16. “Hype may help companies get
investments faster, but at the same
time may scare away investors.”
Vinod Khosla
17. Hyped/Fail vs. Hyped/Success –CB Database
• On average H/F start-ups receive their first >$1M funding in 14 months, which is faster
than H/S start-ups by 3 months
• After the initial funding round, H/F startups receive funding on average every 14 months
while H/S start-ups receive funding every 10 months
• Reasons: H/S companies tend to take on the “lean mentality”, their product vision and
goal is more refined before receiving funding, which may mean their product is more on
target after the first funding round, leading to faster investments after.
• On the other side, H/F embrace the hype and receive initial money quickly, but due to lack
of focus/unrefined product it may take longer to receive funding there after
• H/F start-ups on average receive $23M from angel/seed to Series B, while H/S start-ups
receive $40M
18. 18
The trick is to let your hype write a
check your product CAN cash.
23. • What problem am I solving for my customers?
• Does my startup have a reason to exist?
• How can I make my service even better?
• Am improving things for the economy and society at large?
Hype Is A Distraction
28. If you want to email me as well: alexia@techcrunch
Editor's Notes
What is hype?
Hype = A brand in the market that is further along than the product is. As a startup, people give you the benefit of the doubt.
Not many startups can say “Look what we did.” It’s hard to get traction metrics for unlaunched products. As a startup you're judged from where you're at today -- nowhere.
Where the Greek startup ecosystem is today -- small (600 startups) but has enough spirit and exceptionally smart people (we’re #6 on the OECD smart country list!) to be a Southern European startup hub. Surprisingly, the rate of startup formation has not declined through the country's debt crisis. It has actually increased -- 12 times since 2010 according to Tech.eu.
Openfund itself has made 20 investments, and VCs like PJ Tech Catalyst and Odyssey Venture Partners are following suit. Among the most notable tech companies to emerge from Greece in recent years is Workable, a web service to help sort job applications, Taxibeat is an app to find taxis, and BugSense, an app analytics platform for Windows phones. But there are hundreds more. This is stuff you already know, but from afar the Greek startup ecosystem is at the high end of its hype cycle. It’s time for us to see the fruits of our labor.
Fruits are exits, like Bugsense’s acquisition by Splunk or even Workable’s ability to raise $27 million in Series B. Valuations have been rising in recent years but there have been very few exits so far-- everybody, especially VCs, is waiting for them.
In a positive sign, there is a very vibrant Greek startup ecosystem in Athens, and a Silicon Valley Greek Mafia in the US. The founders of Workable, Bugsense, OpenFund and the Silicon Valley Greeks group are in the center of it, with some Greek Americans like Jason Calacanis, Arianna Huffington and George Bousis helping creating hype for Greece and providing hope and the relationships for the second big exit.
While everyone wants a success story truth is that 90% of startups fail. 74 percent of these startups fail because of premature scaling i.e. the hype overwhelming the product. Companies that scale properly also attract more growth, capital and customers, and eventually hire more employees. Companies that don’t ...
End up like Color. Color raised $41 million from Sequoia Capital. With the WSJ saying “Not since Google have we seen this ...” What were they smoking?
Color had a lot of hype, but within two years had sold to Apple for less than 1/8 of their funding round.
Despite the cautionary tales, hype is still the Silicon Valley way of building companies. People think Silicon Valley is a magical place filled with amazing technologies, a place that can build a VR viewer out of cardboard. But we also have some of the best marketers in the world. The narrative is such: Get your TechCrunch post, get 10k users, sell to Google for $100 million.
When you’ve got nothing, hype, manufactured by blog posts and marketing gimmicks actually can help raise capital and capture the imagination of early adopters.
Andreessen Horowitz at five years in, is already considered a top-tier VC despite not having a decades-long roster of returns (they do have a slick domain name, though). They raised $3 billion, word is they spent $50 million on building a brand -- now almost every entrepreneur wants to work with them.
They are the reason a PR person has become the best accessory for many venture folks: A16z hired a Wired editor, first round review, and Sequoia just launched "Grove.”
Hype can actually be important if it’s literally Marc Andreessen-backed.
If you want to be in media, hype and constructing a huge persona around yourself is good. Pro tip.
But when you go creating hype... The clock starts ticking. The pressure's on. And it never lets off.
And if you want to focus, that pressure hurts you. Entrepreneurs get blind-sighted by the hype around fundraising, quite easily, somewhat equaling it to success. How many of you have heard that “XYZ is a "great entrepreneur" because he raised a lot from really well-known VCs? If the Color story tells you anything that’s not the case. (By equating raising from from the cool kids as success other, more fundamental things, can get lost. This problem is more widespread in emerging markets.)
Hype can actually pushes away the help that the startups need. A large round raises expectations, a small one lowers them. “Hype may help companies get investments faster, but at the same time may scare away investors (too high of a valuation).”
Crunchbase backs this up, we took data from 20 overhyped startups (Path, Quora) whose products haven’t gained exceptional traction and compared them to successful, hyped up startups like Instagram and Twitter. Crunchbase says that hyped up failures raise quicker than hyped up successes in seed or series A funding but then have a harder time raising series B.
While hyped/successful startups do end up raising more money in Series B, this may be attributed to a well defined product before the initial funding, which ultimately gets them more funding after. The trick is to let your hype write a check your product CAN cash.
In total people have written Uber a $6.61b check, at a $60 billion valuation -- Uber might be the biggest example of hype working. Over-hyped = the wrong product at the right time. Uber had the right product at the right time.
Gartner hype cycle as applied to startups. I made this in March 2013. The X axis is exposure, the Y axis is time. One would argue that positions are reversed now, namely because Mailbox is dead.
What does this teach you? The media is largely unnecessary. Snapchat tries to be stealth on purpose.If you’re a consumer product getting hype can work in your favor. If you’re an enterprise company, it sort of doesn’t matter. There a tons of successful companies that have never been covered by TechCrunch. Especially those launched before 2005. It didn’t exist back then.
A very good example is what happened to Riffsy and PopKey. PopKey hit ProductHunt first, and got a lot of traction … But they didn’t have an actual product, despite being the world’s “first” animated keyboard. Riffsy actually posted a finished product (you only get one try!) and is now the world’s #1 gif keyboard.
What’s the best media/hype strategy through all the risk? Go with Warren Buffet:"Markets are risky, good businesses are not.”What problem am I solving for my customers? Does my startup have a reason to exist? How can I make my service even better? Am improving things for the economy and society at large?
One hard fast rule in hype as is life, is avoid over-promising and under-delivering. Though it really is a case basis.
If you still don't believe me, and want an exit for $30m to Yahoo (or the next Yahoo depending on where their stock goes).
Summly story. Nick D'Aloisio, 17, is the creator of Summly, an iPhone app that condenses news articles -- emailed me more than my parents, sold to Yahoo in March 2013.
Here he is, 17 years old, in between emails to me and every other blogger.