A bit of optimism and three objectives
Gil Dibner

I’m writing this on Sunday evening on the way to Berlin for a long overdue reunion with the venture and start-up community of that wonderful city. Our plane is somewhere over the English channel, gliding toward the continent just above a layer of white clouds and just below a thin layer of beautiful pink clouds, the infinite blue sky visible above that. It’s magical — and in this moment — I’m deeply aware of how fortunate I am to do what I do. Life is a blessing. My goal for 2024 is to re-focus my in-person networking efforts on Berlin and — increasingly — Munich which appears to be growing in significance within the European tech landscape.

Optimism. Last week, I heard some welcome signs of optimism from one of our most sophisticated LPs. He’s confident that the market expects interest rates to begin to drop later this year or early next. He’s not very worried about geopolitical risk. The Middle East, Ukraine, China/Taiwan, even Trump — his view is that markets will take these things in stride. He believes lower rates will inevitably bring with them a wall of capital looking to invest in high-growth companies. For CEOs of high-growth companies, the challenge — as he sees it — is just to survive until the climate switches back to one more conducive to investments. I’m not a macro-economist, and, thus, I don’t have a view on when rates will begin to drop. I am, however, a micro-tactician — and I think there is quite a bit of tactical wisdom buried in here.

Three sets of objectives. I’ve talked a lot about the value and imperative of survival and achieving “default alive” status. This week, I want to focus on the flip side of that coin. From a venture perspective, it’s never really enough to merely survive. (For some founders, achieving profitability and either selling that business or running it for dividends is a compelling outcome, but that’s almost never interesting to venture investors.) For those founders seeking to grow and thrive, there are three objectives that matter. Sometimes these objectives conflict with each other — but they often do not.

• Objective one: Pathway to survival. Reducing burn through increased sales and careful expense management (“doing more with less”) results in longer runways and — eventually, hopefully, sometimes — default alive status. In other words, this can ensure survival.

• Objective two: Pathway to independence and control. Running a company just to get to the next fundraising milestone can be a painful and uncomfortable existence for founders. Sure, some VCs are great and some fundraising processes are easy. But many are not. Even when a CEO can raise the capital she needs, she may still be stuck with an uncooperative board, unpleasant relationships, and tension with her investors around strategic objectives. This can add a ton of stress to a CEO’s life. Achieving high performance (managing the core business well and telling a convincing story) can significantly improve the quality of life for a CEO by ensuring a sufficient degree of independence from investors (both existing and new). I don’t know any CEOs who don’t sigh with bliss at the mere thought of not being dependent on their investors.

• Objective three: Pathway to significance. The final but most intriguing objective is finding a pathway to significance: ensuring that the company is on track to grow to a meaningful scale. This is also the most long-term impactful of the objectives because it sets the stage for the next decade of impact on an industry, and — needless to say — paves the way for very meaningful personal professional, emotional, intellectual, and financial rewards for the founding team. In today’s rather bleak fundraising environment when survival is (correctly) the immediate concern for many of us, it’s critical to not lose sight of this third objective. For many founders, the opportunity to build a significant business ties back to the original reason they started the company in the first place. It connects them back to their roots, to their zone of genius, and to their creative and inspirational spark. Without a deep personal reason for building the company, what are we even doing here?

Operational plans must enable discovery of the pathway to significance. At the early stages, every startup is a bundle of questions — most of which have completely unknown answers. The most important questions in the bundle often relate to the pathway to significance. These often touch on customer ROI and/or pricing. Does the product really transform the way the customer operates? Does the product really generate a significant lift in efficiency that customers recognize? Can the product really become an essential irreplaceable part of the work flow? Will it really be viral? Will those network effects really begin to appear? In a healthy startup, learning is prioritized to start to get answers to these questions. Product, engineering, marketing messaging, ICP definition, customer qualification, and pricing should all reflect an effort to zero in on the answers to those questions.

In the rush for survival, this discipline around learning often gets thrown out. For example, price reductions to levels that are unsustainably low and don’t come close to reflecting true customer ROI can end up masking the answers to questions about the value of the product. Extensive handholding during onboarding can mask answers to questions about how well value is being communicated to customers. The list goes on. We all know that no plans survive contact with the enemy, and we all need to cut corners to make the quarter. Without sounding naive, I want to suggest that these compromises be made with great intentionality and within limits. It’s not unusual for me to see a startup that has so prioritized survival over significance that even if they achieve profitability they will be no closer to convincing investors (or even themselves) that they are on a pathway to building anything of consequence. Both survival and independence are a means to an end.

It’s complicated. Sometimes these three objectives align with each other: Customer value discovery can lead to higher prices and faster sales cycles which should accelerate the pathway to profitability. It would be naive, however, to blindly assume that this is always the case. Sometimes very difficult choices need to be made between these objectives: The unprofitable customer relationship that truly proves value but doesn’t generate cash. The perfect customer that absolutely loves the product but refuses to be a reference for others due to confidentiality. Or the highly profitable consulting project with a customer who wants something that is totally unrelated to your core business. These are not easy choices — but that’s the reality of running a real startup in 2024. We are privileged to work alongside our portfolio founders to help them navigate these difficult choices — and we know there are rarely easy answers. The best answers are deep in the trenches.

It’s dark now, and we’ll be landing in Berlin Brandenburg soon. By the time you read this, it will be Tuesday morning and I’ll be somewhere in Mitte doing what I love to do: finding founders that have a pathway to some mix of survival, independence, and significance and doing my best to help them get there. If you are somewhere on this path, I’d love to chat. Reach out. I don’t have any answers, but I might know the questions.

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EUROPE AND ISRAEL FUNDING NEWS

Israel / Cybersecurity. Oasis Security raised $40M, led by Sequoia, Accel and Cyberstarts, to build a non-human identity management platform.

Norway / Robotics. Saga Robotics raised $11.5M from existing investors including Nysnø Climate Investment, Aker, Rabo Ventures, and Hatteland, to support its expansion into new verticals like American vineyards and British strawberry farms.

Israel / Cybersecurity. Aim raised $10M, led by YL Ventures, to scale its enterprise GenAI security platform.

Switzerland / Healthtech. Qumea raised €9.6M, led by Zürcher Kantonalbank, to support the growth of its continuous patient monitoring system.

UK / Materials. Xampla raised £5.5M from University of Cambridge, Horizon Ventures, Marlet Capital and Amadeus, to continue developing its plant-based plastic replacement.

WORTH READING

ENTERPRISE/TECH NEWS

Cloud giants report Q4 ’23. Jamin Ball shared a great overview of the cloud giants, Google Cloud, AWS, and Azure’s fourth-quarter results. “What’s the TLDR? The hyperscalers are really starting to see the tailwind of new workload growth overtake the headwind of optimizations.” Their key numbers for Q4: “AWS (Amazon): $97B run rate growing 13% YoY (last Q grew 12%), Azure (Microsoft): ~$74B run rate (estimate) growing 28% YoY (last Q grew 28%), Google Cloud (includes GSuite): $37B run rate growing 26% YoY (last Q grew 22%, neither are cc)”.

Neuralink human trials begin. Elon Musk posted on X that “the first human received an implant from Neuralink”. According to Elon, the patient is recovering well, and the initial results are promising. Following many animal trials, the FDA granted Neuralink permission for human testing in May 2023. This first human to receive the implant is part of “a clinical trial Neuralink announced in 2023 testing how well the device works on people with quadriplegia because of a spinal cord injury or amyotrophic lateral sclerosis (ALS), also known as Lou Gehrig’s disease. The idea is to intercept the brain’s neural signals to move limbs then retransmit those signals elsewhere in the body so the patient can control their limbs again.”

Amazon officially abandons iRobot acquisition. Following the collapse of Adobe’s bid to buy Figma for $20B after clashing with European regulators, Amazon’s deal to buy iRobot for $1.4B has also officially ended as Amazon saw “no path to regulatory approval in the European Union”. News of the deal falling through tanked iRobot’s stock price, “which plunged nearly 70% since the deal’s announcement, and forced layoffs of nearly a third of its staff — more than 350 people.”

HOW TO STARTUP

Entrepreneurs, not just founders. Bessemer’s Adam Fisher penned a terrific post on why VCs want to back entrepreneurs, and not just founders. “Most early-stage venture capitalists seek out the entrepreneur because if there is one thing we can be certain of at the early stage, it’s that the plan is going to change. And when changes are certain, we want an entrepreneur at the helm.” On the other hand “founders who are not entrepreneurs often find that their capacity for innovation and risk-taking peaked around the time of the company’s inception.”

Something worth building. Hambro Perks’ Sam Marchant covers how to know if you’re building something truly worth building and likely have hit PMF. “1. You’ve identified a small niche (10–100 customers) who OBSESS over your product. Usage is high and the value creation-pain of removal is even higher. 2. These customers have paid up front and you’re charging more than you thought you could. The customers can clearly articulate either the value created using your product or the savings they make. 3. Your product moves from being sold to being bought; the undeniable value created sparks a peer-to-peer referral mechanism underpinned by a user’s love for the product and how it makes them feel to be ahead.”

The state of startups. Crunchbase put together a helpful overview of the state of startups. Most notably, “M&A dealmaking for venture-backed startups globally dropped by almost a third year over year in 2023. In the U.S., the figure hit a 10-year low.”

HOW TO VENTURE

The VC puritans. Contrary’s Kyle Harrison discusses the evolving landscape of venture capital, contrasting traditional “Cottage Keepers” with newer “Capital Agglomerators.” He examines their strategies, co-existence, and impact on founders, emphasizing the need for symbiosis rather than direct competition. His conclusion: “if you’re a Capital Agglomerator, then don’t limit yourself to a 1% type of company. Broaden your horizons to areas that represent financial opportunity. And if you’re a Cottage Keeper, then you need to build a product-led venture firm. Answer the question WHY should a founder choose you. What is the job a founder hires you to do?”

PORTFOLIO NEWS

DUST Identity was featured on ABC News channel spotlighting their diamond dust authentication technology. From Super Bowl rings to fighter jets, the team explains how DUST Identity helps secure a range of products by using diamond dust to create a unique fingerprint for documenting and authentication.