By Shomit Ghose, Managing Director & Partner at Onset Ventures, member of ICDK’s advisory board
In the midst of Silicon Valley ‘s current climate – specifically The-Bubble-That’s-Not-A-Bubble in which we live – we’ve seen an explosion of company financings and an explosion in company valuations. At the earliest stages, there were an astounding 70,730 start-ups receiving angel funding in 2013. At the same time, at the latest stages of financing, there are now over 100 private companies – “unicorns” – with valuations in excess of $1 billion. In this frothy environment, what’s the best way for a start-up, particularly one based in Denmark, to secure interest and start-up funding from Silicon Valley venture investors?
Despite today’s frenetic funding environment, the best path to getting start-up financing remains the same well-worn path that’s always prevailed: getting a personal introduction to a partner at the right venture fund; focusing on an addressable market that’s multiple billions of dollars in size; having a disruptive business model; having unique and defensible technology; having a talented and tenacious founding team; and deal terms that are appropriate for the company.
In addition, companies that garner the most investment interest nowadays are the ones with business models that are relentlessly data-centric. Whether it’s wearables, the Internet of Things (IoT), 3-D printing, next-generation cyber-security, or the sharing economy, everything today is driven by masses of data. For example, wearables and the IoT provide an interface for the physical world to the Internet; these devices are producing huge volumes of data at the network’s edge. But wearables and the IoT can only provide value when their data can be captured and analyzed. Consequently, the business model here is explicitly not about the devices themselves but about understanding the data produced.
Similarly, 3-D printing largely presents an exercise in personalized manufacturing that is driven by data. Just as Big Data personalizes content in print (Google), video (Netflix), and audio (Pandora), Big Data will also drive the content (aka. personalized manufacturing) of 3-D printing. With the Big Data dynamic in mind, Danish IT start-ups wishing to attract the attention of Silicon Valley VCs today should be advised to define their value propositions and business models from an acutely data-centric perspective. The IT industry has only just begun to harness the power of Big Data, and start-ups who are pioneering new ways of examining and gaining insight from huge volumes of data will be tomorrow’s biggest success stories.
In addition, Danish start-ups should be prepared to move their management teams – though not the rest of their companies – to Silicon Valley for the first few years of the company’s life. Early-stage start-ups face extremely high execution risk, and those risks are best mitigated by having the founders proximal to their company’s Silicon Valley investors. Of course, about half of US venture capital dollars today continues to be invested in Silicon Valley. But crucially, the Valley also has the world’s deepest supply of risk-willing investors, the majority of whom are former entrepreneurs and battle-hardened veterans of the start-up wars themselves.
Today, the climate for early-stage start-ups in Silicon Valley is the best it’s ever been. The combination of passionate entrepreneurs, experienced investors with plentiful capital, and new business models founded on Big Data make it the best time in history to start a company that may become tomorrow’s Next Big Thing.