Problem/solution fit needs to exit prior you can start looking for product/market fit or scaling. Here is a presentation that can help you on identifing the problem/solution fit.
Startups have different stages. We used to have our own five stage, but feel that Howard Love has better description for the startup stages.
Where is your startup ? What are the KPI’s relevant for the stage you are in ? Have you “overleaped” one of the stages ?
Absolutely we want everyone to reach as high as their abilities allow them to! A unicorn would be fantastic! A lot of what we say should be preceded with “until proven otherwise”. As we believe in data and statistics, we assume the median type outcome as the placeholder – UNTIL PROVEN OTHERWISE. I.e. once you have evidence that you can do better and reach higher than the typical/median case, then raise the bar! But you need to prove you can walk until you try to run. And until you have proven your ability to run, you should stay on a route where running is not mandatory.
One reason is our personality – we are all “glass is half empty” people, so we look at everything from that angle. But we don’t intend to be negative or judgemental, we are simply analytical and fact driven and we believe in statistical math, not fairy tales. We are ultra-curious and we always want to understand. When we ask questions people have no good answers for, some people take it as a negative. Sorry, then we clearly do not have an alignment in the basic philosophies and we are not meant for each other.
The overarching higher cause for us is about making the whole startup community aware of an alternative to the stereotypical “how to raise as much money as possible” thinking (which results in having to tell a really bold story to pump valuations up, and everything that forces you to do). We want to help build more successful startups, which reward the founders and investors for the risk-taking. One cornerstone of that is the acceptance of basic facts such as statistical probabilities of success in different scenarios. Hence we favour a rational approach to risk and funding, as on average the survival rates are much better when your plan does not depend on winning-the-lottery type odds.
(People who have already done several exits at tens of millions – you can skip this part)
If you want to make an informed decision you should understand the odds – some basic statistical math. What matters are not paper valuations on which money has been raised, but realised exits where founders and investors received money back. So lets look at some exit facts:
- Median exit value in technology companies in Nordics hovers around 12-15m€ (disclosed exits - public companies have to disclose material transactions, so larger deals tend to be disclosed). There is a large number of non-disclosed exits that are typically less than this.
- In the whole of Europe there are only a few >250m€ technology exists every year (half a dozen or so).
- Trying to build a unicorn takes a lot of time (>10 years) and multiple investment rounds, resulting in big changes on cap table. Markets change, people change, preferences change, technologies change…
- There are hundreds of companies who have raised money at Unicorn valuations, but only a few which have been bought (or IPO’d) at Unicorn level
- Your odds of getting a Unicorn exit are much MUCH lower than your odds of hitting a hole in one in golf (regardless of your HCP)
By all means dream big and set the target high, but learn to walk before trying to run. How about being worth 10M first, and then deciding whether you want to raise the bar or not.
You don’t need to be unicorn to be a success
Trade sale = someone bigger than you buys your company outright. For the buyer, your company/it’s business are a nice complementary add-on to what they already have (they have a brand, customers, channels, salespeople etc – but they have a critical hole your company could fill)
Early Stage = this refers to the stage your business is at, not to the calendar age of the company. The sweet spot is that you have found (at least v1.0) of your product/market fit and demonstrated sufficient proof of it working in real life, but you have not yet built “real” business of it.
In essence, in an early stage trade sale the seller sells a recipe for growth for a buyer who believes they can do the baking of that growth based on that recipe.
We have been there ourselves.
Gorilla partners have founded companies, scaled them (up to 100m€+ turnover) and exited them. We have worked hands-on with startups for 10+ years, of our 2 funds we have to date invested in 50+ startups (+ our own personal angel investments). We have screened thousands of startups, analysed closely hundreds and worked hands-on with 100+. We have an analytical mind so we have seen what works and what doesn’t. Everything we believe in is based on either our own first hand experience, or objective data available to anyone.