Is Growth the Best Measure of Startup Success?

Startup Growth & Traction
Growth gets a lot of attention in the startup world. A lot of attention. If you Google “startup growth“, you’ll find a plethora of articles, blog posts and tools all suggesting that growth is the most important measure of your startup.

Paul Graham, the founder of Y Combinator, asserts that “The only essential thing is growth“.

In some sense, this attention is well-deserved. But it is often misunderstood and taken out of context.

Growth is, of course, important. Growth is a telling measure of your product/service’s popularity; and, as such, strong growth metrics are invaluable when you’re trying to raise money from investors.

But growth can, and often does, flatter to deceive. And this is something both entrepreneurs and investors should be wary of.

Entrepreneurs need to be careful because “…many founders hurt their companies by focusing on growth too soon“. This is what Sam Altman, the founder of Loopt and President of Y Combinator, wrote in a recent article on the topic of growth.

His reasoning is simple: if you focus too much on early growth and not on actually building a product people love, then at some stage you will encounter the leaky bucket problem where the customers you worked hard to onboard, leave in droves ne’er to return!

But, if you focus on building a great product then you will have better customer retention and, as a result, growth should become increasingly easy as word-of-mouth spreads.

Consider the example of AirBnB who worked and iterated for years before they got the product just right; and then it spread like wildfire because people loved it.

Equally, investors need to be careful because there are often more telling metrics indicating the potential for success of a particular company. An app, for example, may have achieved 100,000 downloads in its first week, but if 95,000 of those users had stopped using the app by the second week, then the impressive early growth suddenly appears deceptive.

So there we have it. Growth should always be important, but it is also important that entrepreneurs and investors espouse a more nuanced attitude to it than believing it to be the ultimate measure of potential and success.

Why we should be positive about the outlook for the UK Tech scene

UK Tech Scene - London Calling

I wanted to share some thoughts I read in a post on VentureBeat by Gerard Grech, the CEO of Tech City UK, a UK-based non-profit focused on accelerating the growth of the UK’s digital economy.

The post is titled, as blog posts tend to be, “9 things you didn’t know about the UK’s tech scene“, but really delivers an incisive analysis of why investors specifically (but by extension entrepreneurs) have reason to be sanguine about the tech sector in the UK (even post-Brexit).

You can read the full article (15min read) by following the link in the title above or by clicking here

If you haven’t got 15 minutes or so, I’ve listed three of the key points here:

1. The UK is the second biggest destination in the world for VC money, on a per capita basis ($3.6 billion was invested last year, up by 70 percent from the year before!)

2. The UK is second in the world for tech startup exits, after the US. There were 135 mergers and acquisitions in the most recent quarter of 2016.

3. The UK government helps tech companies from cradle to exit with the world’s most generous tax breaks and capital gains exemptions for investors as well as visa schemes for digital innovation experts and grants for entrepreneurs.

The cause is strong!

Proposal Tip of the Week

Tip #4 “How big’s the itch and is it spreading…like a rash?”

To continue the itch metaphor from proposal tips #2 and #3 (which dealt with the importance of giving a clear explanation of the itch you scratch and how you scratch it), in this post I’d like to touch on the size of the itch and how it’s growing.

For those of you beginning to find my strangled metaphor tedious, I’ll stop. I’m talking, of course, about the market your business operates/plans to operate in.

It’s no use solving a problem – even if you solve it unbelievably well – if it’s a problem only extant for a single hermit on the remote island of Tristan de Cunha, then it’s great for the hermit, but not a viable business (unless he’s sitting on pots of gold).

The problem you solve has to be one that a large and growing number of people suffer from without a solution; and are willing to pay for.

The more statistics you have to indicate this, the more prospective investors are likely to give your idea credence! There are plenty of websites available to help you with this, so don’t skip this bit…

Fundraising Event Report: Last year’s successes encourage this year’s investors

Last Tuesday we held our first fundraising event of the year at the Olswang offices in Holborn. Treated to a complimentary feast of canapés and drinks on the top floor, investors enjoyed pitches from 7 of the hottest UK startups.

James Badgett, Founder of Angel Investment Network, opened the proceedings by calling to mind some of the notable successes from companies who pitched through us in 2015 as well as the general growth of our site.

Here’s an overview of what he said:

Our Website in 2015 – The Numbers
– Reached 450,000 registered entrepreneurs
– Reached 100,000 registered investors
– Averaged 1380 new proposal submitted each week by entrepreneurs
– Over 2 million proposal views
– 75,000+ connections made between investors and entrepreneurs looking for funding

Companies that Pitched in 2015 – Where are they now?

SuperAwesome, a child-safe marketing platform, completed a funding round with us at a valuation of $3million and subsequently completed a $7million raise at a valuation of $25million. They are now raising at a valuation of $70-100million. That’s a potential return for our investors of 20-30 times in a little over a year!

What3Words, an extraordinary piece of software that’s changing the world’s address system and for whom we filled the seed round, recently received $2million from Intel Capital. They also won the Innovation Grand Prix at the Cannes Lions International Festival of Creativity.

Acquisitions:
As covered in a previous blog post, Uncover were acquired by Velocity resulting in strong, quick returns for our investors.

Draper & Dash, a high-end business intelligence company with an absurdly impressive track record, and PASSNFLY, an innovative airport check-in application, are both under offers for acquisition.

After this introduction, it was fascinating to observe the investors sit forward in their seats and treat the latest cohort of entrepreneurs pitching to their undivided attention!

The future is certainly looking rosy for both investors and entrepreneurs…