Patterns of Successful Startups, Co-Founder Yes or No, Advisor Equity Benchmark & More
Digesting Insights From the Data
👋 Hi, I’m Andre and welcome to my weekly newsletter, Data-driven VC. Every Tuesday, I publish “Insights” to digest the most relevant startup research & reports, and every Thursday, I publish “Essays” that cover hands-on insights about data-driven innovation & AI in VC. Follow along to understand how startup investing becomes more data-driven, why it matters, and what it means for you.
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This is the first episode of my new “INSIGHTS” series. I’ll publish it every Tuesday and it comes in two alternating formats:
“DIGEST” the most interesting startup research & reports from the previous two weeks. We read all reports, studies, and papers about startups and the wider ecosystem, and condense the most important insights for you. The only source you need to keep up with data-driven startup insights.
“SYNTHESIZE” all available research to create a deep knowledge base for various startup topics such as success criteria, founder backgrounds, hiring playbooks, salary benchmarks, cap table structures, and more. The only source you need to understand any specific startup topic.
Today, we start with DIGEST#1, summarizing the most relevant research from the past weeks and highlighting six clear takeaways.
What Are the Patterns of Successful Startups?
We ran the numbers on 25k+ startups to predict the impact of various team characteristics on the likelihood of raising a follow-on funding round.
Number of executives: 3-6 is best, single founder is worst
CEO: Important to be founder, external CEO is bad
Age: Teams with higher age are more successful; little difference between 25 to early 40s
Education: Master and PhD similarly good, Bachelors and no degree both bad
✈️ KEY TAKEAWAY
Important to differentiate correlation and causation, of course, yet interesting to keep these patterns in mind: Founder CEO, 40+ years old, Master or PhD with 3-6 execs (founders or non-founders) has the highest likelihood of raising follow-on funding. Full study here.
Solo vs. Team: The Startup Founder Debate
In the startup world, the necessity of having a cofounder is often debated. A recent study of 18k+ companies on Carta sheds light on this topic:
Solo founders are more common than you think: They run about 27% of all companies, with a higher prevalence in the Consumer sector. However, this percentage decreases slightly beyond the pre-seed stage.
The biotech industry favors larger teams: Contrary to other sectors, biotech startups tend to have founding teams of three or more members.
Solo founders persist even at advanced stages: Even at the Series D level, 15% of companies are led by solo founders, indicating that single-founder companies can and do thrive long-term.
✈️ KEY TAKEAWAY
This data reveals that success in startups isn't strictly tied to the number of founders, but rather varies across industries and stages. Full analysis here.
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Value Capture in Startup Markets: The Missing Middle
A recent study sheds light on a critical "missing middle" – a gap in value capture for startups facing both technological and commercialization challenges:
Division of Labor: Startups excel in technological innovation while incumbents are better at commercialization, creating a division of innovative labor. This is efficient but not universally effective, especially in deep tech sectors.
Value Capture Dilemma: Startups face a “value capture” challenge, struggling to secure adequate investment when they confront both technological and commercialization hurdles. This leads to a bias in innovation, favoring projects with singular challenges.
Policy Implications: The study suggests that traditional policies like R&D subsidies might not effectively address these specific startup challenges. Alternative approaches, such as government procurement and focused startup support, could be more beneficial, especially for deep tech ventures.
✈️ KEY TAKEAWAY
Deep tech founders should prioritize establishing clear paths to commercialization early in their venture's development, to make the opportunity more fundable in the eyes of investors. Full study here.
Equity for Advisors: What's the Benchmark?
When it comes to equity grants for advisors in US startups, recent Carta data from 47k+ advisor grants reveals some intriguing benchmarks:
Pre-Seed: Typically advisors receive a median grant of 0.25% of the company, aligning with the value suggested in the FAST templates
Seed Stage: Advisors at this stage see a median grant of 0.1%, marking a noticeable drop from 2022
Series A: The median grant stabilizes at 0.07%, remaining flat compared to the previous two years
✈️ KEY TAKEAWAY
Advisors should get max 0.5% before the first funding round. Max 0.25% at Seed and max 0.16% thereafter. Full post here.
New VC Power Players: MANG's Impact on Entrepreneurship
MANG (Microsoft, Amazon, Nvidia, Google) tech giants are reshaping the VC world, particularly in Data and AI. Apoorv Agarwal from Altimeter dives into what this means for entrepreneurs:
Capital Powerhouse: MANG's combined capital in 2023 was over $25 billion, accounting for about 8% of total VC funding in North America. Their focus? A whopping 30% of all Data and AI deals.
Investing in Customers: Post-ChatGPT, MANG's investment strategy pivoted from mobility startups to Large Language Model (LLM) startups like OpenAI. This strategy isn't just about funding; it's about creating a revenue cycle where investment capital returns as cloud service revenue, exemplifying a savvy business model.
Digital Tollbooths and Market Dominance: MANG's role as digital tollbooths is evident in their staggering operating profits ($276B in 2023) and market capitalization ($7.6 trillion). Investing in infra-consuming startups maximizes their cloud infrastructure utilization, securing their financial juggernaut status.
✈️ KEY TAKEAWAY
For entrepreneurs, the rise of MANG in VC signals both opportunities and challenges. Access to vast capital and advanced technologies is a plus, but aligning with these giants might also mean navigating strategic alignments and potential market limitations. Full article here.
A Company Is Sold, Not Bought
Tomasz Tunguz from Theory offers a sharp look at the venture capital exit market and reveals:
Extreme Volatility: The VC exit market's year-over-year volatility is evident, with significant shifts in startup exit values being more the rule than the exception.
Boom to bust: The high of 2021 was met with a low in 2023, a year that posed challenges reminiscent of the Global Financial Crisis.
Timing matters: Quick action during favorable market conditions is paramount for startups, highlighting the importance of timing in the uncertain VC landscape.
✈️ KEY TAKEAWAY
Sell from a position of strength, not weakness. Be proactive and not reactive. You don’t want to be back against the wall but be open to conversations and be proactive when the timing is right. Full post here.
If you enjoyed this new format, leave a like or comment, and share this episode with your friends. If you don’t like it, you can always update your preferences to receive just the regular Thursday “Essays”, just the new Tuesday “Insights”, or both.
Thanks to Jérôme Jaggi for his help with research for this post.
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If you have any suggestions, want me to feature an article, research, your tech stack or list a job, hit me up! I would love to include it in my next edition😎.