoid their own business in trouble as soon as possible.

Ran: Beware of C-round death easy Kai Capital Ran said, 2014 to get a round of financing companies have more than 800, get B round of financing more than 200, these 1000 enterprises will have a large proportion of the need in 2015 to get the C round. Suppose that less than 100 of the 2015-year-old is in the C round, which means that 90% of entrepreneurs may have to confront the possibility of "C-round death".

So what are the most likely reasons for startups to face "C-round death"?

1. The source market is not big enough today

The so-called source market refers to the niche market that you are focusing on and trying to reshape today, not the sum of all the relevant or contiguous areas that you can extend to in the future when you become a platform. In the case of C-round financing, if you focus on the source market in the foreseeable future (frankly, 3-4 years after the IPO) the potential scale is not 100 billion or 200 billion, then you need to give yourself the first warning of the small red flag.

2. Standing on the wrong slope

Almost every big hundreds of millions of, tens of thousands of billion market has a number of points of view, some people from the south slope, some people from the North Slope on the road. But not all slopes have the same opportunity. There's always an exception. No matter how big the market is, if someone else's slope is better than yours, then you need to give yourself a second red flag for early warning.

3. On their own slope is not the first second and the gap with the first two large

In a market where the scale effect and the net effect are obvious, if you are not the first or second in the market and have a big gap with them, you need to insert a third red flag for early warning.

4. The valuation growth curve is too steep and the "VM" index is above 0.5

VM Exponent, V is the value, M is the number of months. The VM index refers to the difference in valuation between the current round of financing and the previous round of financing (valuation before the current round) divided by the number of months between two rounds (the number of calendar months between the expected signing month and the front wheel delivery month). Even for pigs in hot-spot industries, the VM index for the C-round should not normally exceed 0.5.

Chen Wei: Entrepreneurs should be wary of B-round dead blue venture partner Chen Wei feel that many entrepreneurs can not reach the C round, in the B round may face death. In his view, investors would take on a class A start-up, a company whose founders were more valued, in a rush to make startups ' valuations rise. This is likely to result in the end of 2015, there are 70% start-up companies in the B round of financing problems, or not necessarily meet the founder's expectations.

In the past, the traditional a-round financing of technology companies is generally 4 million ~500 million dollars, now a round of financing threshold has been raised to 10 million U.S. dollars, if the entrepreneur to give up 20% of the company's equity to calculate the valuation, the technology company's valuation is 50 million dollars. The traditional B-round financing line is probably 30 million ~4000 million dollars, now 80 million to billions of dollars.

So, the result is that most of the company's B-round does not melt the money? So to speak:

1, because you put a part of the original should vote B, c round of money to a round, this will cause a round of the surge of projects. For example, you have 100 dollars, you have 30-40 dollars for a round of start-up companies, then there is not so much money to vote B or C round. If you throw too much in front, you will have a gruel situation.

2, in addition, once the majority of entrepreneurs do not melt the B round, then a round of investors will consider the hands off. For example, you cast 10 projects, only 2 projects into the B-round, other projects can not be integrated into the fund, and then someone to ask you to melt a round, you will become cautious, you can not be judged on the entrepreneur is too low, otherwise you cast a lot of bad projects. Sometimes it is this herd mentality that has promoted economic prosperity in one era and accelerated economic decline in another.

So my judgment is that by the end of 2015, investors will begin to shrink their investment in the technology company a round, and in 2016 this cautious attitude is likely to affect investors ' judgment on the Angel round.

I personally judge that there are two criteria for the bursting of a bubble:

1, when the majority of technology companies a round of financing to become 40 million-50 million U.S. dollars, far more than usual around 10 million-20 million will be problematic. To make money standards, venture capitalists pursue the investment principle is to buy low sell high. You cast 10 projects, each of which is a 40 million-50 million dollar financing, which is a cordon because the price you buy is too high.

2, your previous investment in the price of a round and the technology companies continue to melt the price of B-round is no difference, not even the money, this time you must be very careful.

Liu Yan Boat: The most should be wary of is a turn to die! Nine-Xuan capital partner Liu Yan boat View more pessimistic, he said, most of the entrepreneurs easily die at the two gates, a and C rounds, a larger part of which is dead in front of a round.

The analysis of Liu Yan boat is that many projects have such "hump curve" laws, 0 to 1 (seed wheel) and 1 to 10 (Angel Wheel) is easier, 10 to (a round) is more difficult, 100 to 1000 (b-round) is relatively easy, and 1000-10000 (c) is relatively difficult.

Why not go through a round?

1, the product does not conform to "universal, explicit, just need, high frequency" of "the decision"

Regardless of hardware or app product, the first attribute (first scene) is the tool attribute, is what use do you have to the user in the end? How much value, thickness, and value you can provide to your users determines whether your product is a "gold hook" or a "mud hook". Many entrepreneurs tend to be self-reinforcing and "rape" the market's will, the product does not conform to the "universal, explicit, just need" principle. Some products, although also can meet the user's "universal, explicit, just need", but can not extend to the second scene, there is no way "high-frequency", so it can not produce persistent user stickiness.

2, the founding team in the Angel round after the share of the low

The founding team did not grasp the pace of financing, too early or too much financing may cause angel investors to share too much (which is often easy to do with tyrants money), and the founder team is too low for late-stage financing (because prospective investors will think the founding team is not motivated enough).

It is particularly worth proposing that sometimes the subprojects that are hatched in a project the most likely issue of ownership structure, as the hatching of the subproject is "job results", the original shareholders will not want to give up too many shares, which directly led to the actual founding team share of the share is too low (some will be close to 50% or less than 50%).

3, product and user data performance is not good

A round of financing products and user data, is essentially the project from 1 to 10 in the process of product validation in the market data expression, this time does not require corporate profits, but the data must show that the product on the market after the "Ganci" trend. If the data does not perform well, it is inevitable that investors will shoot off the project. Therefore, it is crucial to get good data performance before a round of financing.

4, the profit model facing the ceiling

When many entrepreneurs enter an industry, do not want to clearly follow the business model, when the development to a certain stage, found that its profit model facing the ceiling, although enterprises can make money, but to achieve 10 to 100,100 to 1000 of the expansion, faced with great challenges, such an industry usually presents the pattern is "big market, Small workshop. " Such projects will also encounter great difficulties in financing a round.

5. Differences in valuation expectations between founders and investors

The price is formed by the market. If the capital markets are generally unable to accept the founders ' expected valuations and the founders are unwilling to compromise or accept the terms of the bet, they are likely to miss out on financing opportunities and allow competitors to take the initiative, which makes it easy for entrepreneurs to suffocate their projects. Who can seize the initiative in financing, who will be more priority to occupy the minds of investors, so that the potential investors of competing products to create greater psychological barriers.

6. Defective Team Organization

Some projects, the direction is good, the data base is also good, but the team structure has the flaw, for example CEO too "technical Curtilage", lacks the sufficient strategic ability and the resources conformity ability, this also directly affects the investor to the founder financing ability confidence. Some project teams lack core partners in technology, marketing, and operations, which may also directly lead to investment companies abandoning investment opportunities at the A-round stage.

7, the vertical platform was finally covered by a large platform

It is of course the best strategy for startups to cut into the vertical. However, in the "plain zone" of the "heavy vertical" field, if the effective moat can not be established (to achieve a certain scale barrier or vertical industry itself has a strong ability to specificity or resource specificity), it is likely to achieve a certain stage after the large platform coverage. Heavy vertical projects are more likely to survive in areas with obvious "capability specificity" and "resource specificity", otherwise it is a race against time.

8. The existence of policy uncertainties and legal risks

Some projects, from the very beginning of creation, have been on the verge of policy and law, there are a lot of policy uncertainties and legal risks, such as yellow, involving public opinion supervision, the existing regulatory policy (licensing) and other aspects of the project, if the time is not on their side, in a round of financing may be facing investors to avoid the risk of investment.

9, to a round of financing expectations too high

Some entrepreneurs, their own background is good, Angel wheel easy to take, so on the project in a round of financing too self-confident, at the outset set a high level of financing and valuation expectations, constantly testing the bottom line of the capital market, repeated major adjustments to the valuation, resulting in a long financing cycle and the circle is known, Investors of such projects will of course remain cautious.

Finally, the three of them also gave the entrepreneur advice, ran told the entrepreneur to avoid C-round death, first, to avoid being misled by other people's false valuations; Secondly, in the market segment, the first round of financing should be completed; third, to set aside a long time for the C-round in terms of current reserves; four, try not to give investors exclusive period, who to go with WHO Five, the introduction of strategic investment is not a bad thing, do not fear the war team.

Chen Wei told entrepreneurs to learn to work with investors to resolve the secrets of entrepreneurship. He was very sympathetic to Peter Thille's remark: "Successful businesses are built on secrets that are open but unknown." "He mentioned that neither investors nor entrepreneurs are eager to jump into a frenzy, but together to resolve the hidden secret under the tide, because that is the key to open the door of wealth."

Liu Yan Boat Think entrepreneurship is of course a escape adventure, no risk, no entrepreneurial. The key is how to balance the various factors, which is the ultimate test of the founders and the founding team. The strategic ability of "big country" and the ability to spend money on cooking small is the ability that investors most want to founder. The entrepreneur's mission is to find a market of flour, and then rub dough, then prove to investors: you have nothing, only lack of money (water).

This article Blue Chi Venture partner Chen Wei "died in the B round" from the blog world.

This article Ecapital Capital founder ran "Vigilance!" C-round death, nine-Xuan capital partner Liu Yan Boat "from Angel to a round of entrepreneurs to step over the 9 life and Death," copyright &i Black Horse owned by entrepreneurs.