How Are Unicorns Born?

This week @bhorowitz and David Weiden of @KhoslaVentures talk about culture as a catalyst for a healthy company. @SamirKaji talks about the importance of emerging seed investors, and @HunterWalk discusses the importance of angels with operating experience to a CEO. @Om Malik and @BGurley talk about survival techniques during downturns. How is a Unicorn Born? That is the common theme.


How are Unicorns Born?

  • The Importance of Emerging Managers – Venture Unlocked, Samir Kaji
  • Seed Stage Founders Undervalue Angels with Expertise – Hunter Walk
  • David Weiden and Ben Horowitz on Culture
  • Om Malik and Bill Gurley on Surviving in Downturns
  • Tomasz Tunguz on Net Income as the new value creator

News of the Week

  • Meta exposed injecting code into web sites, from Instagram. The Guardian
  • Apple delaying the Release of a new Telegram App – MacRumors
  • Disney Grows to 152m Subscribers
  • Coinbase loses $1.1bn in a quarter
  • Blackstone wants to lend money to startups – Crunchbase News
  • Everything you need to know about Musk’s law suit against Twitter
  • Corporate Layoffs – the graphic by Visual Capitalist

Startup of the Week

  • Hamish McKenzie of Substack

Tweet of the Week

  • How new VCs out-perform the market by Chris Harvey @chrisharveyesq


This newsletter has a prominent theme in most weeks; this week is no exception. The week’s best writing focuses on a single question – how to succeed. In the context of Silicon Valley, that can be extended to how to succeed in building a unicorn.

@samirkaji of venture unlocked talks about the process of finding unicorns in the first place and rightly shines a light on what are called “emerging managers.” These managers typically run very small funds of under $50m and are laser-focused on a core competency. They over-perform as a class and are under-capitalized. Our data at SignalRank backs that up. The top 100 Micro VCs in our scoring engine, of which emerging managers are a part, have invested in over 1900 unicorn funding rounds, mainly at the seed and Series A stage. That is over 600 individual companies. The well-known branded firms of Sequoia, Andreessen, and Tiger Global have less success.

Hunter Walk writes about marketing and communication skills often lacking in seed-stage companies and suggests that angel investors with experience in these fields can make a big difference in outcomes.

Khosla Ventures David Weiden and A16Zs Ben Horowitz discuss culture as a driver of success.

Read and listen to them. They carry a lot of insights.

My own take – and I am a little qualified to have a say, is that there is no single pattern for building a unicorn, but there are things that can prevent one from being built.

I co-founded EasyNet in 1994 and founded RealNames, in 1997. Both became unicorns in their time. More recently, I have worked closely with the founders at InFarm as a very early investor and have seen it grow from a grant-funded startup to a significant player in the vertical farming space valued at over $1.5bn.

Unicorns are all different in culture and goals and cadence, and investors. What they have in common are some of the following things:

  1. They have a goal that, if achieved, can create enormous value for investors.
  2. The founder(s) can articulate that end game with clarity, purpose, and discipline to ensure all steps lead towards it. Storytelling is key.
  3. A team that understands the end game can work out the steps needed to achieve it and then executes against them.
  4. A go-to-market strategy that achieves product-market fit.
  5. A vision that retains its relevance both inside the company and externally for the life of the company.
  6. Investors who are prepared to take risks well before the company has reached risk-free status.
  7. A lot of luck with timing.
  8. A determination to address obstacles to success. This involves speedy learning, drawing conclusions, and seeing solutions. Time is the most valuable of currencies.
  9. Never being satisfied
  10. Remain excited to go to work each day because the goals remain transparent, meaningful, and compelling.

Of course, there is more one could articulate. The best investors can almost smell these attributes and help the company realize its objectives. Early-stage investors remain close to founders well after their money has been spent. That is because the journey they take together bonds them.

Video and Podcast

The Video and Podcast accompanying That Was The Week is recorded separately on Fridays and delivered to paying subscribers via email. To subscribe, go to our home at Substack

How Are Unicorns Born?

Why emerging managers are a critical part of a well rounded venture portfolio

Why emerging managers are a critical part of a well rounded venture portfolio

Follow me @samirkaji for my thoughts on the venture market, with a focus on the continued evolution of the VC landscape.­­ A critical characteristic of healthy asset categories is the flow of new entrants. New entrants bring new ideas, models, and necessary competition.  •  Share

Seed Stage Founders Undervalue Angels With Marketing & Comms Expertise

Seed Stage Founders Undervalue Angels With Marketing & Comms Expertise

Why Bringing These Two Skillsets Onto Your Cap Table Early Is Worth It In 10 years of venture investing I don’t think I’ve ever participated in a seed round which had less demand than supply. From a macro sense, you can thank the bull run our industry was in for the last decade. And then […]  •  Share

On Culture

On Culture

Ben Horowitz, co-founder of Andreessen Horowitz, in conversation with David Weiden on creating culture at work and where we sometimes go wrong.

The post On Culture appeared first on Khosla Ventures.  •  Share

On Culture

Ben Horowitz with David Weiden

[Video] Bill Gurley on Surviving Downturns

Bill Gurley on Surviving Downturns

There is a gap in the video from 9.10 to 11.55. Video continues after the break. No matter where you look, the technology industry — from stalwarts to startups — is going through a reset. And that has led many companies to lay off people, cut costs and pare back their ambitions. For so many …  •  Share

Growth is No Longer the Best Predictor of a Software Company’s Value

In 2020, revenue growth was the most important factor explaining a public software company’s forward multiple. The formula has changed since then.

Net income has surged to the highest correlate of a public software company’s multiple surpassing revenue growth. Narratives published in newspapers trumpeting the importance of profitability correctly assess investor sentiment on stock exchanges.

Revenue growth & sales efficiency round out the top 3 with gross margin & cash flow from operations margin rounding out the 5 tested metrics.

Preference changes pop out of the data. Net income surges to 0.71 correlation up from 0.12 in 2020. Revenue growth diminishes to 0.61 from 0.81. Sales efficiency also falls by 20 points to 0.55.

Later stage companies, those approaching IPOs operate with similar financial profiles to the public software companies used in this model. Earlier stage companies differ meaningfully. The model’s predictive ability frays the earlier the business.

Profitability has surged as the most significant correlate & predictor of a public software company’s value.

Inflation and Fed Funds rates expectations have influenced these preferences. As interest rates increase, investors discount the large future revenue & profit streams of high growth companies more heavily.

Should the Fed lessen its tightening or inflation demonstrate a marked contraction, revenue growth would regain the top spot once again.  •  Share

News of the Week

Meta injecting code into websites to track its users, research says

Owner of Facebook and Instagram is using code to follow those who click links in its apps, according to an ex-Google engineer

Meta, the owner of Facebook and Instagram, has been rewriting websites its users visit, letting the company follow them across the web after they click links in its apps, according to new research from an ex-Google engineer.

The two apps have been taking advantage of the fact that users who click on links are taken to webpages in an “in-app browser”, controlled by Facebook or Instagram, rather than sent to the user’s web browser of choice, such as Safari or Firefox.

Continue reading…  •  Share

Apple Delaying Telegram From Releasing Major App Store Update, Telegram CEO Says

Apple Delaying Telegram From Releasing Major App Store Update, Telegram CEO Says

Telegram’s CEO, Pavel Durov, is lashing out against Apple over the company’s “obscure” App Store review process that is delaying Telegram from releasing an update to its app that will “revolutionize how people express themselves in messaging.”

In his Telegram channel, Durov says that an update to Telegram for iOS that will change how people communicate has been stuck in Apple’s ‌App Store‌ review process for over two weeks, with no communication from the company over why or when it will be approved. Durov points out that if an app as popular as Telegram receives this treatment, one can “imagine the difficulties experienced by smaller app developers.”

For example, our upcoming update – which is about to revolutionize how people express themselves in messaging – has been stuck in Apple’s “review” for two weeks, without explanation or any feedback provided by Apple.If Telegram, one of the top 10 most popular apps globally, is receiving this treatment, one can only imagine the difficulties experienced by smaller app developers. It’s not just demoralizing: it causes direct financial losses to hundred of thousands of mobile apps globally.

Durov, a vocal critic of Apple and its ‌App Store‌ in the past, points out the controversial “Apple tax,” which gives Apple a 30% cut of certain in-app purchases from eligible apps that make over $1 million annually. Durov calls Apple’s behavior “abusive” and says that damage inflicted by the company “can’t be undone.”

This harm goes on top of the 30% tax Apple and Google take from app developers – which, according to them, is supposed to pay for the resources needed to review apps. The regulators in the EU and elsewhere are slowly starting to look into these abusive practices. But the economic damage that has already been inflicted by Apple on the tech industry won’t be undone.

It’s unclear why Apple is delaying Telegram’s app update from reaching the millions of Telegram users. Most apps are typically reviewed fairly quickly, so the long wait in this instance is particularly interesting. Telegram is one of the most popular messaging services on the ‌App Store‌, competing with the likes of WhatsApp, Instagram, Signal, and Apple’s iMessage service.On its website, Apple says, “every week, over 500 dedicated experts around the world review over 100K apps,” adding that over 1 million submissions are rejected.Tags: App Store, TelegramThis article, “Apple Delaying Telegram From Releasing Major App Store Update, Telegram CEO Says” first appeared on MacRumors.comDiscuss this article in our forums  •  Share

Disney+ Grows to 152 Million Subscribers

Disney+ Grows to 152 Million Subscribers

Netflix reported 220.67 million total global subscribers for its third quarter after losing almost 970,000 subscribers. These numbers bring Disney’s DTC subscribers to 221.1 million in total, which means that the company’s streaming services combined now surpass Netflix in total subscribers.  •  Share

Coinbase Will Need Its Cash to Fend Off the Competition

Coinbase Will Need Its Cash to Fend Off the Competition

There was a lot to take away from Coinbase’s grim earnings report from Tuesday night. So let’s get right into it.

The Numbers: Coinbase put up a net loss of $1.1 billion—its widest quarterly loss since at least 2019. Quarterly revenue ($803 million) was the lowest it’s been since late 2020, and yet quarterly operating expenses ($1.85 billion) were the highest they’ve been since at least 2019. Trading volume ($217 million) and assets on its platform ($96 billion) are back down to where they were before the 2021 crypto trading surge.  •  Share

Blackstone Eyes Red-Hot Debt Market - Crunchbase News

Blackstone Eyes Red-Hot Debt Market – Crunchbase News

With venture capital funding may be limping along, private equity equity titan Blackstone is looking to jump into a growing debt market for tech companies.

Blackstone expects to invest at least $2 billion in technology debt deals over the next few years— its first major push into lending to startups and technology companies, The Information reported Thursday.

The news is another sign of a cooling venture capital market where cash is becoming increasingly harder to raise at the inflated valuations of last year. Companies looking to extend runway, while not succumbing to the dreaded downround, are likely to turn to debt as a viable alternative to keep companies afloat among some economic uncertainty.

The numbers

Just last week Crunchbase reported that VC-backed startups in the U.S. have raised nearly $15.9 billion in debt in 321 deals through the first seven months of the year, according to our data.

In just July, startups in the U.S. raised more than $1.4 billion in publicly announced debt—far outpacing the $824 million in July last year.

It is important to note that those numbers are not all-encompassing—as many companies do not announce debt raises—and it is not unusual for some startups in areas like fintech to raise debt for working capital.Crunchbase News  •  Share

Elon Musk’s Twitter lawsuit: what you need to know

Elon Musk did not become the world’s wealthiest person through a lack of confidence.

But the Tesla CEO revealed on Tuesday that he had sold $6.9bn (£5.7bn) worth of shares in the carmaker, in case he loses his attempt to walk away from a $44bn takeover of Twitter.

Twitter is suing Musk in Delaware over his abandonment of the deal and wants to make him buy the company.

In a countersuit released last week, Musk put his side of the argument. According to him: Twitter misled investors; it breached the agreement by failing to provide enough information on spam accounts; another breach occurred when Twitter failed to consult with him on business moves such as firing senior employees; and its misstatement of user numbers constitutes a material adverse effect, which substantially alters Twitter’s value and therefore invalidates the deal agreement.

Here is a breakdown of Musk’s suit.

The relationship between both sides remains poor

There is $44bn at stake and the language in Musk’s countersuit is just as punchy as Twitter’s in the original lawsuit, when the company described his behaviour as “a model of bad faith”. In the preliminary statement Twitter is accused of making financial disclosures to the US financial watchdog that were “far from true”.

“Instead, they contain numerous, material misrepresentations or omissions that distort Twitter’s value and caused the Musk parties to agree to acquire the company at an inflated price. Twitter’s complaint, filled with personal attacks against Musk and gaudy rhetoric more directed at a media audience than this court, is nothing more than an attempt to distract from these misrepresentations,” said the lawsuit.

Strong words, but Musk will need strong evidence as well to convince the judge.

Continue reading…  •  Share

Visualizing Major Layoffs At U.S. Corporations

Visualizing Major Layoffs At U.S. Corporations

Hiring freezes and layoffs are becoming more common in 2022, as U.S. businesses look to slash costs ahead of a possible recession.

Understandably, this has a lot of people worried. In June 2022, Insight Global found that 78% of American workers fear they will lose their job in the next recession. Additionally, 56% said they aren’t financially prepared, and 54% said they would take a pay cut to avoid being laid off.

In this infographic, we’ve visualized major layoffs announced in 2022 by publicly-traded U.S. corporations.

Note: Due to gaps in reporting, as well as the very large number of U.S. corporations, this list may not be comprehensive.

An Emerging Trend

Layoffs have surged considerably since April of this year. See the table below for high-profile instances of mass layoffs.

The post Visualizing Major Layoffs At U.S. Corporations appeared first on Visual Capitalist.  •  Share

Startup of the Week

Chief Writing Officer - by Hamish McKenzie

Chief Writing Officer – by Hamish McKenzie

A few years ago, I was given a tour of Facebook’s headquarters in Menlo Park. It’s a beautiful campus, with modern buildings, comfortable furnishings, striking murals—all the things you’d expect of a mega-moneyed tech company. But there was also quite a bit more. The main thoroughfare between buildings is modeled on Disneyland and dotted with the kinds of amenities that satisfy all the dreams of an eternal child: a candy store serving free ice cream; a video arcade parlor; a burger joint; a workshop for screen-printing posters; an on-site laundry service. No normal human being needs any of this stuff at their place of work, but Facebook clearly decided that these perks help attract talented employees and especially software developers, Silicon Valley’s holiest of holies.

It was fun to visit and fantasize about endless scoops of Cookies & Cream, but I also left with a slight queasiness. It didn’t feel right that software developers were treated like gods while writers—my people—were treated like paupers. During that time, I had a friend who worked in The Guardian’s U.S. West Coast bureau, housed in an Oakland WeWork. Their version of an office perk came when a startup based in the same WeWork left out their uneaten sandwiches after a catered event.

I’m not saying there’ll be no justice in the world until writers have employers who’ll do their laundry, but I do believe that good writing brings at least as much value to the world as good coding.  •  Share

Tweet of the Week

%d bloggers like this: