May 10,000 Cloud Startups Bloom

The cloud services market has fueled a boom of immensely successful startups, most of which have raised millions in venture funding. Take analytics platform company Birst, which started off in the high-end financial sector, raised $64 million in venture capital, and is now growing fast as a regular Silicon Valley-style pre-IPO company. Technology Business Management solutions provider Apptio raised a $7 million series A to get started and within the year got to $6 million in annual recurring revenue. Its customers include 29 of the Fortune 100 companies and has to date raised a whopping $136 million.

Business analytics provider Adaptive Insights raised $100 million in funding and has over 2000 customers. Huddle, enterprise collaboration service provider, raised $38.2 million in funding and now has close to 80 percent of the Fortune 500 as clients. Email marketing company iContact bootstrapped for three years to $1 million using services and then raised $53.4 million in three rounds. They eventually got acquired for $169 million. Mobile website maker DudaMobile bootstrapped using a paycheck and then went on to raise $18.6 million.

However, not all cloud startups have gone the heavy funding route. There are many under-the-radar cloud/SaaS startups that are also developing as bootstrapped businesses. Analytics company DataSong has bootstrapped all the way—for 11 years—and expects to do $6.5 million in revenue in 2014. Another such company in our 1M/1M premium program is Happy Grasshopper, which has chosen to bootstrap so far, and is approaching a $3 million run rate in 2014.

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Building a New Online Fashion Brand: Combatant Gentlemen CEO Vishaal Melwani (Part 3)

Sramana Mitra: Can we go back to the exact moment when you decided that you were going to do this business? What triggered the idea? What was going on in the industry? What are the dynamics of the founding?

Vishaal Melwani: One of the biggest things that struck me was there’s a need for this. There’s something that is missing. There’s a huge gap in this market. Between the low-end bargain bin like JC Penney and all the way to the higher-end Hugo Boss, there’s really nothing in between. There’s nothing that’s there to give our guy a spark. At that point, it was all about us creating a solution to that. It was around 2007 to 2008 when we first developed this idea. >>>

Building a New Online Fashion Brand: Combatant Gentlemen CEO Vishaal Melwani (Part 2)

Vishal Melwani: Within a year, we garnered around 180 clients that were some of the world’s top urban wear brands. We ended up selling to a large trading firm within the first year. We sold to a trading firm based in Hong Kong. I was 25 and I had an exit under my belt. I was this guy who was a highly-driven, third-generation tailor who wanted to focus on the product. I took a couple of months off and went to visit my friends who I’d graduated with. They were typical guys who graduated from business school and law school and they moved out to the east coast to get jobs at Goldman Sachs or JP Morgan. This was the height of the recession. This is around 2008 when jobs were literally just decimated. >>>

Building a New Online Fashion Brand: Combatant Gentlemen CEO Vishaal Melwani (Part 1)

I am a big believer in new, highly focused online fashion brands that can be built with a purely digital strategy. Combatant Gentlemen is a case in point. The company bootstrapped to $700K in revenue, followed it up with a $2.2 million financing round, and is on track to deliver $15 million in revenue this year. The market is large, and hence the opportunity to scale exists.

Sramana Mitra: Vishaal, let’s start at the beginning of your story. Where are you from? Where did you grow up and in what kind of background?

Vishaal Melwani: I am a third-generation tailor. I grew up in Las Vegas, Nevada, believe it or not. My dad was a second-generation tailor. My parents came to America in 1976 from Hong Kong. The goal was to basically have the American dream and focus in on what they knew. >>>

YCombinator’s Further Evolution Into A Seed Fund

YCombinator has just announced that it will replace its $17k for 7% pre-seed equity investment with a $120k for 7% seed investment deal. From the WSJ:

Previously Y Combinator’s standard deal was about $17,000 for 7% of the company, plus an $80,000 note from a group of venture investors and firms eventually known as YCVC, which most recently included Andreessen Horowitz, General Catalyst, Maverick Capital and Khosla Ventures.

So, startups will now get $120,000 from Y Combinator, instead of $97,000 from a combination of Y Combinator and select venture firms. That means the implicit valuation for YC startups rises to about $1.7 million from the previous $1.4 million (YC might deviate from the standard deal “in exceptional cases,” presumably for an ultra-hot startup that merited a higher valuation).

The $120,000 will come directly from YC and a fund it manages that has limited partners, though the accelerator itself has no limited partners, Altman said.

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The Funding of Avaz: Some Reflections

Harvard Business Review Series on the Seed Capital Gap

Crowdfunding Startups: Opportunities and Bottlenecks

There has been a bit of action for a while now in the crowdfunding world, and certain startups have been able to get themselves off the ground using the Kickstarter / Indiegogo style sites. By and large, these types of financings have gone to companies that are building physical products, digital games, etc. Fundings have also happened for some causes, films, books and art projects that are typically not businesses. Equity crowdfunding has been signed into law in the US through the JOBS Act, but it awaits the SECs directives on the precise rules governing the system. In Europe, it is legal and already in practice. Hopefully, other parts of the world will also start seeing the infrastructure develop shortly.

For our domain of focus, the primary concern is financing digital startups: technology and technology-enabled services. Typically, these are difficult to assess, high-risk companies, and amateur investors from the “crowd” are unlikely to be able to perform adequate due diligence to have a sophisticated investment thesis.

However, there is one category of investors who will have an excellent vantage point from which to assess new ventures.
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