The Funny Money Unicorn Business

For those who follow my writings on Billion Dollar Unicorns, you know that I am not a fan of ‘Valuation Without Revenue‘ Unicorns. The mindless inflow of capital into companies with dubious monetization ability irritates me. This week, some important coverage has emerged on the games VCs are playing to achieve Unicorn status for their portfolio companies. The most important, must-read piece on the subject is from Heidi Roizen, Operating Partner at DFJ: How to Build a Unicorn From Scratch – and Walk Away with Nothing.

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How To Dramatically Slash The Cost Of College Education

The exorbitant cost of higher education is a recurrent topic of conversation, concern, and discontent these days. Against that backdrop, an announcement from edX and Arizona State University caught my attention last week. ASU and edX announced a program called Global Freshman Academy:

The Global Freshman Academy (GFA) will give learners anywhere in the world the opportunity to earn freshman-level university credit after successfully completing a series of digital immersion courses hosted on edX, designed and taught by leading scholars from ASU. By allowing students to learn, explore and complete courses before applying or paying for credit, the Global Freshman Academy reimagines the freshman year and reduces academic and monetary stress while opening a new path to a college degree for many students.

The program differs from other digital immersion undergraduate programs in the following ways:

• Course Credit for Open Online Courses – By completing the full series of eight Global Freshman Academy courses, students earn full college credit for freshman year; students will also be able to opt for taking individual courses for credit if they prefer
• Cost Effective – Freshman year credit earned through GFA is a fraction of the cost students typically pay
• Learning Before Payment – Students may decide to take a course for credit at the beginning or after coursework has been completed – reducing financial risk while opening a pathway for exploration and preparation for qualified students who may not otherwise seek a degree.
• Unlimited Reach – Because of the open course format, learning takes place while scaling completely – there are no limits to how many learners can take the courses online
• Innovative Admissions Option – GFA’s approach is different from the traditional admissions process of other credit-bearing courses, eliminating such barriers to entry as standardized tests and transcripts that are part of the traditional application process.
• Track Record of Success – This partnership brings together a globally recognized online educational platform founded by Harvard University and the Massachusetts Institute of Technology with a university whose innovative online degree programs boast an 89 percent retention rate.

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My Blogging Strategy Was Supposedly All Wrong

In the spring of 2005, I started blogging.

During those days, blogs were not as commonplace as they are today. Om Malik, at the time a close friend, and a pioneer in the tech blogging scene, introduced me to the concept. “You are so opinionated, you must blog!” Om declared. Then, he went on to have his own web guy set up my blog.

I started writing.

I wasn’t a journalist, so my writings were largely opinion and analysis pieces. People seemed to like to read them, so I found it encouraging, and started taking it seriously.
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The Commoditization of Venture Capital

The venture capital market is getting more and more irrational every day. VentureBeat just reported this week that VCs are ‘collecting logos’ of unicorn companies.

According to Pitchbook, more than 60 percent of all VC-invested capital went to rounds of more than $25 million in 2014, the highest percentage since the dotcom boom. There were 414 rounds of $25+ million last year, 50 percent more than the 276 rounds in 2013. VC capital invested jumped $20 billion from 2013 to 2014, while the number of financings fell by 16 percent.

Historically, private company valuations have largely been tied to valuations in the public market. But there is now growing concern that VC valuations have exceeded reasonable public valuations — a dangerous sign. Facebook’s $22 billion acquisition of WhatsApp has inflated valuation expectations. Meanwhile, potential tech buyers such as Google, Yahoo, Alibaba, Apple, and Microsoft have tens of billions of dollars in cash holdings. Series D+ valuations saw a 50 percent jump from 2013 to 2014. Valuations now exceed some of the closely watched historical exit parameters. We’ve also seen a significant increase in median Series B valuations. Capital invested in late-stage rounds was up to $11.5 billion in Q2 and $10.6 billion in Q4, representing the only two $10+ billion quarters since the dotcom boom. Seed rounds declined to 221 in Q4 versus 564 in Q1 2013.

I discussed the danger of overvalued private unicorns in Why Not All Private Unicorns Will Become Public Unicorns earlier.

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Valuation Without Revenue, Revenue Without Valuation

A tale of two tech companies.

One has an outrageous valuation, venture capital pouring into every pore, no revenue.

The other, quietly, has turned $11 million of capital into an annual revenue run rate of over $100 million, went public, and has a lousy valuation.

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When to Quit While Bootstrapping with a Paycheck

My recent book “Bootstrapping With A Paycheck” offers a close look at a mode of entrepreneurship that has become a major trend. Entrepreneurs are starting companies in droves while still holding onto their full-time jobs.

Two interviewers, Amina Elahi from The Chicago Tribune and Katherine Harvey from Union Tribune San Diego, asked me the same question: If you are bootstrapping a startup with a paycheck, when is the right time to quit?

Here is what I told them:

Q: How can an entrepreneur know when it’s time to make the leap to full-time self-employment?

A: This is a personal choice that depends on your life circumstances, but at the minimum, you should definitely validate your business idea and determine whether it’s going to generate money. Talk to customers and make sure they’re buying. And keep in mind that most venture capitalists will not fund you until you’re running your business full-time. Before you go out to raise money, you’re going to need to quit your day job.

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The First Key Lesson From Ellen Pao vs. Kleiner Perkins

Like many, I have been following the Ellen Pao vs. Kleiner Perkins saga.

Last week, New York Times had a report on it that has a brief mention of the key issue, in my opinion, that no one else seems to be highlighting:

Kleiner has had about 24 junior partners in its history, Mr. Doerr testified. Most of them were male. Most of them did not make it to the inner circle.

“What’s unusual, what is truly unusual, is for a partner to be promoted,” he said. “It’s happened only five times in the 30-year history of the firm.” The others, he said, were asked “to move on.”

And this is the crux of the matter: in the Venture Capital industry, General Partners seldom get promoted from the ranks of analysts, principals, and junior partners. A long time ago, it used to happen from time to time. Nowadays, almost not at all.
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The Second Key Lesson From Ellen Pao vs. Kleiner Perkins

While my first key lesson from Ellen Pao vs. Kleiner Perkins is for both men and women, this one is specifically for women.

Yes, we’re watching this trial bring to focus gender discrimination as a core issue in the technology industry. That discussion needs to happen. I am glad it is happening.

Meanwhile, for young, talented, ambitious women out there, I have a few words of wisdom.

Please do me a favor, and do not go have affairs with married colleagues.
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