Dan Cleary

We gathered dozens of operators from the MGMT Boston Operators Club and local founders alongside the 186 Ventures team this October to discuss the evolution of our dear software markets, the status of some predictions for 2024 (all looking good!), and what’s on deck for next year. General Partner Giuseppe Stuto led us through the following predictions for 2025 to share with you all.. ↕ We will see more vertical AI applications manifest themselves within the Enterprise in a similar ways that SaaS moved from horizontal to vertical use cases 🔔 We will see services business models more common and software budget purchasing models less common - SaaS may even be given away for cheap/free as a “way in” ⚖ Capital efficiency, on a relative basis, will almost be required to create enduring & compounding defensible enterprise value. Details like procurement cycle lengths and creativity with non-dilutive financing, like leveraging revenue based financing tools for example, will all matter 💡 Specific to AI, premiums will be placed on applications that can actually get “reasoning” right. All purpose LLMs still have a ways to go and there are multiple approaches with the “jury still out” on how to get context and reasoning right. Infrastructure solutions that use general purpose or customizable knowledge graphs to help application developers get to 100% (enterprise acceptable accuracy) will emerge OR savvy application developers will fill the gaps themselves. We will likely see both, depending upon the specific case! Thank you Giuseppe, Julian, and Sophie for a great discussion and evening!

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📈 Curious about the startup scene in Massachusetts? Explore our detailed funding list featuring startup names, HQ locations, and investor info. Perfect for investors and entrepreneurs alike! Check it out: https://lnkd.in/dAp3xj-Q #startup #startups #venturecapital #funding #vc #managementconsulting

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YC released its 'request for startups' last week, and a lot of the areas are not what you might expect... Here’s where they’re seeing the most opportunity to build (and why) over the next few years: - Government software - Public safety technology - Manufacture in the USA - Stablecoins 2.0 - LLMs for chip design - Fintech 2.0 - New space companies - AI-aided engineering tools - One million jobs 2.0 Which YC 'request for startups' are you most-bullish on?

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At Forum we look at thousands of deals each year across our Accelerator and Pre-Seed funds but only end up investing in a little over 1% of those startups.  As an early stage VC, I am in the business of saying no to nearly every startup I meet, and while there is nuanced rationale for many of the startups I pass on, a vast majority of businesses that don’t meet the qualification to get funded typically fall into one of two buckets. ▪ First time founders have a tendency to go out to market too early to raise pre-seed capital ▪   I’m sure most founders have heard some iteration of this from VCs that ultimately pass on their business.  In some cases it's a blanket excuse covering up for other pass reasons- perhaps a VC doesn’t believe in a team or isn’t bullish on the market opportunity - but in many cases founders simply haven't proven enough to the market to warrant an investment. I meet many teams with an articulate vision for the product that they want to build, but they either haven't performed enough customer discovery to prove demand for their initial wedge product, or need to raise pre-seed capital to build out an MVP.  In those cases, pre-seed investors are unwilling to underwrite those risks.  To be default fundable, teams need to be able to keep costs low, perform extensive customer discovery, and ship some version of an early product - pilots and early paid customers are key. A huge piece of this is having founding engineering talent on the team. ▪Not every startup is a venture opportunity ▪ By definition, a venture backed business is solving a problem within a market opportunity so massive and so desperately needed, that its growth rate is off the charts.   It spreads like a weed, absorbing almost unlimited amounts of capital to fulfill demand within its customer base.   Each year there are maybe 20 companies launched that ultimately have venture scale outcomes. The bar to reach this rarified air is unfathomably high and the reality is the vast majority of founders simply aren’t building for opportunities that have the potential to be one of these generational companies. Many startup founders view VC as the only viable option for capitalizing their business, but not every great business is a venture business, and most successful founders never take VC dollars.  In order to reach an IPO/acquisition large enough to generate venture returns, a startup needs a credible path to $100s of millions in revenue. This is the standard by which early stage opportunities are evaluated. The flip side to this, and I share this feedback often with founders I meet that are building interesting business in non venture markets, if you are able to scale to $10- $20M in revenue that can be a massively successful outcome for a founder.  There are investors who focus on these type outcomes, namely lower middle market PE shops, and the typical path to those deals is a bootstrapped business or a friends/family capital raise.

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The state of venture capital is wild right now. We are witnessing a surge of innovation across the spectrum: - Funds merging - VC doing PE - PE doing VC - Secondary funds - Buyout funds - Spin-out funds - Debt funds - Continuation funds - Infrastructure funds - GP turnover - Hard Tech surging - Family Office uptick

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🎙️ Exciting insights from SaaS Academy's CEO Johnny Page on the Expertise Economy podcast! Johnny breaks down their two-step approach to helping SaaS founders: 1️⃣ The Discovery Call: Uncovering the founder's "why" and long-term vision 2️⃣ The Strategic Game Plan Session: Creating a 90-day action plan to achieve 12-month goals 🔑 Key focus: Identifying and solving business constraints Want to dive deeper on the secrets of building a successful SaaS business? Check out the full episode here: https://lnkd.in/dju-Be2u #SaaS #BusinessStrategy #SaasAcademy #ExpertiseEconomy #Podcast

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I recently saw this metric from Carta’s 1Q24 VC Fund Report, which is very concerning. DPI... is nowhere to be found in earlier vintages that probably should start showing DPI. Funding early-stage projects is great, but ultimately, these venture dollars need to exit their investments and pay back their limited partners. That’s where the metric Distributed to Paid-In Capital (DPI) comes in. While managing a fund, we get interim measures during the life of the fund (e.g. IRR, MOIC), but ultimately, “you can’t eat IRR.” If you want to build a lasting venture capital organization, you need to start showing DPI for your fund. Keep in mind that this is traditional VC data from Carta, and is not strictly crypto venture. Crypto venture tends to get liquidity earlier (tokens) and things tend to go parabolic sooner (faster, more unicorns) - but I’d wager that the data here is somewhat similar for Crypto VCs… Not as much DPI as there should be from these earlier vintages. Read the full article, as well as a recap of all the crypto fundraising rounds for August, here: https://lnkd.in/g3eVJ-iF

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Huge opportunity

So a lot of scale-ups and startups have fallen off the venture track. They aren’t growing at venture-scale rates anymore. Triple Triple Double Double is now in the rear-view mirror. That can be tough. It quickly becomes impossible to raise any capital other than from insiders. Folks leave. It’s a big transition. Still … still … if you can’t get all the way back to venture-scale growth, at least stay or get to Private Equity levels of growth. What’s that? Roughly: - $20m or more ARR - 100% or higher NRR - 30% or higher revenue growth - Profitable, break-even, or close And - Don’t raise money at a crazy high valuation At that level, private equity firms will still be interesting in buying you in many cases. You’ll get calls, and especially if you are in a space they can combine with a large player, offers. You usually have to get to that level of scale, that level of growth, and that amount of efficiency. And the offers are lower in many (but not all) cases that you’d get in a hot deal from a tech buyer. But it can be real, good money for everyone

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New York City startups are addressing the lack of charging infrastructure for electric vehicles (EVs) by installing curbside solutions. These startups, such as It’s Electric, Gravity, and Voltpost, offer different approaches, including tapping into existing power sources, utilizing fast charging technology, and integrating chargers into lampposts. Despite challenges like grid capacity and vandalism, these startups aim to make EV ownership more accessible and appealing to urban residents.

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Kettleborough VC has been active for ~6 years, invested in ~30 companies, gone through ~80 funding rounds, witnessed ~12 exits including ~4 instances of partial principal erosion, seen ~4 seed to $100M journeys, tracking ~29% XIRR across the portfolio. A couple of IPOs from the portfolio surely seem very much in line ahead.

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What I've seen over the years is, early stage companies rarely grow beyond their founders’ capabilities; or at least, companies model after their founders really closely. If the founder is unfocused, chances are the whole company is unfocused. If the founder is incapable of making decisions, the company is likely to have meetings after meetings without clear conclusions. If the founder doesn’t put in 110% of herself in the company, it’s hard to expect anyone else at the company would. 1/ Having cofounders is advantageous in this regard, because no one is perfect and different cofounders can bring different skill sets and strengths 2/ Founders need to have good mentors 3/ Founders must set aside some time to constantly upgrade themselves and “sharpen the tooth”. 

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"Monetization must be a first-class citizen in your product from Day 1 & if you're not thinking about entitlements early on, you're not setting yourself up for success." -- Justin Gagnon Justin leads growth engineering at Calendly, which means he's built & evolved monetization in the context of both hyper-growth & scale. We sat down last week for a conversation about feature management, monetization, and the services needed to deliver flexible pricing & packaging at scale. Some of the topics we covered: 1️⃣ Why monetization is so complex in B2B SaaS 2️⃣ The role of entitlements 3️⃣ Paying down bad product decisions vs. bad monetization decisions 4️⃣ How Justin & team built monetization infrastructure at Calendly 5️⃣ The tech & commercial debt that comes when monetization is a last-class citizen If you're a product & engineering leader, I highly recommend this episode with Justin. Schematic has learned much from him over the last year and so very excited to share the full episode (link in the comments).

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Best fundraising advice is to build a business that investors want to invest in. This founder spent basically 18 months off and on raising their pre-seed. Business is working now, seed round is oversubscribed, now investors are coming out of the woodworks. (with more inbound since this text 2 hours ago)

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Did you know that YC founders get a secret weapon… and it’s not what you think. “Bookface” is YC’s internal social network. It was needed because YC had funded larger batches and the hardest part of a community is knowing who is in it and who you can trust and ask for help. On the platform, founders share real methods and advice that would break if it were shared widely It’s secret knowledge shared with a trust-first community - answering 80% of the questions a founder can have about building and selling a product, be it to clients, candidates or investors. Before the platform, if you had a B2B startup, you had to reach out cold to potential customers. Now there are over 1000 YC companies you can sell your service to and all of their contact information is in Bookface. As a result, YC alumni companies are often over 50% of your new sales during YC. It’s superpowers like this that make YC deals so attractive compared to the norm. You are investing in a founder with a 10x network already!

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Want to build wealth faster? Skip startups. Buy Boring Old Businesses. Here’s why: 1. They’re already making money. 2. They come with customers, systems, and momentum. 3. They’re undervalued – 2.5x profits is standard. 4. SBA loans or seller financing make them accessible. 5. Easy profit boosters: raise prices or add new products. 6. They’re easier to scale than startups. Startups fail 65% of the time within the first 5 years. But "boring" businesses? They’re built to last. Don’t build from scratch. Buy something proven. If you could buy a "boring" business, what type of business would you buy?

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Good advice for many!

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