due diligence

Maybe FTX was the real poster child for 2021’s startup excess • ZebethMedia

By zebethcontrolPosted on November 17, 2022Posted in due diligence, EC Blockchain, EC Cryptocurrency, EC Newsletter, EC venture capital, FTX, Startups, The Exchange, Venture, venture capitalNo Comments

If someone offers you a seat on a rocket, you don’t ask which seat. So goes one of Silicon Valley’s favorite platitudes, one that you can trace back (at a minimum) to former Google CEO Eric Schmidt and former Facebook COO Sheryl Sandberg. The idea is that if you are given a shot at working on something new and big, you just say yes and sort out where you fit in the organization later. The chestnut can apply in other circumstances. For example, if I was building a Very Cool Company that was perhaps set to break out and become the Next Big Thing, you might be more concerned about getting some of your capital into the business (a seat on my business rocket ship) than precisely how the business is run (asking which seat you are buying). The Exchange explores startups, markets and money. Read it every morning on ZebethMedia+ or get The Exchange newsletter every Saturday. Making a big bet on the future without knowing all the details can, per the Sandberg example, work out well. It can also … not. As with many business cliches, the rocket-seat philosophy is frequently over-applied. Instead of being reasonable advice to be bold in the face of uncertainty, it can also be used to make witless choices appear reasonable.

Fundraising beyond the Bay Area, web3 gaming, TDD prep checklist • ZebethMedia

By zebethcontrolPosted on October 28, 2022Posted in biotech startups, Crypto, due diligence, EC roundup, immigration law, Startups, Venture, web3 gamingNo Comments

In a previous era, aspiring journalists relocated to New York, would-be actors made pilgrimages to Hollywood, and plucky tech founders moved to the Bay Area so they could attract capital and talent. But San Francisco is no longer the center of the startup universe, and it hasn’t been for a while. Cities like Boulder, Detroit and Austin had emerging tech ecosystems long before the pandemic forced VCs to start taking pitches via Zoom, and social media has leveled the playing field when it comes to networking and PR. Full ZebethMedia+ articles are only available to membersUse discount code TCPLUSROUNDUP to save 20% off a one- or two-year subscription “We noticed a couple of years ago, in looking at our own analytics, that most of our deals were coming through Twitter,” said Elizabeth Yin, co-founder and general partner of Hustle Fund, last week at ZebethMedia Disrupt. “If I look at my portfolio, my companies that are active on Twitter actually do have an easier time raising money because investors feel like they know them.” Reporter Dominic-Madori Davis moderated a discussion with Yin, Mike Asem (founding partner of M25), and Accel partner Rich Wong that elicited suggestions for early-stage founders who don’t live in the 415 area code and spilled the tea about “the emerging markets on their radars.” If you’re interested in the entire conversation, there’s a link to a video at the end of the article. Keep an eye out for more recaps from TC Disrupt in the coming days. Thanks for reading, Walter ThompsonEditorial Manager, ZebethMedia+@yourprotagonist 5 tips for launching in a crowded web3 gaming market Image Credits: Chelsea Sampson (opens in a new window) / Getty Images Every online product requires some network effect, but gaming is unique: Without large, loyal and enthusiastic customers, there’s no way to build products that can be monetized. Play-to-earn games (P2E) are particularly susceptible to this problem, which is why “building a game that succeeds in the long term means developing monetization strategies that can weather market ebbs and flows,” says Corey Wilton, co-founder and CEO of Mirai Labs, the gaming studio behind Pegaxy. In this primer for P2E founders, Wilton shares suggestions for how to approach investors, explains why tokens are not a reliable fundraising vehicle and discusses the recent “shift toward Web 2.0 monetization.” A prep checklist for startups about to undergo technical due diligence Image Credits: Pixelimage (opens in a new window) / Getty Images On Tuesday, founder and CEO of codebase analytics company Sema, Matt Van Itallie, shared a guest post for founding teams who are about to begin technical due diligence before an investment or acquisition. On Wednesday, he followed up with a detailed checklist for C-level executives and senior managers responsible for helping VCs determine whether their “codebase is safe enough for investment.” Product roadmap Code quality Code, network and information security Intellectual property Development process Engineering team contributions DevOps Pitch Deck Teardown: The Palau Project’s $125k pre-seed deck Image Credits: Palau Project (opens in a new window) Fundraising takes many forms, but because pre-seed founders are so often coaxing money from family and friends to validate their ideas, it can raise the emotional stakes. To raise money for The Palau Project, an app that lets users find the environmental impact and nutritional benefits of packaged food, founder Jerome Cloetens put together a 22-slide deck with a $500,000 goal. In the end, the team raised just $125,000. Dear Sophie: How can early-stage startups improve their chances of getting H-1Bs? Image Credits: Bryce Durbin/ZebethMedia Dear Sophie, We have a stealth early-stage biotech startup. Do we qualify to petition a co-founder on STEM OPT for an H-1B in the lottery? Is it worth it or are there better alternatives? — Budding Biotech 3 VCs explain how founders can stand out when pitching Image Credits: Kelly Sullivan (opens in a new window) / Getty Images There’s a lot of wisdom in corny motivational writing. For instance, this quote by Will Durant, a historian and philosopher: We are what we repeatedly do. Excellence, then, is not an act, but a habit. A great pitch requires more than charm and storytelling skills: investors expect founders to understand their market and competitors, and help them prepare before the meeting begins. “I generally recommend having almost like a teaser version of the deck with enough data and information to give us a sense of where you are in terms of the journey of your company,” said Jomayra Herrera, a partner at Reach Capital. “Just enough information so that we come prepared to the meeting.” 5 ways biotech startups can mitigate risk to grow sustainably in the long run Image Credits: jayk7 (opens in a new window) / Getty Images Thanks to R&D and clinical trials, life science startups have long lead times before they can bring their capital-intensive products to market. “But,” asks Omar Khalil, a partner at Santé Ventures, “what happens when the funding suddenly dries up?” In a guest post for TC+, he shares five strategies for biotech startups that are trying to stay warm through the winter ahead. “It’s still too early to know whether this is a short-term correction, or if it’s a new normal that will be maintained for the foreseeable future.”

A prep checklist for startups about to undergo technical due diligence • ZebethMedia

By zebethcontrolPosted on October 26, 2022Posted in Column, due diligence, EC Column, EC How To, fundraising tactics, Startups, technical debt, VentureNo Comments

Matt Van Itallie Contributor Matt Van Itallie is the founder and CEO of Sema, which provides codebase analytics for M&A. Previously, the author offered a detailed overview of the technical due diligence (TDD) process investors conduct before injecting cash into early stage startups. In this follow-up, he offers a detailed checklist for C-level executives and senior managers who are responsible for helping VCs determine whether their “codebase is safe enough for investment.” Product roadmap Explain how you collect user and customer feedback. Provide a sample subset of the most granular user/customer feedback you collect. Provide the results of the synthesis of user/customer feedback. Provide the last 12 months of product management data for Engineering (e.g. Jira tickets). How much was spent on new features / functionality compared to maintenance? What are the major items on the list? Explain the roadmap for the next 12 months. Code quality How much does Finance invest in tech debt prevention and remediation? In security risk prevention and remediation? In IP risk prevention and remediation? Which software languages do you use? Is the use of new languages managed? Is a refactoring being considered or possibly needed? Which testing methods do you use and what is their breadth? Do you perform unit tests, automated tests, manual QA testing, and user acceptance testing? Share the most recent results from each type of test. Is a line-level scanning tool such as SonarQube in place? If yes, share a sample report. Is third-party code managed through a manager, stored in the code, or both? Why? Describe your architecture and provide architectural diagrams. Intellectual property

8 questions to answer before your startup faces technical due diligence • ZebethMedia

By zebethcontrolPosted on October 25, 2022Posted in Column, due diligence, EC Column, EC How To, fundraising tactics, Startups, technical debtNo Comments

Matt Van Itallie Contributor Matt Van Itallie is the founder and CEO of Sema, which provides codebase analytics for M&A. Investment activity is down now, but it’s likely to pick up in 2023. And when investments ramp up, so does M&A. Will your organization and your code pass technical due diligence when it’s your turn? Let’s start with the positives: If an investor is proceeding with technical due diligence (TDD), you’ll likely pass. You’ve passed the tests for product-market fit, financials and competitive differentiation well enough that they now want to look under the hood. Here’s the not-so-good news: Companies can pass the business test, but fail TDD. Especially for non-technical executives, the code-examination process can feel like … an audit … conducted in another language … with a loud clock ticking away incessantly. Not fun. Our firm has analyzed the code of hundreds of billions of dollars worth of deals, from three-person software companies to firms with thousands of developers. We’ve looked at the contributions of over 200,000 developers who have collectively written 4 billion lines of code. Poor codebase health is more often than not “caused” by other teams rather than by engineering. From that dataset, we’ve distilled eight questions that you can ask yourself now. Even if TDD is not on the horizon, having good answers to these questions will ensure your codebase is healthy. A quick primer on TDD Before we go any further, here’s a bit more context on technical due diligence for software: TDD applies to traditional software companies and non-software companies enabled by custom created software. It involves the examination of code written by employees or contractors. TDD is conducted by in-house experts or by specialist consultancies. Investors and acquirers, especially the larger and elite ones, may ask to conduct a quantitative code scan to supplement qualitative interviews. Such a code scan is effectively mandatory if the investor is seeking reps and warranties insurance (RWI) for the deal. The goals of TDD are to: De-risk the deal by determining if the codebase is safe enough for investment. Identify opportunities for improvement if the transaction goes through. We say “codebase” because it’s more than just the source code that’s under the magnifying glass. Your documentation, processes and most importantly, the software developers will also be under examination. The functional scope of TDD includes code quality, code security, intellectual property, DevOps, IT and, sometimes, product management. Because it’s more than just the quality of the code, we talk about codebase health to encompass all of these areas. Question 1: What have you been working on? Making sure that the organization is working on the software products that matter most is an important part of de-risking the deal. This may sound obvious, but sometimes, a company claims to be working on a new product, but will actually be spending the majority of their time on custom development for major clients or not working much on anything at all. Consider this example of a company’s software development over two years. Not only is there a cyclicality in the work (higher in summer), but it has declined significantly over time, especially in 2022. Image Credits: Sema Important point: Here, and for all questions in TDD, any answer might be sufficient to clear the examination. This leads us to TDD Theme #1: The most important part of TDD is ensuring the state of the codebase is aligned with the organization’s business objectives. For example, U.S. education software companies typically see cyclical software development — higher in summer and lower in fall — to minimize disruption for customers when school starts. Question 2: How much unit testing does your codebase have? We like to distinguish between underlying code quality to include such measures as its maintainability or the ability to be extended, and the functional code quality — how the product works for users. “Technical debt” is another way of describing any lack of perfection in the underlying code.

Technical due diligence, web3’s promise, how to hire well • ZebethMedia

By zebethcontrolPosted on October 25, 2022Posted in Crypto, due diligence, EC roundup, hiring, Startups, TechCrunch Disrupt 2022, Venture, web3No Comments

In films, screenwriters always include a moment known as the Promise of the Premise. It’s the part of the story where the audience settles in to the new world they’ve entered. One of my favorite examples is in the first Harry Potter movie, when Hagrid takes Harry to Diagon Alley, the magical shopping district that introduces him (and us) to the world of wizarding. So far, web3 has not paid off on the Promise of the Premise: open source software that runs live on the blockchain. “It’s still much easier to develop a Web 2.0 app simply because the ecosystem is mature and enjoys a large and thriving developer community,” says Devin Abbott, who specializes in design and development tools, React and web3 applications. Full ZebethMedia+ articles are only available to membersUse discount code TCPLUSROUNDUP to save 20% off a one- or two-year subscription According to Abbott, the web3 development community is approaching “an inflection point where our own tools are becoming quite powerful,” but “that doesn’t mean Reddit is moving off its Web 2.0 cloud servers.” So far, most of the hype for web3 is coming from investors and journalists, so Abbott’s perspective as a developer makes this a useful read. Most of web3’s early use cases don’t interest me. Then again, I’m not a developer, so I didn’t truly appreciate the value of mobile gaming, GPS and cloud storage until they’d achieved product-market fit and were integrated into my smartphone. Today, I wouldn’t consider buying a device that couldn’t help me find a restaurant or hotel. When it emerges, I suspect web3’s killer app will be similarly utilitarian. Thanks for reading, Walter ThompsonEditorial Manager, ZebethMedia+@yourprotagonist 3 ways to hire well for your startup Image Credits: AndreyPopov (opens in a new window) / Getty Images For early-stage startups “this is arguably one of the worst times to be looking for talent,” says Champ Suthipongchai, founder and GP of Creative Ventures. Opportunistic hiring managers might assume that widespread layoffs have shifted the balance in their favor, but “those were generally not employees executing core businesses.” Usually, startup recruiting resembles scenes from heist movies where the characters are putting a crew together: it’s an expedited process designed to fill knowledge or experience gaps, not necessarily find the best fit. “Whenever possible, it is far better to slowly integrate a great candidate in as an adviser or part-time contractor and let things play out,” writes Suthipongchai. “Just as a customer pilots the product, companies should pilot their most important hires whenever possible.” 8 questions to answer before your startup faces technical due diligence Image Credits: kutaytanir (opens in a new window) / Getty Images Outsiders study multiple facets of a startup to determine its value and quality, and codebase health is one of them. A pitch deck is just part of the story, writes Matt Van Itallie, founder and CEO of codebase analytics company Sema. After technical due diligence begins, no amount of storytelling can cover the secrets buried in GitHub and Jira. To help companies prepare for TDD, Van Itallie has written a primer with eight questions founding teams must be able to answer confidently. Tomorrow, we’ll run his detailed TDD checklist. To better thwart ransomware attacks, startups must get cybersecurity basics right Image Credits: Bryce Durbin / ZebethMedia Creating systems that are resilient against ransomware isn’t top of mind for early-stage startups, but many companies don’t even follow basic best practices, much to their detriment. “Enable multifactor authentication (MFA) on everything you have,” said Katie Moussouris, founder of Luta Security. “Enable it on every account that you have.” Last week at ZebethMedia Disrupt, Moussouris and Brett Callow, threat analyst at Emsisoft, spoke about the need to invest early in locking down their systems, starting with MFA. “It’s a matter of stacking security layer upon security layer,” said Callow. “MFA in conjunction with staff training — in conjunction with other things — all serve to reduce risk.” Black startup founders raised just $187 million in the third quarter Image Credits: Getty Images The downturn appears to be disproportionately affecting Black founders’ ability to raise capital. “When the venture capital industry catches a cold, underrepresented founders catch pneumonia,” said Tiana Tukes, an investor with Colorful Capital. In Q3 2022, Crunchbase reports that Black founders raised just $187 million, “a staggering decline from the nearly $1.1 billion they received in Q3 2021 and a sizable drop from the $594 million the cohort raised in Q2,” writes Dominic-Madori Davis. Investors are sitting on mountains of cash: Where will it be deployed? Image Credits: H-Gall (opens in a new window) / Getty Images No matter what’s happening in the public markets, bees make honey, and venture capitalists raise money: it’s just what they do. But since the “extreme valuation recalibration” in the public markets, VCs are amassing more and more dry powder, write Jeremy Abelson and Jacob Sonnenberg of Irving Investors. More frustrating news for founders: investor fundraising “is on pace to finish the year at $172 billion,” but capital deployment is way down. “Dollars are flowing and will continue to flow, but it will be more capital to fewer companies,” they write. Now that “traditional SaaS has become too expensive and secondarily saturated,” sectors like web3, life sciences and agtech will attract more investors, they predict.