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Founders Now Take the Money and Maintain Control
BY EVELYN M. RUSLI
In a small office in San Francisco, electronic music blared as several programmers loomed over two computers. David Morin, the founder of Path, a social network start-up, gave the signal and the company’s site and iPhone application went live.
Within three hours of its Nov. 15 introduction, the site had tens of thousands of visitors.
Since then, Path has walked away from takeover talks with Google for as much as $100 million, according to a person close to the company, and raised $11 million from 27 investors. More revealingly, Path has turned down more than that from at least that many investors.
“I was humbled by the level of interest — we’re trying to build something that is deeply meaningful,” Mr. Morin said. “As long as I’m doing my best to lead, I want to keep going.”
For every Facebook, Groupon or Zynga, known for its Farmville game, there are scores of lesser-known start-ups like Mr. Morin’s that are raising millions in financing at steep valuations, turning computer programmers into paper millionaires overnight.
Part of the reason is supply and demand, as a wave of capital chases a limited supply of deals. But a more tectonic shift is at work in Silicon Valley. Investors are putting a significant premium on young, visionary entrepreneurs who grew up with the Internet and now seem best positioned to direct the future of the social and mobile Web. Generally in their mid-20s or early 30s, today’s start-up founders are becoming more assertive in funding rounds, securing better terms and, in many cases, cashing out part of their investments well before an initial public offering.
“The resources available to founders, to create and control their company’s destiny, have evolved in their favor,” said Sean Parker, a former president of Facebook and a founder of Napster. “The job of being a founder and executing against a big vision of the future has gotten easier.”
Last year Quora, a question-and-answer site, raised $11 million at an $86 million valuation months before its debut. In February, Uber, an on-demand car service that uses mobile phone apps, raised $11 million at a $60 million valuation. And Color, a photo-sharing application, raised an astounding $41 million in March, before it opened for business. The round was led by Sequoia Capital, a venture capital firm that once invested a more modest $12.5 million in Google, back in 1999.
“For the next-generation opportunities around the Internet and social networks, I believe the biggest opportunities will be driven by young founders who maintain their C.E.O. positions,” said Jim Breyer, an early investor in Facebook and a partner at Accel Partners.
In the postrecession environment, young entrepreneurs are finding relatively easy access to capital, as venture capitalists open their wallets wider and a new crop of angel investors move in. Venture capital investments rose 19 percent, to $21.8 billion in 2010 — the first annual increase since the downturn, according to the National Venture Capital Association. The number of angel investors, meanwhile, surged 22 percent to 727 last year, according to data from research firm CB Insights.
The founder of Uber, Travis Kalanick, says the boom in angel investing and the popularity of networking services, like Angel List, a site that matches entrepreneurs with investors, have made financing significantly more accessible.
“In 2001, you took the money you could scrape — I would talk to 150 V.C.’s and maybe one of them was interested,” Mr. Kalanick said. Today, Uber has more than a dozen investors and a long line of suitors.
At the same time, the cost to start a Web business has dropped precipitously, thanks in large part to the availability of low-cost cloud computing services. The mobile games company TinyCo, which recently raised $18 million, ran on a shoestring budget for two years before its first financing round. Its founders, Suleman Ali and Ian Spivey, said they scrimped their way to profitability, using free software services like Google applications, renting office space from other start-ups and paying freelancers for art. Mr. Morin, who fondly recalls stacking servers during Facebook’s early days, says he operates Path through the cloud, with Amazon Web Services.
And so, with just a pinch of capital, a start-up can go live, rapidly build up a user base from the Web’s vast population and validate its thesis in a short period of time.
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BY EVELYN M. RUSLI
In a small office in San Francisco, electronic music blared as several programmers loomed over two computers. David Morin, the founder of Path, a social network start-up, gave the signal and the company’s site and iPhone application went live.
Within three hours of its Nov. 15 introduction, the site had tens of thousands of visitors.
Since then, Path has walked away from takeover talks with Google for as much as $100 million, according to a person close to the company, and raised $11 million from 27 investors. More revealingly, Path has turned down more than that from at least that many investors.
“I was humbled by the level of interest — we’re trying to build something that is deeply meaningful,” Mr. Morin said. “As long as I’m doing my best to lead, I want to keep going.”
For every Facebook, Groupon or Zynga, known for its Farmville game, there are scores of lesser-known start-ups like Mr. Morin’s that are raising millions in financing at steep valuations, turning computer programmers into paper millionaires overnight.
Part of the reason is supply and demand, as a wave of capital chases a limited supply of deals. But a more tectonic shift is at work in Silicon Valley. Investors are putting a significant premium on young, visionary entrepreneurs who grew up with the Internet and now seem best positioned to direct the future of the social and mobile Web. Generally in their mid-20s or early 30s, today’s start-up founders are becoming more assertive in funding rounds, securing better terms and, in many cases, cashing out part of their investments well before an initial public offering.
“The resources available to founders, to create and control their company’s destiny, have evolved in their favor,” said Sean Parker, a former president of Facebook and a founder of Napster. “The job of being a founder and executing against a big vision of the future has gotten easier.”
Last year Quora, a question-and-answer site, raised $11 million at an $86 million valuation months before its debut. In February, Uber, an on-demand car service that uses mobile phone apps, raised $11 million at a $60 million valuation. And Color, a photo-sharing application, raised an astounding $41 million in March, before it opened for business. The round was led by Sequoia Capital, a venture capital firm that once invested a more modest $12.5 million in Google, back in 1999.
“For the next-generation opportunities around the Internet and social networks, I believe the biggest opportunities will be driven by young founders who maintain their C.E.O. positions,” said Jim Breyer, an early investor in Facebook and a partner at Accel Partners.
In the postrecession environment, young entrepreneurs are finding relatively easy access to capital, as venture capitalists open their wallets wider and a new crop of angel investors move in. Venture capital investments rose 19 percent, to $21.8 billion in 2010 — the first annual increase since the downturn, according to the National Venture Capital Association. The number of angel investors, meanwhile, surged 22 percent to 727 last year, according to data from research firm CB Insights.
The founder of Uber, Travis Kalanick, says the boom in angel investing and the popularity of networking services, like Angel List, a site that matches entrepreneurs with investors, have made financing significantly more accessible.
“In 2001, you took the money you could scrape — I would talk to 150 V.C.’s and maybe one of them was interested,” Mr. Kalanick said. Today, Uber has more than a dozen investors and a long line of suitors.
At the same time, the cost to start a Web business has dropped precipitously, thanks in large part to the availability of low-cost cloud computing services. The mobile games company TinyCo, which recently raised $18 million, ran on a shoestring budget for two years before its first financing round. Its founders, Suleman Ali and Ian Spivey, said they scrimped their way to profitability, using free software services like Google applications, renting office space from other start-ups and paying freelancers for art. Mr. Morin, who fondly recalls stacking servers during Facebook’s early days, says he operates Path through the cloud, with Amazon Web Services.
And so, with just a pinch of capital, a start-up can go live, rapidly build up a user base from the Web’s vast population and validate its thesis in a short period of time.
Full Hundred
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