This post is apart of our Silicon Valley Experience blog series where we highlight the articles written by members of our group who participated in our #SVExperience17 trip in September 2017
Very interesting discussions this past week with local venture investors on the funding culture in Palo Alto. The entrepreneurial culture of Silicon Valley was created in 1970’s with the combination of Stanford University, Hewlett Packard and money. Monopoly profits were created on the first wave, silicon chips enabled investments for the next generation technologies: computers and later on telecom, software and mobile applications, AI and VR. In the 2000’s the Chinese entered the market and began diversifying their portfolio in Silicon Valley, which has had a strong impact on local housing prices.
Silicon Valley is the leading, most complete and best functioning tech ecosystem in the world with a complete talent pool. Of the total $62.8 billion venture market in the USA, over 45% of deals are done in California.
Silicon Valley is a very different market than the the rest of the US and Europe, so you play by different rules. Companies come here very early on and their deal flow is better bench marked from here. The large amount of available money drives the whole mindset. For a startup, local presence and networks are important, because buyers, who pays the most money, don’t buy companies that they have not heard of.
The level of ambition is tremendous and even the niche market potential can be tremendous. Everybody is hunting for the next 1 billion $ business (unicorn or not). This makes the ability to grow very important. The right speed to move is not speed but 1/speed. The faster traction means faster market leadership and faster monopoly profits. Still, one of the key strengths of Silicon Valley is the unique pay forward -culture.
Month to month growth is valued higher than cash profitability. In SaaS, the higher the growth, the less profitability and the higher valuation. Make sure you understand your metrics and earnings logic very clearly, because VC’s in Silicon Valley are not tracking P/L driven metrics like EBITDA but MRR growth %, ARR growth %, LTV and CAC.
We’ve heard that Silicon Valley is the hardest market to do fundraising, actually it’s the Olympics of fundraising. Failure is accepted — while not being ambitious enough if the first place is not.
– Päivi Kangasmäki
Founder of BackedByCFO, CFO As A Service from seed to IPO (with a great passion to help CEO’s with cashflow and metrics). Also Boardman2020 board and VIP member