I'm excited to share that last week, we held the first in-person Startup Lean Coffee meeting since January 2020! It felt so fulfilling to connect with this community in-person after so many years! We discussed the current state of the NYC startup ecosystem, we inquired whether the world needs another women's angel investor network, we shared resources for the essential services that every startup needs, and we explored how companies change after they raise their series A.
Before the pandemic, there were several vibrant startup communities in NYC, including Betaworks Studios, which used to host Startup Lean Coffee until March 2020. There were countless founder meetups, accelerator programs, conferences, co-working spaces, and communities, but no "center of gravity". During the pandemic, many people from the startup world left NYC; and some of the establishments that used to foster a sense of community didn't survive.
Where are local founders, early employees, service providers, and investors able to connect with one another today? Have we gone virtual? Are the communities there but just smaller and quieter?
Venture Crush has been holding virtual events throughout the pandemic and has held a few in-person events more recently, one of which I attended. The content was incredible; but it was much smaller and less lively than before.
ERA roundtables and demo days used to be very popular, albeit a little formulaic for my taste. I haven't been to one since 2019. Are they the same? How have the changed?
A few months ago, Charlie O'Donnell wrote in his newsletter about how fragmented the NYC startup ecosystem used to be, which created both challenges and opportunities. His newsletter remains a great source for learning about startup events.
Super Momo looks like a promising directory of events. I just listed the next Startup Lean Coffee there. Let's see how it works!
Where do you find your startup community in NYC?
The short answer is: absolutely! As long as there are gender and racial disparities in founders who get funded, there's a need for investors who focus on underserved communities.
We identified several shortcomings of existing angel investor networks for women: they're stuffy and impersonal; and they're not structured so that members can learn more about investing.
Investor communities should be more fun, irreverent, personal, and educational. If the community includes a mix of more and less experienced investors, consider forming a member managed fund like ARC Angel Fund or The ArcView Collective Fund. The fund structure makes every LP also a GP, so everyone brings their expertise to investment decisions.
Every startup at some point needs a lawyer. With any luck, in addition to building their product, getting it to market, and generating growth, they'll also need to hire people, make payroll, provide benefits, file taxes, and manage finances. These are all examples of essential, non-differentiating functions that all successful startups will eventually need. Mature companies hire departments of specialists to provide these functions; but early stage startups often can't afford and don't need full-time help in these areas. So where do startups go to find these essential services?
Fractionals United is a community of fractional leaders in any disciplines, including product and technology. For most startups, paying market salaries for full-time, qualified executives in these functions isn't feasible. Yet even at an early stage, having access to this level of expertise across functions can dramatically reduce risk and can make the difference between success and failure. Engaging fractional executives (and coaches and advisors) is a great way for startups to access this kind of expertise under terms that are often surprisingly affordable.
Most lawyers are inherently fractional (unless they serve as full-time inside council to a company). Many law firms have great startup packages that include fixed price billing for basic matters, deferred billing with no obligation if the company doesn't reach revenue or fundraising milestones, and even monthly subscription packages. I'll recommend the firm that I use, Foley Hoag LLP, for their startup packages. Also look at Kyle Westaway and Jack Vilella's offerings. These are just a few of the many options available to make essential legal services more accessible and affordable to early stage startups.
Where do you find the services that you need?
Series A financing represents a major milestone in a startup that usually only happens after the company has demonstrated a viable business model with strong growth potential. Series A is often the first priced round led by an institutional VC; and it often comes along with a company's first outside board directors. These days, a Series A financing could easily amount to $15 million or more. There are many challenges associated with deploying this kind of capital effectively and achieving the milestones needed to satisfy current and future investors.
At a certain level, everything that companies do can be considered along four dimensions: strategy, people, process, and product/service. I include anything related to financing, customers, product-market fit, and other business model considers under strategy. People issues usually involve the internal team but sometimes include contractors and partners. Process is all about workflow and how you operate. Product/service has to do with how you deliver value to your customers, which for many companies, includes technology.
First and foremost, don't lose your scrappy, bootstrapping mindset. This is not the time to spend money frivolously; or your 12-18 month runway will quickly become a 6 month runway, and your next round will be a down round. These days, most investors want to see growth and profitability, rather than growth at all costs. If you want to raise your Series B under terms that are favorable to you, you need to find a path to achieving a position of strength, which is often operational profitability. It's easiest to raise money when you don't need it.
To complicate matters, with your new investors, you will probably have additional, new stakeholders to keep informed and aligned. Some of those stakeholders may have interests that differ from one another, so making major decisions like extending a round or raising more money may not be so simple to execute.
Also choosing whose advice to follow when you receive conflicting advice is an art, not a science. And of course, you don't want to let any of your investors feel like their advice is being ignored. Remember, you're not there to please everyone. It's still your company. And while your board has the authority to replace you as CEO, they are also there to serve and support you.
So how do you get to a position of strength in which you don't need to raise money? I like to describe what the company needs to look like in terms of OKRs that will lead to operational break-even or profitability; and work backwards to the current situation to map out a reasonable path forward. This should be a very quick process. There's usually enough ambiguity in startups at this stage that detailed planning an analysis that stretches out too far in the future is likely to be incorrect and will need adjustment. So shoot for having a high level plan that makes sense based on what you know now and focus your detailed analysis on the initial steps in that plan. Then build feedback loops so that you can continually assess your progress and assumptions and adjust accordingly.
One major effort at Series A usually involves significantly expanding your team. This means lots of hiring, promoting, and probably some attrition.
There are natural inflection points in which organizations need to change the way they are structured and the way that they work in order to scale. One such inflection point is at ~30 people; another is ~100 people. Series A companies might encounter one or both of these inflection points. As they grow from very early structures where team members tend to play many roles, companies tend to form more specialized teams to focus on specific operational functions, which should lead to improved productivity in each function but often also leads to inefficiencies in working cross-functionally when organizational silos start to form. The book, Working Backwards, describes many practices that Amazon used both in its early days as well as much later, to address these kinds of organizational challenges. Remember that not every practice works for every organization, and some practices that are perfect for companies with thousands of employees don't scale down to companies with dozens (and vice versa).
The natural tendency when expanding a team is to promote the longer-tenured team members and hire new people to work under their management; and sometimes this works very well.
However, not every individual contributor wants to be, or is capable of becoming, a leader or supervisor of other team members. Not every team member can transition from doing a job to managing people and/or vendors. And though it may be hard to accept, not every founding CEO is going to be the best person to lead their company to the next level. Identifying and accepting these situations early is critical throughout a company's lifecycle, especially at Series A, when so much changes.
We probably could have kept talking about this topic for days. It's probably worthy of a book! What chapter would you write about scaling through Series A?
Startup Lean Coffee is a monthly gathering of founders, early employees, advisors, investors, and anyone involved or interested in joining the startup world in any capacity. Our sole purpose is to help each other improve by sharing questions and experiences. All you need to bring is your attention, curiosity, and willingness to share.
We follow a Lean Coffee meeting format, a lightly facilitated meeting where participants democratically build an agenda and discuss each topic for a fixed time, voting to continue discussion or move on to the next topic after the time runs out.
Feel free to continue conversations that were started at our meetings and start new ones on our Startup Lean Coffee Slack workspace. Please treat our Slack space like our in-person meetings: ask questions, share interesting information, create channels. Above all, please maintain a safe space for all to feel welcome and participate.
Participation is free; but space is limited. We usually meet on the 1st Wednesday of each month. Sign up for the next Startup Lean Coffee, which will be on Wednesday, November 1st at 9am.