Altos Ventures Musings

Questions, thoughts and observations about venture capital, entrepreneurship, investing and business.

Decoding due diligence

Olympus Digital Camera

One of the most mystifying parts of venture fundraising is the murky process of due diligence. There is a ton of advice out there on how to get in and pitch a venture investor, but little on how to manage the boring-sounding but critical due diligence process. Yet this is where make or break happens for many venture deals. Due diligence is the homework that investors do – tech reviews, reference calls, market checks –... Read More »


Zendesk vs Box.com: Why investors are split

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The original version of this post was published on Fortune.cnn.com on May 19 2014 Contrary to what some might think, the two companies are completely different. Both are growing, but Zendesk is on a credible path to profitability and growth. Shortly after Box.com filed for its IPO last month, Zendesk filed to go public also. TechCrunch concluded that the "Zendesk IPO bears striking similarities to Box,” and I recall wanting to rebut that conclusion but never got around to it. However, the best rebuttal came last... Read More »


Analyzing a hot SaaS IPO – the Box.com S-1 Filing

When I heard that Box.com had filed for IPO, I was excited to look through their S-1 filing as the company could be the first big hit of a new generation of SaaS companies that are riding the “consumerization of IT” wave. SaaS companies such as Box.com, Dropbox, Evernote, Github and Hubspot look more like consumer software companies compared to companies such as AthenaHealth, Conerstone, ExactTarget, SuccessFactors, Veeva and Workday that have professional services staff and... Read More »


The Series B Trap – And How to Avoid It

Series B Trap

The original version of this post was published in PandoDaily on January 20 2014 Over the last two years, much has been made of the “Series A Crunch”, a steep drop off in the number of seed-funded companies that are able to close an institutional Series A financing.  For the companies that make it that far, there is another financing pitfall – something I call the “Series B Trap”.  This one is just as fatal and... Read More »


The First Decade of SaaS IPOs (2004-2013)

no software

It's been almost 10 years since salesforce.com's IPO on June 23, 2004. Earlier this year we decided to take a look at every SaaS IPO since then, in what we considered to be the first decade of IPOs in a new era of enterprise software. So far, there have been 40 IPOs, most of which were completed in only the past 30 months. Initially, our focus was to support the upcoming 2014 budgeting process of our... Read More »


Why Big, Why Now, Why You?

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I am often asked by entrepreneurs what constitutes a really great startup pitch.  I’ve literally seen thousands of pitches and given a fair share of my own.  I’ve been convinced, amazed, bored to death and even moved to tears.  I’ve given more than a thousand myself – to receptions ranging from standing ovation to heads-on-table. Fundamentally, a good pitch is a good story.  It’s not just facts and figures and analysis.  In addition to understanding... Read More »


The First Breaking Point

The First Breaking Point

This is the second in a series of posts discussing rapid growth. The first post talked about the idea of startups as temporary organizations focused on “discovery” rather than “execution.” The successful ones grow to become companies that can deliver consistent results. In the venture capital industry, a startup experiencing rapid initial growth looks exciting. Ironically, this is usually when the first breaking point is reached. For example, according to this article about The Maturation of Mark Zuckerberg,... Read More »


Beyond The Lean StartUp

Beyond The Lean StartUp

“A startup is a temporary organization designed to search for a repeatable and scalable business model.” - Steve Blank Once a startup has found product-market fit and a repeatable and scalable business model, what’s next? How about growing the business and building the company? The graph shows Starbucks' revenues from the time they raised venture funding to $10 Billion. I was impressed as I observed the company during its formative years, when I was a... Read More »


Start From the Heart

Start From the Heart

Every year at Altos we see thousands of investment proposals and meet hundreds of entrepreneurs.  We basically boil them down to two types: companies that start from the head and companies that start from the heart. “Start-from-the-head” companies are started by business types, often MBAs, who are motivated primarily by their interest in starting and running a company of some sort.  These companies often come in with slick presentations, fancy financial models and detailed business... Read More »


Replacing CEOs

I regret to say that I've personally served on a dozen boards of venture backed companies that have replaced CEOs. It's usually not a good sign. It doesn't mean those start-ups were doomed; but it does mean drastic change was needed. The decision to replace a CEO is never taken lightly. Replacing any CEO is difficult enough. Replacing a founder/CEO is even more traumatic and fraught with risk. Although I have never seen a case... Read More »