Founder Collective: Scrappy & Strange —June 2, 2017

This originally appeared in our newsletter, Scrappy & Strange. Sign up for it here!

Our mission is to be the most aligned fund for founders at the seed stage. We believe the most interesting startups are exploring weird & wonderful spaces that can’t yet be described with tech buzzwords. We also believe that having more capital doesn’t make a startup anymore likely to succeed. These ideas will drive the content of this newsletter (along with a lot of love for our portfolio companies!)

Our hope is that we can use this newsletter to help tell the stories of companies that are using scrappy strategies to dominate sometimes strange markets. What do we mean by “Scrappy” & “Strange” you may wonder?

Scrappy = Efficient entrepreneurship: Startups need less capital than one might think. Efficient use of capital will drive better returns for entrepreneurs. This newsletter will highlight the companies that use capital in wise ways and break down their lessons for your use.

Strange = Founders pursuing weird & wonderful ideas: The best, most disruptive ideas rarely make sense when they launch. We’ll share thoughts on how we evaluate seemingly odd new ideas, the challenges startups face if they pursue them, and some developments that we find interesting.

We hope you find this useful. If you like it, please forward it to a friend. If you can think of any ways to improve it, please let us know.

Scrappy

Managing Partner Eric Paley and Director of Content & Community Joe Flaherty reviewed all the tech IPOs between 2011–2015 and found that there was no positive correlation between the amount of venture capital a startup raised and their ultimate success. In fact, the companies that raised less VC actually outperformed their better-funded peers in the long run.

Think about this. Of the 20 most successful startups of the last five years, 14 raised less than $125M, six raised less than $50M, and one raised nothing. By contrast, the 192 active unicorn companies have raised an average of $284M in VC.

It’s important to note that it’s never too late to become “capital efficient.” Hotel Tonight CEO Sam Shank (#ProudInvestor) shared the playbook for how he turned his company from unsustainable to profitable in just seven months.

Strange

1. What “theme” would have predicted Uber or Airbnb?

At Founder Collective, we’re proudly “anti-thematic.” By the time people start talking about a “theme” it’s probably too late to start a big business in that space. For instance, Five years passed between the founding of Airbnb & Uber and when people started talking about the “Sharing Economy.” FC Managing Partner David Frankel explored this idea in a post, Why Today’s Tech Themes are Poor Predictors of Tomorrow’s Hot Startups.

2. Watching the Alphageeks

What geeks do on weekends tends to become everyone else does for work in a decade or so. New data from our portfolio company Stack Overflow helps illustrate exactly what that might mean in terms of software. It turns out Ruby on Rails is declining as a favorite for weekend hackers while Haskell (big data), WebGL (Web-based 3-D graphics), and the low-level Assembly language are increasingly being used on evenings and weekends. Could these languages be the critical drivers of the next wave of startups?

3. The Rise of “Retrotech?”

Vinyl records outsold MP3’s in 2016. Ebook sales have dropped 17% while paper books rose in sales by 8%. 27 mid-sized cities are ripping up asphalt and going back to gravel roads to forgo the cost of repaving. What’s driving this? GrandTheftAuto V, the 6th best selling game of last year, which was originally released in 2013, might hold a clue about why old-school technology is holding on longer than we expected:

Nowadays, people are playing games into their forties and fifties; they have the money to buy new hardware, but they may not have the time or desire to seek out fresh gaming experiences. Updated versions of reliable staples are becoming more attractive.

Based on these data points it may be worth considering focusing more attention on understanding your customer’s use cases rather than experimenting with the latest and greatest technologies.

4. “Blessed are the Boring”

What do VHS tapes, garbage trucks, and hotels for divorcées have in common? They’re all boring product categories that eventually yielded billion dollar businesses. Managing Partner Micah Rosenbloom explains why founders shouldn’t wait for an idea that they are passionate about, but rather, bring their passion for a problem or approach to an underexplored market.

Founder Collective News

The Art of Open Source Community Building

We’re fortunate to have invested in a group of companies that have set the standard for modern web development. We asked three of them about how they turned developers into devoted users, how they built businesses around open-source communities, and their secrets for promoting new tools. Read their stories:

Follow us on Medium to read our next series on how to turn academic research into startups, including an interview with Accion Systems’ Co-founder/CEO/Rocket scientist, Natalya Bailey.

Forbes Midas List 2017

Eric Paley made Forbes’ Midas List of top venture capitalists for the second year in a row. Micah Rosenbloom made the Forbes’ Brink List of emerging investors. We’re thrilled and honored to be included on lists with such impressive peers, but we’re keenly aware that our success is the result of our amazing portfolio companies, read about some of them below!

Portfolio News

• Kaggle, a leader in data science, was acquired by Google [TechCrunch]
• Moat, a leading digital measurement cloud company, was acquired by Oracle [Wall Street Journal]
• Pocket was a Time Magazine app of the year, and a few months later, was acquired by Mozilla [Time]
• SeatGeek raised $57M to acquire TopTix [Billboard]
• Dia & Co. grew revenue 35X in last 12 months and raised $20M from Sequoia [Fortune]
• Bedly raises $2.7M to make renting an apartment a little less horrible [TechCrunch]
• Flourish gives journalists and agencies a way to work with data, no matter their technical skills. [Fast Company]
• Kuvee is now shipping wine, nationwide [Kuvee]
• Desktop Metal, the 3-D printer that could finally change manufacturing [Technology Review]
• MissionU is a college alternative that gets paid only when students get jobs [Fast Company]
• Firebase now powers over 1M real-time apps [Firebase]
• Joymode, an equipment rental service wants you to do more by owning less [Paste]
• JoyTunes innovative music apps was featured by Apple in the iTunes store [Apple]
• Andela recently hosted new investor Mark Zuckerberg in their Lagos, Nigeria office [USA Today]
• Omada Health published a fifth clinical study validating their diabetes treatment [MobiHealthNews]
• Formlabs’ first user conference, FUSE 2017 is being held in Cambridge on June 6th [Formlabs]
• Whoop founder Will Ahmed was interviewed about the future of sports technology by Charlie Rose [PBS]