I hosted a group of HBS students in a tour of startups in downtown Boston a couple weeks ago. It was a fun trek, that had us visit Dataxu, Localytics, and near-unicorn DraftKings. We ended the trek chatting with Paul English, the co-founder of Kayak at his venture foundry Blade.
It was great to hear the inside story of some really interesting companies, including two that have just raised substantial dough and are looking to expand their business and teams significantly in the coming years. Some of these companies have extraordinary growth rates and are poised for really great things. Most are looking to have teams that will be over 200 people over the next year or two, probably quite a bit larger in some instances.
But what I was most struck by was a stat that Paul English shared. When Kayak went public, the company had one of the highest revenue/employee ratios of any business. Here’s what Kayak looked like when it went public:
IPO Market Cap: $1B, Revenue: $225M (2011), Employees: 185 (July 2012), Rev / Employee: $1.2M (Paul has quoted $1.5M, which makes sense given growth of the business in 2012)
Compare that with a couple other recently public companies.
IPO Market Cap: $8.4B, Revenue: $98M (2013), Employees: 628 (2014), Rev / Employee: $156K
IPO Market Cap: $2.6B, Revenue: $331M (2012), Employees: 886 (2013), Rev / Employee: $374K
IPO Market Cap: $967M, Revenue: $64M (2013), Employees: 534 (2014), Rev / Employee: $120K
IPO Market Cap: $1.7B, Revenue: $124M (2014), Employees: 972 (2014), Rev / Employee: $127K
IPO Market Cap: $1.9B, Revenue: $137M (2013), Employees: 680 (2014), Rev / Employee: $201K
IPO Market Cap: $990M, Revenue: $134M (2013), Employees: 342 (2014), Rev / Employee: $392K
Throwing in Etsy now that the data is available:
IPO Market Cap: $1.7B (e), Revenue: $195M (2014), Employees: 685 (2015), Rev / Employee: $285K
These are pretty fascinating comparisons. Of course, these businesses are very different, and that has an impact on this metric. But it’s amazing to think that Kayak went public at a $1B valuation with less than 200 people, when all of these other companies had 300 people or more. Some of the mid-stage startups that I visited that day will have more employees in the next 12 months than Kayak did upon IPO. Pretty extraordinary.
It’s a reminder to me of something that my partner Dave often encourages us to focus on: technology leverage. We are seeing more and more companies out there that are largely based on the time and effort of people or are about making or moving around stuff. Those could be pretty interesting companies, but their value will be largely based on how much leverage they are going to get out of their technology to fuel attractive growth and profitability down the road.
I’m excited to announce that we have promoted Jay Acunzo to Vice President of Platform at NextView.
When we hired Jay to be Boston’s first VC head of platform, we were super excited about what we thought he could do for the NextView portfolio and broader tech community. That said, it was an amorphous role for everyone, and an exploration as a team about what Platform ought to mean for a high-conviction hands-on seed investor like ourselves.
Jay hit the ground running. He has not only multiplied our activities and effort, he has helped us craft a focused strategy about the mission of our platform with a maniacal focus on results. Rather than just throw a bunch of people in a room for random networking purposes, Jay has embraced our ethos here at NextView to be authentic contributors to the community and to be systematic in these efforts. He’s done a terrific job working to “productize” many of the efforts that we’ve been doing on an ad-hoc basis, like The Boston Tech Guide, Growth Guides and other data driven studies, as well as some important internal initiatives outside of the public eye.
Because of this, we’ve been getting some really nice unsolicited feedback from folks within our portfolio (and folks outside our portfolio that benefit some of these initiatives). Stuff like:
“You guys are terrific. Most involved vc of the bunch really appreciate it! Want to get you back out at some point to talk more about our go to market efforts” – Portfolio Company CEO (email to Jay)
“I was reminded to reach out because Nextview has come up a few times recently — once with a company we’ve been talking to recently (where the NextView Platform was mentioned) and another time through a forwarded Nextview Blog post (from one of our Portfolio companies). – VC Coinvestor
“As a guy who just spent way too much of his life (2-3 weeks) creating a pitch deck, I owe you a big, big thank you. Not only was your timing impeccable, the decks you put together were FAR more thoughtful, comprehensive, and helpful than anything else.”
– Entrepreneur (not a NextView portfolio company)
On top of all this, Jay has fit really nicely into our team and shares our common ethos. Dave, Lee, and I have all really enjoyed our collaboration with him, and have become only more excited about what we can do programmatically to help seed stage founders give their companies the best possible start.
Congrats Jay! We look forward to continuing to build this firm and our platform together.
I’m feeling particularly blessed today. And it’s not just because it’s Good Friday.
Nancy has been traveling a bunch the last month. I think she was gone 14 nights in the past 30 days. It was pretty tough with my own travel schedule, but we got through it and am really glad that she’s back for a while. I’m grateful that we have great help and support through my in-laws and our au pair who allow us to handle these sorts of life fluctuations.
My daughters have been amazing, and I’m shocked at how quickly they are growing up. Yesterday, I was knocked out with food poisoning. I was in rough shape. But the girls were really sweet. They brought me food and drinks. They checked in to see how I was, but didn’t try to pull me out of bed to take care of them. A couple times, they would just come in and hang out with me without really saying or doing anything. It was good for my soul.
On top of all this, the snow is mostly melted and we had our first really great day of spring yesterday. I dragged myself out of bed for a walk and felt refreshed.
My cup runneth over.
I found myself giving a couple different personal care companies a try recently. One was Harry’s, and the other was Walker & Co. These experiments stemmed not from my dissatisfaction with my current product (a Gillette Fusion pro-glide), but my general interest in disruptive innovation.
I am coming at this question from an interesting perspective. My wife is an alum of Gillette, and was around to see the transition of that company as it changed hands and became a part of P&G. As a result, I have a couple unique POV’s.
1. I happen to be pretty indifferent to price at the moment, given that I have a healthy supply of razors at home and my hair is such that I don’t really need to switch that often.
2. I have tremendous appreciation for the level of science and innovation that have gone into the best-of-breed Gillette products. As Jeff Raider from Harry’s remarked to me when we chatted on the phone, this isn’t like the eye-glass industry. There is real IP and decades of effort around optimizing performance that the new players need to deal with.
3. That said, I see P&G as struggling immensely to manage this business. Gillette was largely a performance and product driven company, and P&G is a mass brand-driven company. This has led to confusing market positioning, stalled innovation in product development, and a mega-mass market focus that I think make the category super vulnerable.
So, what did I think of these experiences?
I think Harry’s is a solid product, with beautiful branding. But there are a couple product issues that I know the team there is working hard to address. I believe these are solvable, and the fact that Harry’s owns their own facility gives them a shot to be a performance player over time. I haven’t tried Dollar Shave Club, but it will be interesting to see how this approach unfolds. DSC seems like the low-end player disrupting largely on price and go-to-market, and it seems to be working well given their recent market share numbers. But Harry’s is making the bet that ultimately, they can be the next-gen Gillette – a performance oriented product with a more aspirational brand (and hopefully, still cheaper prices). Will Harry’s be able to deliver on this brand promise? Will DSC need to start spending a lot more on product innovation or else see marketing efficiency and retention decline? Time will tell.
But I think the most interesting company in this category is Walker and Company. I gave their product Bevel a try, and found it really cool. When big incumbents are disrupted, the successful new company often goes after a niche market and beats the incumbent in a non-core attribute.. Walker and company is doing just this – going after the niche of men that have sensitive skin and suffer from razor bumps. Because of this, their product is completely different – an old-school, but beautiful double-edge razor.
I’d argue that the core attributes that most razor companies go after are shaving closeness (Gillette) and price/value (Schick). Going after skin irritation (which is a rampant issue for people of color) is a brilliant approach towards this market. It’s something that all shaving companies seem to care about, but is definitely not priority #1 or priority #2 when they think about their product strategy. It also allows them to make a product that feels like a luxury, precision instrument with pricing that is sort of apples-to-oranges to compare (each Bevel package includes 60 razors). It’s a total judo move.
Ultimately, I’m probably going to stick with Fusion for now, but it’s really cool to see smart companies with a commitment to great products start to get some traction in the market. It will be exciting market to see unfold. For a long time, I thought that Gillette was unbeatable. But It’s pretty clear that now is the time that this is no longer true.
I find the most successful fundraises are ones where founders treat capital as a weapon, not as oxygen.
If capital is like Oxygen, the conversation focuses on what might go wrong. Will your numbers and assumptions hold up? Will new risks blow up your model or the quality of your service? What unforeseen challenges might make you miss your numbers and run out of money sooner, requiring more oxygen down the road. What’s around the corner that will be a threat?
If capital is a weapon, the conversation tends to focus on what might go right. What will be the benefits around the corner with increasing returns to scale? What kind of game changing people will you attract, that will raise the level of all future hires? What kinds of unbreachable moats will you be able to build? What kinds of new partnerships or new capabilities will be achieved? What’s around the corner, and how can you play that to your advantage?
By the way, it’s not that those who treat capital like oxygen don’t talk about upside and results. But I notice the focus tends to be more on numbers and scale. “We’ll get to $xx in revenue” or “We’ll be profitable”. When capital is a weapon, the milestones tend to be different.
Capital as a weapon can backfire. If you read my last few posts, you will see that I’m totally wary of that. Some companies I know use capital as a weapon, and I think of them as enormous cannons sitting on top of a house of cards. Some funds I notice fund companies like this systematically. It’s kind of scary, but if a solid foundation is actually built for these companies, it will pay off.
Regardless, when you go out to raise capital, you should ask yourself if you can credibly talk about how the capital will be a weapon that will help you win, and keep winning. If you can’t, that will be a problem when you talk to investors.