August 2012


On the 500startups forums, someone asked about how to name their startup. I thought it would be worthwhile to repost my response there, which was to detail my favorite process for brainstorming a new name for a company, product, or service. Here it is, with some embellishments:

Before you begin, some good tools to have: thesaurus and dictionary. Creative people, advertising copywriters are the best. An open mind to the nutty and weird.

1. Brainstorm related words, or perhaps unrelated words if you want something interesting and fun that may not be directly descriptive of your business.

2. Check synonyms of those words, and reference dictionaries for words that you might use, or might not have thought of.

I also just found this great list on Wikipedia for product naming language techniques. Use these to generate more words besides just the above.

3. Employ these words as prefixes and suffixes, and use both standard and non-standard. For example for suffixes, a standard suffix would be something like “-ly”. A non-standard would be to just use a word in place as the second half of the name.

4. Mix and match the above multiple times. Create lists of possible names and even those that are a bit crazy. Don’t reject anything at this stage – you are bstorming! Put them up on a wall so you can see them all at once. Continue putting words together and creating new combinations.

5. Pick favorites, then throw into a domain name search to see if available. <– this is usually very depressing – not many domain names are left out there. NOTE: be careful – I'm sure that some people are tracking what domain names people are searching on although i can't prove it. but I'm a paranoid guy ;-). So only check names that you are absolutely sure of because if someone believes you are interested in a name, they may buy it before you and try to sell it back to you.

6. Do informal or formal testing of name against customers, friends, family, etc. Check for unintended or alternate meanings.

Check foreign language dictionaries to make sure your name doesn't mean something you don't want it to mean in another language, ie. Chevy Nova, where nova means "doesn't go" in Spanish.

7. Repeat above until you find a name that you like.

8. After you pick a name, then search your state's database of company names. BUT I would highly recommend that you pick a company name that is completely different than your product/website name. To me, staying stealth in today’s world for most startups is critical since things get copied all the time and easily.

9. As for trademarking, you can do your own trademark search at the USPTO website.

You can also file your own trademark application there so i think you can probably get away with not paying a lawyer to do it.

More on general information on trademarks can be found at the USPTO website.

Some online guides to naming:

How to Name Your Business – Entrepreneur.com

How to Name a Business – SBA.gov

The 8 Principles Of Product Naming – FastCompany.com

LaunchCapital sees a lot of deal flow. In 2011, our team saw over 2,500 deals, 285 of which made it to some sort of diligence phase. With 2 (now 3) Analysts/Associates spending the 65 – 75% of our time on diligence, deals tend to bottleneck and efficiency is essential. While “social proof” is an efficient way for VC’s to screen companies, it’s only one piece to the puzzle and the herd mentality is often misleading/dangerous. The influx of money into the seed and early stage markets is also creating an adverse selection problem. As more companies get funded, metrics that were once attractive aren’t so attractive anymore. Raising a Series A has become more difficult and performing deep diligence in order to make smarter investment decisions is crucial. We also realize that the time entrepreneurs spend fundraising takes away from building awesome products, so turnaround time on a decision (includes a “no”) is very important to us. So overall:

 Lots of deals + lots of diligence + a quick turnaround/decision = Research Efficiency.

 To better understand how we research, it’s probably helpful to know what we research. For the most part, a deep diligence dive consists of 6 major parts with some general questions we want to answer: 

  • Market Research/Sizing – Is the market big enough? Do we understand it?
  • Competitive Diligence – What does the competitive landscape look like?
  • Financial Analysis – Do the company’s assumptions make sense? Cost of Customer Acquisition too high? Breakeven? Runway?
  • Customer Calls – Do potential customers need this product? What problem is this company addressing?
  • Previous/Interested Investor Calls – Social proof? Lead investor? Will the round come together?
  • Entrepreneur/Team Background Check – Is this an A+ team? Previous experience? Excellent advisors?

After going through this same process many times, I’ve developed a few research techniques that I think will be helpful to most. The two diligence segments I’ll focus on are Market Research and Competitive Diligence because the last four are pretty straightforward (financial modeling, phone calls, and in-person meetings). So here goes nothing:

Market Research

  • When starting market research there are a few good phrases to Google to give you a jumping off point.  For example, if you are performing diligence on the mobile space, good phrases are “mobile industry report”, “mobile statistics”, “mobile market size”, “mobile industry data”, “mobile industry trends”, etc.
  • Most industries have trade associations or industry groups that provide statistics and research on their industry. Usually they’ll provide a “fast facts” page with good information or sources to do more digging on. 
  • Research companies produce a wide variety of industry reports, but they are costly.  If you come across a report that looks like it would include the data you are looking for, try to find blogs or articles that mention it by name.  Authors of these blogs usually have access to the data and may pull certain statistics or charts from the report.  Also, press releases of these reports may give summaries, overall data, or other information that may be useful. If you perform a PDF advanced search on Google, I’ve found that you sometimes get lucky (~10% of the time) and someone has uploaded en entire report.
  • Searching Google images is also a great way to pull relevant charts/graphs. If you find a chart that’s appropriate, check out the article it came from because it’s usually relevant to what you’re looking for.
  • Another problem is finding the most up to date data.  In some industries (especially the technology industry), data may significantly change year over year.  Try searching Google News for the most up to date articles or include “2011” or “2012” following your search query. Keep macro events in mind when using older data. A 2009 retail report produced during the recession might have very different outlook and projections than a more current report.
  • Digging into Quora questions and responses is another great place to find market info.

Competitive Analysis

  • The first step in putting together a competitive landscape is searching a couple market keywords and adding “companies” or “products” to the end of the search.
  •  Usually the biggest players will bubble to the top. If the company is public, the first place I look for information in the 10-k annual report. Companies give good information on their market, recent trends, business risks (great for identifying potential challenges), and a list of competitors to build on.
  • It might be obvious, but once I’ve developed a list of potential competitors I check out the company website! The about us, product, and pricing sections usually have good information. Also, I tend to find more in depth pricing and revenue model information buried in the FAQ’s. Lastly, check out the press section to lead you to articles about the company. Most articles highlighting a company talks about what they do, how much it costs, how many customers/users they have, revenue growth, and other nuggets of information that could be useful in an analysis.
  • One of the unintended consequences of Angel List is that it’s made researching early stage competitors much easier to research! Pretty easy to use keywords and market filters to give an overview of competitive companies that are currently fundraising.

Additional points from our Boston Associate, Tom Egan:

  • A key part of competitive diligence is reading into how the company positions their product.  You can gain a ton of insight into how they view the ‘problem’, their customers and how they think their product solves the ‘problem’.  Founder/CEO blog posts are also great sources of info for this section.  I usually like to temper those will reviews by people outside of the company – if it’s an app, look at reviews on iTunes to find out how the customer is using it (e.g for Runkeeper – “I love using this one my bike!”) and whether or not it solves the problem (“I hated having to map my runs out after running.  I always forgot.  I already carry my phone for music, so this is perfect.”).  If it’s a SaaS product, look for industry articles, press coverage, or reviews in other marketplaces (Google, Salesforce, etc).  Try to think about the decision making process that a customer would go through when they decide to buy this product or a competitive product.  Figure out what are the fluff features vs. the features that matter.  Figure out if there is a non-traditional use case.   
  • For private companies it may be very tough to find market performance data, especially something that is consistent across all of the companies.  One good tactic is to understand the metrics that drive the particular business model and key in one those.  If it’s a consumer facing company, look at web traffic from compete, Qunatcast or Doubleclick ad planner.  If it’s a SaaS company, look for PR/Blog Posts about number of users or some other metric that is put out to indicate that the company is doing well designed to be found by potential customers.

As Fred Wilson mentioned on his blog, in today’s world the information is out there, you just need to know where to look.

List of Other Useful Websites/Resources

  • Docstoc
  • Slideshare
  • U.S. Census Data
  • U.S. Labor Bureau
  • Google News
  • U.S. Department of Commerce
  • Business Week
  • Angel List
  • TechCrunch
  • Crunchbase
  • Pandodaily
  • Quora

As an advisor to startups, I’ve spent a lot of time developing my skills at teaching, guiding, and influencing people. But things aren’t always so rosy for startups – people who have done startups before know that there can be incredible highs but also incredible lows. The tough moments can be extremely challenging to the psyche. But who can guide them through these times?

Lately, I feel like I’ve been playing the role of helping entrepreneurs through tough times, not only with what they do, but what they feel also.

It’s hard being an entrepreneur. Sometimes, you have nobody to talk to. This is why we encourage entrepreneurs to have a co-founder, and to find good advisors. But I’ve found that while many give great advice and are awesome at the “doing” part, and are great problem solvers, they are awful at the “feeling” part.

Therapists have lots of skills – among them are:

1. The ability to listen.

2. The ability to be non-judgemental. What is, is. Don’t place value judgement on what is there in front of you.

3. Be able to practice “tough love.” Don’t be wimpy and only shower someone with good feelings; listen and then guide them to a better place. Don’t be afraid of confrontation – too many people, especially in California, avoid conflict. It’s stupid.

4. To be able to reflect what you heard from them and then guide.

If there is anything I’ve learned in my life, it’s that humans are AWFUL at the above. A good friend said it to me best:

Our society is awesome at creating doctors, lawyers, physicists, scientists. We put them through 12 years of grade school, then another 4 years of college, and then another few years of advanced training. They become AWESOME at what they do. YET we do not train someone to deal with another person positively and for a long time which arguably is just as or more important than your profession.

Those of you who know me know that I am mentor at 500startups, Lemnos Labs, and StartX. I was also mentor to Ycombinator startups when they had a short trial mentor program. And since 2006, I’ve been advisor to 20+ startups, and Venture Advisor at Betaworks. I’ve learned a lot about being a mentor and advisor over the years (see Advising with Influence and Resonance, Advisors for Early Stage Startups Presentation at Yale Entrepreneurship Institute, How Does One Advise So Many Companies at One Time?, The Three Faces of My Schizophrenia, What If I Advise But Don’t Invest?) but think one aspect that has come to the forefront lately is mentor-as-therapist.

So I listen. I hear what they are saying. I don’t be judgemental. I hear the problem or problems.

I can’t get my co-founder to agree!

Why haven’t I got 1 millions users yet? I think my product sucks!

I gotta bridge at a terrible valuation! Depression sets in!

My bank account is at zero! What do I do?

I can’t raise $100M at a billion dollar valuation! The world is so unfair!

Instagram got a billion, why not me?

I’m outta my comfort zone! Panic!

I may suggest solutions, but sometimes I suggest nothing – (in case you didn’t know, suggesting NOTHING is actually an effective way of helping!). Sometimes it can take several conversations. My intuition is fully on – can I actually push a solution now or should I wait? Maybe I can toe one in to see if it will work? I sense their receptiveness or lack thereof. I use a bit of humor. I rag on them to see the absurdity of it all (after all, what’s REALLY important in life – this stupid startup or something else?). If the time is right, I practice tough love. Some get defensive – that’s too bad – some take it in. It can be very taxing on me – isn’t it frustrating when the other party just won’t change or see the light fast enough? I just relax and be very patient because in my experience, the right answer always eventually comes. But ultimately, my hope is that I get them to a more positive place than they are today.

Yep, I’ve got a new job title – just call me “Venture Therapist”….

In my last trip to NYC, I had breakfast with my buddy Steve Schlafman of Lerer Ventures. I was talking about how many of our startups were going up for series A, and how it was filling my brain and time on how to get these guys there. He replied that they had always thought that way, at which time I thought about how slow I was on that uptake, that our job as seed investors was to help groom our startups for series A!

But as we talked, I also began to think heavily about the importance of series A and it’s now becoming an investment criteria of mine, which is “can I get this startup to series A?”.

The importance of the next round of funding is pretty clear; you need cash to grow and if you can’t get it from some future funding source, it could kill you. However, in order to get your next round of funding, you better exhibit some key characteristics.

So I now look at startups with an eye towards these key characteristics, and I think heavily on whether or not they can with or without my help get to a point of exhibiting as many of those key characteristics as possible. If I decide they cannot, I think I would be less inclined for investment. But if I can see the creation of an environment where the some future investor would look favorably on this company sometime before their runway is over and invest in a series A, then I would be more inclined to invest.

Of course when I meet them at early stage, they rarely exhibit any of those key characteristics. How will I know if they ever will? Some would argue that it’s nearly impossible to predict the future and that smart people will get there no matter what. Unfortunately, I am not sure that is enough any more. Smart people can succeed or fail either way. I am out there looking at startups with an eye to tilt the odds in favor of success and not just betting broadly on the crowd of smart people.

What would make me think that they can get there?

Without diving into the well trodden areas of what makes a great startup to invest in (ie. big markets, no competitors, unique IP, etc.), I think there are some additional things to consider:

1. Is there a larger investor in the round AND who is willing to support their startups after the first round?

All angel rounds used to be OK but I do not believe that is the case any more. This has to do with runway and the inevitable bridge round that comes after. We’ve pretty much bridged everyone of our startups of the most recent vintage. This is because we have been telling startups to raise and survive for at least 18-24 months. But I am not sure this is enough any more since a ton of my startups all need more runway. Thankfully many have had a large investor who was willing to lead a bridge and/or put in a large amount in to give them more runway.

However, it is unfortunate that not all larger funds are willing to do this. I am hopeful that perhaps they will change given the changes in the startup ecosystem. So I am actively searching for seed stage funds to work more closely with who have a true willingness to bridge after the first round.

2. We used to tell startups that they need to ensure their runway was 18-24 months, but now I do not think that is enough – it may actually be 24-30 months now. The evidence is in the bridges that we’ve had to do. Sure they all got to some level of traction by 12-18 months; but it didn’t guarantee a series A. Either they needed to spend more time developing their startup, or developing their series A characteristics, or spending more time raising their round then they thought – or all of the above.

By my observations, there is a series A crunch. There are too many startups all clamoring for series A; it is impossible for everyone to get their next round done – there are many more seed stage startups being formed but the number of series A funding sources has not increased by the same amount.

However, the other issue is, how many series A characteristics are you exhibiting after you come near the end of your initial runway and are they worthy enough for a fund to invest in you?

The battle for attention is fierce; consumers and B2B customers are being deluged by tons of products and services. Traction is much harder to come by. Thus you need time to develop traction which early stage startups typically do not have. Yet another reason for the bridge, when they realize that their traction numbers aren’t good enough for the series A and they need more time to develop traction (and everything else).

The other thing is that there are few startups who can raise a typical $1M round and last 24-30 months without additional funding. This is why I think that most categories for internet startups are moving far to the right on the famous “crossing the chasm” graph and it is getting too dangerous to play as an early stager in those rounds.

3. The round must be big enough. Too often I meet entrepreneurs who only want to raise $200K-400K. Sadly I have to turn them away. There are many reasons why they only seek to raise a relatively small amount. However, if you have a great idea with all the other prerequisites (ie. big market, no competition, great IP, Stanford/MIT grads, etc.) you should go out and raise at least a $1M if you have those attributes! What’s stopping you?

In fact, if you don’t you’ll inevitably end up with not enough traction at the end of your $200K-400K and you could have a tough time raising on mediocre metrics – which means you could die even though you had a great idea to start. The fact remains that it is usually easier to raise money on the promise than afterwards on mediocre metrics.

The basic problem is, in the past, you may have been able to get to your next round with some level of confidence in the past with only that much. In today’s world with the way the ecosystem is, your chance of getting near nowhere is uncomfortably high.

4. Looking at the startup plan itself, I think deeply about it and the ecosystem surrounding it. What will it take to get this startup to exhibit a decent amount of series A characteristics? This will be both subjective and objective; we analyze the plan and do our research as well as put our best guess and intuition against it. Can this startup make it to series A in a reasonable timeframe? Can they do it only with the money they raised? Or should we expect a bridge? Or, given what we know about the VCs who play at series A stage, will this startup get to a place where someone will step up to fund them? Eerily, revenue can play a big role yet again – this is very reminiscent of what happened to investors back in 2008 during the economic downturn; investors starting putting money into revenue generating startups for their survivabiity. I believe this factor will play a major role yet again in today’s world because this lengthens their time to develop series A characteristics.

So if all these factors align positively, then I think the startup has a good chance of getting to the next step which is series A. Still, the world is changing very quickly now and I’m changing my thoughts and strategy in near real-time. In the near term, the ability to create a condition where series A is achievable in the timeframe that a startup has, has now come to forefront of my investment criteria.