SecOps Studios with Sway Ventures
We often hear about large acquisitions, mergers, and venture capitalists investing in startups. It is especially commonplace in the world of Silicon Valley technology companies. Fledgling startup companies are determined to secure investment capital to establish momentum in coming to market with their product or idea. Venture funds and startup investing can be a bit like a black box to many.
What is a venture fund? What do investors look for in funding various startups or other business ventures? How are companies changing how they invest in their products? What do we learn from the recent Salesforce acquisition of Slack? Let’s shed some light on this topic as many successful startups depend on this essential means of establishing themselves as a successful company.
What is venture funding?
Arguably, all successful businesses require a “great idea” to be successful. However, when the “rubber meets the road,” fledgling startup companies need capital to take care of any number of expenditures and costs of coming to market with a product or idea. To raise funding for normal startup operations, successful startups will usually seek external funding for the business.
These funding “rounds,” as they are called, are opportunities for startups to engage with venture capitalists who provide capital to invest in the company in exchange for an equity share or part ownership in the company. It may come with a seat on the company’s board of directors or a board observer seat.
Startup companies generally go through a series of investing rounds that include seed funding and then progress to series A, B, and C. Each of these investing series is part of the progression that allows a company to go from a small startup to a multi-billion dollar business.
Seed funding is typically the first funding that businesses receive to begin the growth process from a startup to a successful company. Seed funding can be anywhere from $10k-$2 million. Many startups never progress beyond the seed money phase into series A, B, or C funding.
Series A Funding
Series A funding comes with a business that has developed into a company with an established customer base and brings in consistent revenue. From here, the company wants to continue to grow to a point to have consistent long-term profit. Series A funding can be anywhere from $2-15 million. With Series A, businesses are still very much in the development stage.
Series B Funding
Series B funding rounds look to take the business past the development stages and into an established business with quality talent. Companies are looking to build up all business areas such as marketing, technology, and support in this stage. Series B funding is, on average, around $33 million.
Series C Funding
Once and if a business makes it to series C funding, it is usually already very successful. Series C rounds help develop a broader range of products or services or even potentially acquire new companies. Once a company had made it to series C funding, its valuation could be hundreds of millions of dollars.
In addition to providing capital to invest in a startup, many venture funds offer value-added services to go along with the investment. These may be business experience in the way of professionals that are part of the venture team who can bring many years of business experience to a fledgling startup.
The business may even have individual venture fund team members to sit on the company’s board or fill specific critical roles as the company gets its feet off the ground. It can help to round out lacking experience in any number of positions, including sales, marketing, manufacturing, or engineering.
What do venture capitalists look for when investing in technology companies?
Many exciting technology verticals show the potential for massive growth in the Silicon Valley startup scene. Cloud technologies that are developing software-based solutions and use the Software-as-a-Service delivery model are especially appealing for venture funding.
The older, traditional style of developing solutions, especially software, where you have an initial up-front investment and then recurring maintenance, is losing favor compared to the new cloud SaaS model. While startups using the SaaS model do not get the investment from customers upfront, they get the dependable recurring revenue in terms of the SaaS delivery model. Many of the older, well-established companies on the scene are pivoting their offerings to this new type of delivery model for services and software.
Software is continuing to trend
It is everywhere these days and even in places that it may not have been only a few years ago. Today, most hardware devices are becoming “connected” and now possess many capabilities that were not available just a short time ago. “Smart” devices and IoT devices have exploded onto the scene. Only a few years ago, these hardware-only devices require software to provide the capabilities that are now possible. A few examples include “smart” thermostats, autonomous cars, and even connected electrical grids that now use software and machine learning for various capacities.
The COVID-19 pandemic – Changing the way companies invest in their products
This year has seen massive changes in how companies do business. Even well-established companies like Salesforce know the need to further invest in their products and solutions’ capabilities. Salesforce’s recent purchase of Slack helps to show this new priority among established businesses today. In a COVID-changed world, companies see the need to have collaboration built into their products
As part of the Salesforce platform, Slack will help to bolster the built-in collaboration capabilities. In thinking about a world without COVID, many companies have seen the value of allowing employees to continue to work remotely. For this transition to be successful long-term, organizations need technology solutions to make this work effectively. We will undoubtedly continue to see these types of investments as companies see the need long-term to have technology solutions that foster collaboration.
Slack Acquisition by Salesforce
Over the years, Salesforce has grown and changed based on the capabilities and powerful integrations with third-party solutions and partners. It has allowed Salesforce to grow and have a lot of resources and capabilities from their partners. Salesforce is looking to diversify its offering by expanding into the enterprise with a diversified platform and offering beyond simple CRM. Collaboration is becoming a “must” no matter the type of your business offering.
Salesforce will undoubtedly use the Slack acquisition to help bolster their offering to enterprise environments and extend the capabilities of their CRM product. The integration of Salesforce and Slack will help with sales and marketing communication that will help close sales. It will help build the client/customer relationship much more quickly and efficiently in a new world, post-COVID.
Cybersecurity will be a trend in startups and future investments
Cybersecurity is a market that will continue to evolve. As new technologies come to the forefront, new security solutions are needed to secure these. There are currently thousands of cybersecurity startups, and this trend with continue. As solutions and data move from on-premises to the cloud and Internet of Things (IoT), this will help drive cybersecurity trends as they continue to evolve.
While investors look to invest in cybersecurity solutions themselves, venture funds also consider the security of a potential startup company’s intellectual property, as they must also consider this before investing. So, in multiple ways, cybersecurity will be a trend of future investment activities in startup companies.
SecOps Studios: www.spin.ai/studios
Guest: Najib Khouri-Haddad at https://twitter.com/nkhaddad
Learn more about the exciting world of venture fund investments and what new advancements are on the horizon in SecOps Studios with Sway Ventures.