Do you have what it takes to build a unicorn?


Sean Wise has an eye-opening article on This Study of 195 Billion-Dollar Companies Found 6 Counterintuitive Truths About Building a Unicorn, After 15 months, 300 hours and 100 charts, here is what researchers discovered about creating billion-dollar startups.

I’m going to list the six success factors in building a unicorn, adding a few comments of my own about how these findings relate to both mentors and founders. What is not addressed in the article, which I think is important for the vast majority of entrepreneurs who don’t build unicorn companies, is are these same factors key to creating a valuable company, just not one valued at a billion dollars or more?

Ali Tamaseb, a founder turned venture capitalist at Data Collective VC, gathered data on 65 key factors from all 195 unicorn startups based in the U.S. His work included all startups since 2005 that have publicly reached a valuation of more than $1 billion. The least surprising finding is that almost 60 percent of billion-dollar startups were created by serial entrepreneurs. In fact, he found that 70 percent of billion-dollar founders were “superfounders,” or founders with at least one previous exit of more than $50 million.

1. Industry knowledge isn’t required.

Certainly this is contrary to the received wisdom. But just as interesting to us mentors is that 80% of founding CEOs in healthcare and pharma had direct experience in their target market. Mentoring groups often reflexively bring in additional mentors with direct industry experience once a startup emerges from the very initial stages of company formation. From the study’s findings, this is only necessary in two verticals, which are closely related, healthcare and pharma. Unfortunately, neither Sean Wise nor the researchers speculate on what it is about these two verticals that requires domain expertise. My guess is that both are heavily regulated industries – see my post about the fourth risk – and that domain expertise is needed to navigate the complexities of government regulation. You don’t learn that in business school nor by doing a startup in an unrelated vertical.

2. Technical CEOs aren’t necessarily more successful.

I heard a great quote from an MIT VMS mentor the other day: “It’s not the technology, its the psychology.” Meaning that the customer and their psychology is what is decisive about a venture’s success, not the novelty or even value of the technology. This does not fly well at MIT, otherwise known as the Massachusetts Institute of Technology. Virtually every founding team is either all engineers or engineering dominated. So again, this finding is very helpful to mentors as we help founders build their team. This finding that successful tech founders vs. business founders are a 50/50 split was also found to be true of the author’s VC fund, Ryerson Futures.

3. You don’t need to be capitally efficient.

I was trained by the many VCs involved in my four VC-backed startups to “stretch the dollar” – they demanded capital efficiency, but only to a degree. As one vc told me, “Steve you’re going to waste a million dollars in this venture, but I don’t know which million, and that’s ok.”  According to the study less than 45 percent of unicorns were capital efficient. This certainly jibes with my reading about vc-backed startups – vcs are willing to put hundreds of millions into companies they believe will ultimately scale and go IPO, like Uber. This doesn’t mean that mentors should tell founders to be profligate in their spending, but only reinforces the “Nail it, then scale it” maxim. The function of external capital is growth and scaling, not creating product/market fit.” So I would say you need to be capital efficient until you reach product/market fit, after which you can focus on adding fuel to your rocket to gain escape velocity.

4. It’s (usually) not OK to be a copycat.

It’s no surprise that more than 60 percent of unicorns had a very high level of differentiation compared to incumbent firms. The worst strategy is copying what another startup is doing, especially if that startup is well funded. As a mentor I do preach differentiation and I believe that is the received wisdom.

5. You don’t have to be first to market.

Being first to market was a popular catch phrase and strategy in the dot com boom. Since that time few people I know see it as a formula for success. However, what the study found is that the best markets for billion-dollar startups already have a number of large incumbents, and often the startup uses the inefficiencies of these incumbents as a point of disruption. This is really important! What it tells me is that the size of the market opportunity is very important, but being first to  that large market is not. In fact this finding jibes with my belief in the maxim “No competition, no market.” Founders need to concentrate on large market and should not be discouraged by the presence of large incumbents.

6. You don’t need to be part of an accelerator to be successful.

The most dominant success factor in billion dollar market cap companies is that 70 percent of the founders were co-called “super-founders” – founders who with at least one previous exit of more than $50 million. This isn’t surprising. So if you aren’t a super-founder you may well want to apply to an accelerator. See my post Should you join an incubator or accelerator?

This article and the study upon which it is based provides very useful information for both founders and those that mentor them, regardless of whether the intent of the founder is to build a billion dollar market cap company or not.


Should you join an incubator or accelerator?

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We had a recent mentor session at MIT VMS where the founder was dead set on joining an accelerator for the summer. We spent most of our 90-minute session dissuading him from that decision.

I see incubators as for very early stage companies where the founders just have an idea and the goal of the incubator is to hatch that idea – turn it into a demo, prototype or even a product. Incubators provide peer-to-peer support, mentoring, outside speakers and other related services, often without charge, as is the case with academic incubators.

Accelerators help founders increase their rate of growth in building their business. Often these accelerators, such as Y Combinator, purchase 6 or 7 percent equity for about $100,000 to $150,000. If you’ve gotten past the idea validation stage, perhaps graduated from an incubator, you may want to join an accelerator like MIT’s Delta V (which has no requirement that founders sell their equity).

Often getting admitted to an incubator or an accelerator is very competitive. As I recall it’s harder to get into Y-Combinator than either Stanford or Harvard. Other things an organization like Y-Combinator or TechStars provide are connections and assistance in becoming investor-ready. The culmination of participation in many of these organizations is a demo day, attended by regional investors. The goal is to help founders get a seed round or Series A investment.

The brand power of Y-Combinator and TechStars is such that they lend a stamp of credibility to startups and are very well connected with the investment community.

So why were we trying to dissuade our mentee from spending the summer at an incubator or accelerator while his team mates worked on the business, which by the way, was outside the U.S. The answer was simple: the team had a well-defined target market, a well thought out business model, experience as customers in their market, and were on the cusp of running a pilot with a major customer this spring. So our argument was simple: why spend the summer with other founders who more than likely were not nearly as far along the business growth curve and perhaps also end up selling their equity at a bargain price. If he worked all summer to close customers what I call ROTI would be significant. ROTI is Return on Time Invested. Time is the major asset of founders, how they spend it is existential to their ventures. Yet it seemed that peer pressure had convinced this founder he needed to spend weeks learning a standardized curriculum when he could spend those weeks co-located with his team mates, pursuing leads and closing customers. And by the way, learning by doing.

Incubators and accelerators can add a lot of value and many have a proven track record of generating winners. But founders need to think long and hard about fit. Not product market fit, but the fit between their venture and its current status, and the model of value added by the incubator or accelerator they plan to apply to. If you see a good fit, but all means go for it, but if you have progressed far beyond the typical venture in an incubator or accelerator spending time with them may actually de-accelerate your venture.

There is one other value accelerators provide: that’s access to their alumni. In the case of Y Combinator that’s a community of over 4,000 founders. The value of those potential connections is hard to measure, of course. My rule of thumb for founders is that the earlier their stage of development the more value an incubator or accelerator can provide.

Unlike venture capitalists, who are very opaque about how they make decisions, whose value add can be very hard to determine, and whose investments vary all over the map, you can find out a lot about accelerators like Y Combinator by visiting their web site, reading their blog, and studying their application. The only cost to apply is virtually always zero – just your time. At the least, no matter where you are on the business development curve, there are valuable resources on these sites. Check out the Y Combinator Startup Library for example.

We may not know if our mentee takes our advice and works on this startup rather than spends the summer in an accelerator, but at the least we hope that we have catalyzed his decision process by taking a strong position that was contrary to his. Mentors often play the role of Devil’s Advocate, which can help founder teams who can sometimes be subject to group think or peer pressure.

Everybody’s talking about gender, but no one’s talking about class

aston martin

As the father of two daughters, I’m glad to see greatly increased awareness of discrimination against women in the startup world and some progress in leveling the playing field. A lot of focus is on the fact that there are far fewer female founders and it is far harder for those founders to raise capital than it should be. Research is demonstrating that more diverse teams make better decisions than the typical mono-cultures found in the startup world of young white males as founders and middle-aged white males as investors.

But what I haven’t seen addressed, and frankly I have to admit to not thinking too much about, is the very small number of founders who come from lower socio-economic levels. It wasn’t until the end of The Boston Globe article An upper-class mindset doesn’t make you classy that that the reasons for this surfaced:

…,the predominant US upper-class view of rules is that they’re made to be broken. Just look at popular books about success, like Marcus Buckingham and Curt Coffman’s “First, Break All the Rules” and Angela Copeland’s “Breaking the Rules & Getting the Job.” If we want to succeed, these books tell us, we’ll need to cast aside established social norms and chart our own path. This is sage advice for people who have little threat, but clearly bad advice for the working class.

Though they tend to shun rules, the relative looseness of the upper class offers several strengths: they tend to be much more creative, entrepreneurial, and open-minded. The working class, meanwhile, struggle with diversity: they are more suspicious of people who are different from themselves, who appear to threaten their sense of social order.

In today’s digital economy, several attributes of cultural looseness reinforce upper-class advantages. Whereas those from tight groups understandably tend to view change as a threat, loose communities see mainly opportunity. They have the cultural reflexes — socialized from a very early age — to adapt to disruptive changes, and the autonomy and independence to chart their own course.

Unfortunately the article’s author, Michele Gelfand, a professor at the University of Maryland, and the author of “Rule Makers, Rule Breakers: How Tight and Loose Cultures Wire the World”  and Jesse Harrington, a research associate at Fors Marsh Group, don’t offer any solutions to this problem.

Their conclusion, We must recognize that it’s culture that we need to reckon with, not just our bank accounts is not actionable information

However, one of my VMS colleagues is a mentor at an accelerator called Smarter in the City. Their mission is to bring diversity to Boston’s tech landscape:

Our mission is to diversify Boston’s startup sector by providing support and resources for local minority-run ventures. Through our accelerator program, we draw investment to communities that have traditionally been left out of the high-tech startup scene.

Check out the stats on minorities in Boston on their home page, they are eye opening!

9.2% of tech industry employees are Latino and African American

0.2% of venture funding goes to black women

20% of firms are owned by minorities

$8 average net worth of African-Americans in Boston

Supporting incubators and accelerators in the lower socio-economic areas of high tech-centric cities like Boston is one way to attack the lack of diversity. But I think this problem needs to be addressed earlier in lives of potential founders. Why aren’t there classes in entrepreneurship in the Boston public schools? Clubs for budding student entrepreneurs? Business plan competitions in high schools? In other words, young people across the economic spectrum need support, training, and encouragement to explore creating their own businesses. Unfortunately our public schools are still stuck in the 19th century model of churning out compliant workers for industries’ assembly lines. But until there’s real change in the antediluvian public education system, investors who have made a lot of money betting on entrepreneurs who look like them should direct some of their massive profits to support organizations like Smarter in the City. I don’t see a single VC firm or angel group listed amongst the sponsors of Smarter in the City. Though kudos go to Microsoft as the sole tech sponsor.





Startup companies are archaic!


One of the major issues I’ve seen in mentoring over the past decade is the discomfort, pain and even confusion great engineers go through when they enter the dreaded “time to start a company” phase. As a serial entrepreneur, my product sweet spot was building the company. I enjoyed the entire process, from idea to idea validation, to forming a business entity with a partner, to recruiting. The thing I didn’t like and wasn’t good at was finance and I always had a CFO to handle that. But engineers are just the opposite. Engineers like building things, but things don’t include companies. It’s amazing to me how many teams form and never have a founder’s agreement, only to run into problems when they actually have to create a business entity. So how do engineers get their products to market without going through the pain, hassle, and major distraction of not just forming a company, but then running it?

Scott Kirsner, The Boston Globe correspondent who writes the Innovation Economy column weekly, has an excellent article entitled This former venture capitalist is reinventing the way a company works that focuses in on one former founder’s response to this problem.

Phil Libin, founder of Evernote and a former venture capitalist thinks he has the answer.

“The whole venture capital model is stupid,” Libin says. But “the stupidest thing,” he continues, “is the idea of a company. Companies are increasingly archaic, as a unit of organization in the world. What is it about companies that makes the most sense?”

People who are smart and skilled at creating products, Libin says, shouldn’t have to “raise money, have human resources drama, and run a small little fragile company.” Instead, they should “use their superpower to build a great product,” while having ownership in what it becomes

Libin has founded an alternative to creating companies for entrepreneurs. All Turtles. (All Turtles? Yet more proof that all the good names are taken!) I found the AI generated painting on their home page rather disturbing – not a great way to attract people to your venture. But don’t let that stop you!

I’m have a passing familiarity with two Boston-based attempts at solving this problem:
Paul English’s Blade Network and Joe Chung’s Redstar. I’ve met both founders and they are super smart, very experienced entrepreneurs. I wonder if Libdin has talked with them. I also worked in one of the region’s first incubators, HyperVest.  All Turtles is not an incubator nor an accelerator. The former incubates startups, the latter accelerates the progress as a company. The product of All Turtles is products, not companies.

What differentiates All Turtles from other attempts at taking ideas to market without the hassle of creating a company as the vehicle is that AI is the foundational technology. I can’t remember if this is an original idea or I read it some place, but I believe that AI will be like electricity – it will be everywhere, in everything, but rarely visible to consumers.  The competition for great AI developers is intense – they are more options than just about any other tech niche.

But Libdin is really aggressive.

Startup creation and venture capital funding, in Libin’s view, are too focused on “the 50 miles around Stanford University,” in the heart of Silicon Valley. All Turtles has already set up operations in San Francisco, Tokyo, and Paris. Libin says Mexico City is next, and his goal is to be active in 20 of the top 50 cities worldwide in the firm’s first decade. That is largely a strategy to tap markets where there is technology, design, and product development talent that are less competitive than Boston, New York, or the Bay Area.

While Libin seems to disdain VC money he’s accepted a $20 million investment from General Catalyst (a great name, by the way).

“Phil has a brilliant mind and has been able to attract incredible talent from all over the world,” says Niko Bonatsos, a managing director at General Catalyst. And Libin is “spot-on to notice that not every amazing product thinker loves or cares enough to do the company-building part of the equation.”

Depending on the value-added and T’s and C’s of working with All Turtles it may well attract great engineers and scientists, but I’m not optimistic, as it’s just one in a series of series of attempts to create a Ford-like assembly line for technology concepts that could turn into the next big thing.

My best guess is that All Turtles will go the way of the Blade Network and end up creating a company or two and putting all their resources there. But time will tell. In the meantime there’s at least one viable alternative for creators of great products who want to avoid the hassle of creating a company, while participating in the wealth a truly great product can generate. Check it out if you aren’t afraid of see the disturbing image on the home page.

Is the startup ecosystem getting overcrowded?


I’ve been a fan of startups for decades, first as a serial entrepreneur and now as a mentor. But I’m beginning to wonder if the size of the startup ecosystem in Boston/Cambridge has grown out of proportion to its resources.

Three recent incidents caused me to rethink my previous attitude that “the more the merrier” when it came to startups.

The first was learning that MassChallenge/Boston had 2,500 applicants for its 128 slots in their incubator! At 5.12% that makes MassChallenge harder to get into than Harvard or Stanford! Think of all the time and resources that went into those 2372 applications that were rejected.

I’d love to see an analysis of MassChallenge’s applicant pool. But irregardless I wonder what will become of those that failed to get in. Like a university, MassChallenge/Boston admits one class per year, so waiting a year to try again may be impractical for most founders.

Another incident that triggered my feeling that entrepreneurship has gotten too big was a mentoring session with a venture that had an inordinate number of mentors from a wide variety of sources, including MassChallenge. But they had no idea what to do, as their first idea didn’t prove to be viable. I asked them the question: “How many customers have you talked with?” The answer was less than the number of mentors they had!

The third incident was my involvement with the MIT Sandbox this summer. I was really looking forward to it, as Sandbox has adopted the VMS team mentoring model and I had a great partner last year who I learned a lot from and some very exciting ventures to work with. Well first I lost my partner for reasons that weren’t given to me and she was replaced by someone with no mentoring experience. That I could handle, though given a choice in the matter I would have preferred a seasoned mentor I could learn from. But what really troubled me was that out of five ventures we was assigned all but one dropped out!

I recently heard someone say that kids no longer dream of being rockstars, they dream of being venture stars like Mark Zuckerberg or Elon Musk!

As a mentor I’m at the small end of the funnel. It’s not my job to screen ventures or try to separate potential winners from losers. But I’m concerned as mentors are a finite resource. There are only so many of use who have startup experience and can afford to volunteer for the equivalent of a full day per month, as MIT VMS requires.

I don’t have the answer and many people might even disagree that it is even a problem. But as Shakespeare wrote, “For as a surfeit of the sweetest things, the deepest loathing to the stomach brings…”

Perhaps MIT should sponsor workshops on what it takes to be a founder and start a venture. Hearing first-hand from MIT ventures that successfully launched about all the blood, sweat, and tears invested might cause some would-be founders to realize they really weren’t cut out to start and run a venture.

Until then I will do my best to help founders to succeed and hope that my assignments are ventures that know what they are getting in for, how mentoring can help them, and want to be mentored. Because seeing a mentored venture build a sustainable business is the real pay-off for us mentors.


Virtual mentoring is key to scaling


Mentoring is almost always thought of as a process that’s conducted face-face-face – f2f. In fact The MIT Venture Mentoring Service has a strict policy against virtual mentoring, with the occasional exception made for a founder who is traveling in Japan or otherwise indisposed. And then participation is always a via conference call, never a video conference. As a result the founders and mentors in the room tend to totally forget about the founder on the conference line. Likewise it’s very rare to get much contribution from the founder at the other end of the phone line.

Despite that I’ve long been interested in virtual mentoring, with the caveat that it means using WebX, Zoom or some other video conferencing platform so the remote founder can not just hear but also see who they are interacting with. And the mentors can see the founder(s) who only has a virtual presence.

I’ve done several virtual mentoring sessions through The MIT Sandbox Fund, which though focused on f2f mentoring is more flexible about virtual mentoring. I’m a big fan of Y-Combinator, so I tend to read any article featuring YC. Thus the article Y Combinator will accept 10,000 startups to prove there’s nothing magical about Silicon Valley by Michael J. Coren on Quartz captured my attention. As did the mildly snarky sub-title, Who needs the Valley [?].

Up to now YC has only turned out about 300 companies a year through its bi-annual program in Mountain View, California. Most of what it does remains analog and manual: mentoring in classrooms, weekly dinners, and a program requiring everyone to live in California for months at a time.

But YC is now attempting to teach thousands of would-be entrepreneurs the ropes. The first cohort was made up of 3,000 companies from around the world. Obviously their traditional f2 model could never scale by a factor of ten. Thus ….participants are given a chance to “replicate much of the YC experience” through a virtual program with mentors, collaboration with peers and video lectures. This I believe is the largest virtual mentoring program ever! Unlike MIT VMS, which offers mentoring sessions in an on-demand model, Startup School holds group mentoring sessions using Google Hangouts. Note “group sessions”, probably a necessity to mentor 3,000 ventures, and a model I’ve been participated in with both MIT Sandbox and MIT’s Post-Doctoral Fellows Association. In both cases I’ve found the sessions far more difficult to manage than the typical team mentoring sessions of both VMS and Sandbox. While the number of participants grows linearly, the number of founder-mentor combinations grows exponentially. In group I felt that a lot more structure was needed to manage this plethora of founder-mentor connections.

YC provides online advice to startups in a ratio of mentors to ventures of 30:1 and YC even plans to increase this ratio, which will further stimulate the combinatorial explosion of mentor to venture relationships.

YC is pioneering not only virtual mentoring but group mentoring, both on a massive scale. I will be very interested to see how well these programs work and how YC may fine tune their mentoring of ventures in future cohorts.

In the meantime I’ve got a Google alert for “virtual mentoring” which I hope will snare news of interest to me and anyone interested in mentoring that goes far beyond the traditional singleton, one-to-one mentoring. VMS pioneered the practice of team mentoring. And it has been highly successful since its founding in 2000. My guess is that no matter how successful virtual mentoring sessions run by YC prove to be, f2f, mentor to founder mentoring will remain the standard model of mentoring – whether that be traditional career mentoring or the mentoring of entrepreneurs, my special interest. But if I were to start my own mentoring service I would bake in virtual mentoring from the get go, as I see it as the only way to scale and scaling is a necessity if you want to get beyond a boutique service. Perhaps in the not too distant future mentoring will take place in virtual reality. And when it does, sign me up!


Mentorship is key to an Indian accelerator


My Google alert for “mentoring entrepreneurs” is not restricted to news from the U.S. so I occasionally gets stories from India which are quite interesting. The article from Yourstory starts with a great quote from Benjamin Disraeli, British statesman:

The greatest good you can do for another is not just to share your riches but to reveal to him his own.

What a fantastic motto for mentorship!

There are over 140 accelerators and incubators in India, ranked third after China and the U.S. NetApp, a global data storage and management giant, has its own accelerator, aptly named NetApp Excellerator.

If I have to pick one thing that sets aside NetApp’s accelerator programme from the rest, it is the quality of the mentors and its world-class mentorship,” says Ajeya Motaganahalli, Sr. Director and leader for NetApp Startup Accelerator. “With NetApp’s rich history of innovation and expertise in data management, we are providing startups working in this area with the right mentorship – both technical and business.

A mentor is not coming with any biases towards the business and has an outside-in perspective. Parag Deshmukh, Archsaber mentor. This is congruent with a guiding principle of The MIT Venture Mentoring ServiceParticipants are assured impartial and unbiased advice by a strict code of ethics. And of course congruent with my favorite
Alan Kay quote: Perspective is worth 80 IQ points. We all have our biases, but just like journalists we need to both be aware of those biases and endeavor not to let those biases interfere with our mentoring process.

Mentoring is an educational process and it is bi-directional, mentees learn from mentors but mentors also learn from their mentees. The learning was not one-sided. The mentors say they also in turn, learnt from the startups. “I learnt a lot in terms of the workflows in healthcare and the various insights they provide through their AI platform said Priya Sehgal, Sigtuple mentor. I’ve tended to not sign up for mentoring sessions for startups in medical devices and bioengineering, as I have zero education, experience, or expertise in those areas. However, while VMS offers its mentors a signup process, The MIT Sandbox Innovation Fund assigns mentor teams – no choices! But as a result of being assigned to a mentor teams for both medical devices and bioengineering I’ve learned a fair amount about those markets and now pay much more attention to developments in those fields.

Finally the question is asked, how is mentoring a business different than mentoring founders? Calling a consultant to evaluate a business and him putting in an elaborate report on the changes that need to be made to make the business successful and handing it over to founders for executing it, is very different from going along with the founders as a team on the path to realisation of their goal,” says Parag Deshmukh.

There’s much more to the article if you are interested in the mentoring process, which seems very similar to mentoring in the U.S. In fact if you go to the home page of Yourstory it may take you a while to realize it’s an Indian site, so similar are the stories to tech focused web news sites in the U.S. Entrepreneurship is truly a global phenomenon and I’m glad to see that mentorship is as well.