HackFwd Build 0.9 - Berlin March 2012
In this short and punchy talk Sean Seton-Rogers of PROFounders explains how the investment market is responding to today’s lean startups.
PROFounders Capital is based in London and currently has made 17 investments throughout Europe, including Tweetdeck and Made.com. PROFounders has an early stage focus tailored to fit closely with the lean startup way of running a business (check Alex Barrera for a summary of lean startups).
Sean explains that the “old school” venture model was a “staircase” – three discontinuous stages of funding from the initial “friends, family and fools” pool, to the Series A/B/C funders, to the late stage private or initial public offering. This model worked fine for companies that needed several stages of investment, and that could demonstrate traction at each stage. But, says Sean, the lean startup has blown that model out of the water.
Products are now built with small, tight teams. Marketing can be achieved through social media platforms and pay per click advertising. Cloud computing, open source software and powerful platforms like Facebook and Twitter now mean that a company can launch with one tenth of the “old school” level of investment.
The arc of a lean startup is very different from the stage-by-stage growth of a traditional startup. It can be relatively cheap to prove initial traction, and revenue starts coming in early, but there is a sudden steep acceleration in the need for investment around the time that the company matures into a large organisation. The old three stage investment model doesn’t work anymore.