Cloud Commerce CEO, Michael Zammuto on a Challenging Environment for ‘B’ Rounds
The gap between initial funding and firms shutting down has increased and with overall funding dropping Michael Zammuto says
to expect a massive increase in failures in 2017 and 2018. From 2010 to 2015 the number of companies receiving early stage angel and ‘A’ round investments climbed dramatically. Market forces, tech trends contributed but so too did some concerted efforts to make it easier to form a tech fund. Everything from Amazon Web Services (AWS) to shared workspaces, to better smart phones to better development tools all contributed to lowering the barrier to entry for startups.
As published online today, Michael Zammuto explains the the unintended consequence of this is that those startups did not get access to more VC governance or talent (or luck). Overall funding has started to drop and the gap for later stage, ‘B’ round investments has gotten large to a concerning degree. This creates a special challenge for startups to stand out and demonstrate why they deserve more capital.
To offset this increased challenge, Cloud Commerce suggests reviewing your strategy well before you need to raise money, to start raising money earlier and ask for more. Critical to ‘B’ round funding it to ‘prove’ that the core assumption about how the business will scale is demonstrated, even on a small scale. If you depend upon network effect, or cheap content or clients upselling then focus on optimizing for that metric. Don’t spend unnecessary capital on product enhancements, focus instead on proving you have the model right and just need capital to hit your multi-year projections. You should expect that your ‘B’ round will be more difficult to complete and you have a business to run so get help and stay focused on proving your story.