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Michael Zammuto Growth Round Fundraising Getting Tougher

More Startups Competing for ‘B’ Venture Rounds

Citing data from Dow Jones VentureSource, Cloud Commerce CEO Michael Zammuto published a warning for startups. Raising your next round will be tougher than the last round. Zammuto wrote that several trends including the economy, some successful startup exits and seed and venture platforms combined to increase rates of startups. From 2010 to 2015 the rates of seed and ‘A’ round investments more than doubled but “B” and later rounds did not increase. At the same time, startup failure rates dropped to historically low rates. All this supports the premise more startups are launching but failing to get growth funding to scale.

AWS Has Helped More Startups Get Funded

Studies Show a Correlation Between AWS Use and Successful Fundraising

The Cloud is Pushing Down Startup Costs

Research has shown that cloud services, particularly Amazon Web Services (AWS) have led to an increase in seed and early venture funding. This is because cloud providers succeeded in lowering the costs t founder of launching and operating a startup. Shared work spaces, freelancer networks and faster and cheaper development tools and technologies are also lowering costs. The implications of this are that it has become cheaper for a founder and investors to test an idea so we saw a corresponding increase in startup rates.

We have not seen a corresponding increase in the success rates of startups. Venture staffing did not increase substantially so startups got less guidance and VCs are less connected to many of their investments. We have already seen a large drop off in later round funding or successful exits. But we also have not seen an increase startups ceasing operations. This is because this same reduction in startup costs also means lower operating costs.

Scraping By – Not Winning But Not Losing

Seed and A Rounds Spiked 2010 to 2015

Seed and “A’ Rounds Spiked and Dropped Off at Rates Much Higher than Later Rounds

There has been a dramatic increase in the number of under-capitalized startups where the founders struggle to raise funds. Early stage staff have become great at keeping these companies limping along but many are not really progressing. Cloud Commerce Consulting helps firms avoid this trap. First, we can help firms to gain the momentum and validation they need to stand out and succeed in ‘B’ round investments. Second, we can help with  workable, organizational scaling program that transitions the firm from startup to growth mode.

 

Startups are not just competing within their industry against entrenched players and other innovators. They are competing against startups of every kind for increasingly dear venture dollars. You developed a development plan for your product and a marketing and sales plan for your growth, do the same for your fundraising today.

 


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The Series A Crunch Hits 2017 Fundraising

As mentioned in this LinkedIn post, ‘B’ round fundraising is getting more difficult in 2017 and may stay that way for some time. Starting several years ago, a number of innovations came together to make startups cheaper faster and easier to get off the ground. There are actually a lot of contributing elements. the Journal of Financial Economics report focuses on AWS and certainly cloud services and cloud infrastructure have helped a lot of startups get from concept to beta very quickly. I would add a lot of other things to the list including shared work spaces, freelancer networks, angel investing and kick starter funding platforms and even improved mobile communications and productivity apps.

All these things did cause an increase in Angel funding and that also led to more ‘A’ round candidates and funding. More ‘A’ round funding has not led to more success. Venture firms are not increasing staff along with the increase in early stage funding so their early stage investments are getting less governance and attention. So, at least so far, this has led to more failures and harder ‘B’ round fundraising. Cloud Commerce Consulting is here to help in this process and can position early stage companies to demonstrate the progress and market traction needed to warrant closing that critical ‘B’ round.

 

 

About the author

Michael Zammuto is CEO of Cloud Commerce Consulting

Michael Zammuto heads the company advisory services

Michael Zammuto is the founder and CEO of Cloud Commerce Consulting. He has helped 6 startups achieve profitability, been involved in six exits and major fundraising rounds. He is an adviser to several companies. He also currently servers as Chief Executive of Completed.com. Zammuto was the CEO of Brand.com and Sapago and was President of Chaikin Analytics and Chacha.com. Zammuto also served as COO of Ontario Systems and was a senior executive with Ecometry Corp. before the acquisition by Golden Gate Capital. Mike’s full profile can be read here.