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So HootSuite just raised a $165 million Series B (led by Insight Venture Partners, with participation from Accel Partners and existing investor, OMERS Ventures). To put it in context, $165m is an IPO-sized financing (Marketo raised $80m in theirs; Tableau $254m). 

This is huge validation not only for HootSuite, but also for marketing technologies as a wholeThe space has been hot for quite some time, starting with a spate of acquisitions in the social listening / widget / ads space --Buddy Media (Salesforce), Radian6 (Salesforce), Context Optional (Adobe)--and continuing with recent activity in marketing automation and analytics: Eloqua (Oracle), ExactTarget/Pardot (Salesforce), Marketo (IPO), Tableau (IPO), EdgeSpring (Salesforce) and Neolane (Adobe)So HootSuite's continued growth and success must also be understood in light of the continued Marketing Cloud Wars between Salesforce, Oracle and Adobe

So what's going on here? Simply put, customer-facing technologies are changing rapidly (the Internet, mobile and social), which is causing buying behavior to change, enabling and necessitating the need for a new marketing technology stack. HootSuite -- if it continues to dominate its space -- might well be a kingmaker in the battle to consolidate this stack. (From personal observation, it seems the majority of CMOs we've talked to at BrightFunnel are using HootSuite; there is tremendous value in this #1 market share rank). 

What's mind-boggling about HootSuite's meteoric rise is that it only just celebrated its 4th birthday. As an entrepreneur, it's certainly an inspiring and humbling success story. It appears that next, they've got their eyes set on world domination: 

“This capital gives us additional resources to expand quickly and strategically into new markets, innovate rapidly, and deliver on our vision around the world” 
- Ryan Holmes, CEO of HootSuite

 
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TechCrunch just published an interesting post, "Rating the Venture Capitalists," which rates the top VCs, based not on LP returns, but instead, based on how successful their portfolio companies are in raising the next round of funding. Not a perfect measure, to be sure, but something that adds to the conversation (anything that adds more data/transparency is a good thing).

The piece rates a number of top venture capitalists and angels highly, including the following as their top ten:
  1. Foundation Capital
  2. InterWest Partners
  3. Flybridge Capital
  4. Marc Andreesen
  5. Naval Ravikant
  6. Atlas Venture
  7. Flagship Ventures
  8. Jeff Clavier
  9. Andreesen Horowitz
  10. Foundry Group

My response to the post is generally positive. Any data that brings transparency to evaluating VC performance (from an entrepreneur's perspective, not LP) is a great thing. Too often, the only metrics used to evaluate investors are returns, which is at best loosely correlated with founder-friendliness and at worst orthogonal to it (i.e. if they make their returns "buying low" or getting 40% of your company). A couple of challenges I see with the author's analysis:

(1) Series A/B is not standard b/w VCs. Some VCs are making it a practice to cherry pick earlier Series A deals as a matter of survival/competitive advantage. I.e., betting on the company to "grow into" a $15m Pre, let's say vs. investing at a time other VCs would agree to that valuation (I bet some of your Top 10 VCs above fall in that category.

(2) Series A/B bar is a moving target. Since Series A is fast becoming the new Series B, what you really need to compare is 2 years ago Series A with this year's Seed rounds etc. Obviously not possible/ lots of conflating factors, but something to think about.

(3) Less hyped investors can be better value. My personal learning (from successfully raising a seed round for BrightFunnel) is that just as with candidates, or anything else, finding unheralded jewels-in-the-rough is the way to go. I like value, not overhyped brands. So why not find that super value added newer fund, or that up-and-coming hungry Principal, vs. buying last decade's track record. Sure it's work, but it's probably worth it. So many of the 100k-twitter-follower investors are all fluff, no substance. Or they have substance, but they're scaling their investing by spending very little time with angel/seed investments. In other words, by getting a greater Share of Time from an investor, you are essentially getting more value, but they are almost certainly getting worse returns, because they can place fewer bets. 
But with the best angels, and some VCs, that's ok, because they're acting like quasi-founders: believing in the vision, wanting to create something new, vs. just looking to return more money and raise a bigger fund, and get rich off the management fee. 


 
Paul Graham, best known as the founder of startup incubator YCombinator, just published yet another epic essay, this time on Startup Investing Trends. As an entrepreneur who has recently fundraised, this piece really resonated with me. It seems to me that this essay -- taken alongside another fantastic post this weekend, "A Venture SLA", by Naval Ravikant -- summarizes a lot of what I think can be improved in the startup fundraising ecosystem. In fact, as I read Paul's essay with breathless exuberance, I tweeted out several quotes-- 13, to be exact, sometimes with a word or two of editorial -- that I thought were particularly on point. (Avid readers of this here artisan blog will remember that I've performed similar services for lazy would-be readers of long form essays before, most notably my 16 Tweet Summary of Time Magazine's Bitter Pill).
 
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I recently sat down with Dave Hersh, former CEO of Jive Software (NASDAQ: JIVE). Dave grew the company from its inception as a small open source project with no revenue to a $55M, pre-IPO company (and a $1.1B market cap as of today).

NH: What lessons can we take away from Jive's success?
DH: With Jive, it wasn't until 5 years into the company (2006) that things started taking off. We hit the sweetspot - with the product, with sales, with Facebook emerging. We thought: "this is a new category that's emerging, and we're not going to lose it." That's the benefit of bootstrapping. You can be patient for the right opportunity.  

"That's the cool part about B2B  -  there's lots of room for serendipity"
NH: What advice do you have for b2b/SaaS entrepreneurs?
DH: Find your hook -- what's your hook of value? Something that's unique to your product. For example, Demandbase's hook was "target specific companies" (vs. people). You have to have a unique hook to succeed -- it's noisy out there. The other thing to ask yourself is: "is it a platform?" It's always an issue: can it be useful out of the gate for enough people?

NH: Should startups be worried about competition during the early days?
DH: A lot of it comes down to solid execution. It really doesn't matter if two companies are starting in the same space at the same time.

NH: What can you tell us about Crushpath, which you co-founded after Jive?
DH: I co-founded Crushpath with Jive's former CMO, and currently serve on the board. Crushpath is doing really well, and offers an interesting lesson. The entire original premise of the company was wrong. Customers said they wanted one thing, but after we built the initial product, they didn't use it. But they really liked this one feature, which became the whole company. That's the cool part about B2B -- there's lots of room for serendipity and you can keep trying, keep trying, keep trying. And eventually, find the right fit. But if you raise too much money, you might not be able to do that.
 
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I recently sat down with Sean Jacobsohn of Emergence Capital Partners. For those not familiar with the firm, they are the LinkedIn of VCs: quietly producing big results, including early investments in Salesforce.com, Yammer and SuccessFactors. Sean joined Emergence last summer, after an impressive career as a SaaS executive at YouSendIt and Cornerstone OnDemand

"Don't take [seed] money from a later stage VC. If they don't follow on, it sends a bad signal."
NH: What is Emergence Capital's investment focus?
SJ: We focus on companies between $500K - $5M ARR, which we we think will get to $100M ARR within 4-5 years.  We partner with our portfolio companies on go-to-market and team building.

NH: How many investments does Emergence Capital make per year?
SJ: We make about 5-6 investments a year, which allows us time to be a value-added partner.  Out of our new $250M fund, we expect to make a total of 20 investments.  
We have quite a ways to go since we've only done 3 investments in this fund. 

NH: What fundraising advice do you have for earlier stage SaaS companies?
SJ: Focus on stage-specific firms.  A few exclusively focused on SaaS include Cervin, Illuminate and Rincon. To start, you may also want to draw upon friends and family. If you're just starting out, get a Minimum Viable Product created and get a couple of paying customers. Investors almost expect that, because it's so easy to do.

NH: What mistakes do SaaS companies make in raising VC funds?
SJ: Don't focus too much on the valuation for the first round of funding. If you raise $1M, it's unlikely to be the last capital you put into the business. If you're successful, you'll need more capital, and if you're unsuccessful you'll need more capital. You have to consider the challenges of getting a follow-on round. 

NH: What about raising seed capital from a later-stage VC?
SJ: I highly recommend that you don't take money from a later stage VC at a seed round. If they don't follow on, it sends a bad signal. We see it all the time -- where a company with VCs provided seed capital, but choose not to lead the later round. There's more than enough early stage money out there. And the early stage guys will be more focused and give the necessary support.  In the rare case the later stage firm wants to lead your next round they likely will want an insider's discount.  

NH: How many firms should a company approach?
SJ: My advice is, be focused. People talk. If word gets out that you've been fundraising for awhile, you might appear stale. Also keep in mind that when you have a meeting, you probably only have one shot.  Only a small percentage of firms will get a second look.
 
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Sarah Lacy of Pando Daily published an interesting follow-up on Scout-Gate, the secret/stealthy angel-investment-by-proxy program run by large VCs such as Sequoia Capital and Andreesen Horowitz. I wrote the following comment, and thought I'd elaborate here:

The secret vs stealthy thing is a bit of a making-a-mountain-out-of-a-mole-hill situation. Entrepreneurs aren't lied to; they're more protected from signalling risks; VCs still get to deploy capital (ahem "spray and pray") and angels get to feel important. Everyone gets what they want. As to the would-be-Series A-crunchees- they know the rules and have only themselves to blame if they don't keep enough tank in the gas to get to the next milestone (e.g. $2-4m ARR run-rate for a SaaS company Series A).
Perhaps I'm naive, but it strikes me that no one's any worse off as a result of this development, and it's quite likely that almost everyone is better off. It used to be that entrepreneurs went from bootstrapping or taking small angel investments to much larger VCs rounds (and much later). Now there are more gradations in investment, and VCs seem to be happily ceding the lower-tier (and higher risk) territory to seed funds. This raises the tricky situation that an entrepreneur can feel like they've passed the high quality threshold of an institutional investment, but still not be set up for success to get to a VC round. And that's exactly why this conversation is now taking place. My view is that it's ultimately good for the ecosystem, and merely a symptom of increasing market efficiencies. 

What do you think? Please comment below.
 
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I recently had a chance to catch up with Andy Rachleff, who taught me at Stanford GSB. Andy is the CEO of software-based financial advisor Wealthfront, and is of course well known as a founding partner of legendary VC firm Benchmark Capital. If Benchmark's Bill Gurley is the sage of Silicon Valley, surely Andy is its professor. Below, I've shared some of Andy's professorial wisdom, which I thought the broader entrepreneurial community might benefit from.

NH: What advice do you give your students about finding a co-founder?
AR: I've learned from the experience of my former [Stanford MBA] students, that it usually doesn't work to "recruit" a technical co-founder. You need to have a common point-of-view, and find someone who sees the problem as you do, and is equally passionate about solving it. The challenge is that it's really hard to get it right out of the gate. That's because you build a product, and target customer segments sequentially. The odds of that first segment being the right one are low. When it doesn't work, then doubts set in. That's when it's critical that both co-founders are committed to each other and to solving the problem. I haven't always held this view, but I've now come around to it, based on my students' experience.

NH: When should entrepreneurs consider outsourcing product development?
AR: If you're in constant iteration mode -- pre product/market fit -- it's a false economy to outsource. It works better for situations with a defined market and longer development cycles.

NH: Do you advise entrepreneurs to raise seed capital when it's available?
AR: It's a good idea to raise capital when you can, especially if you have a significant other. I used to be against founders selling their stock in a secondary offering. Now, I believe that if you sleep better at night, it's good for everyone. Seed funding is analogous to secondary stock. You're no more macho by not taking a salary. And you'll think more broadly. 

NH: What advice do you have about the chicken-and-egg issue of raising capital and attracting a solid co-founder?
AR: There's nothing wrong with signing up a lead investor conditional on having a CTO join. It's a totally reasonable approach. People with better judgment wouldn't fault you for that. You could have the potential CTO join the investor meeting. 

NH:  What advice do you have on customer development and finding product/market fit?
AR: You have to identify people that have the problem AND that have spent money trying to solve it. It's not enough for them to simply have the problem. Focus on "Who Cares" - a particular group. Develop your hypothesis, and test one hypothesis at a time. You can't just ask a customer what they think. Tell them, and then listen to their reaction. 

NH: What's the best way for an entrepreneur to identity the right investors to target?
AR: The best way is to hire an attorney that's experienced at your stage. Use them to identify which angels are oriented towards your sector. You want to be introduced to those angels, vs cold calling. 

NH: What separates a lead investor from a follower?
AR: A lead investor is someone who knows your space, and probably you, and is willing to sit down and negotiate a price with you. Followers might not want to do that, in order to remain the good cop.

NH: What do you do with negative VC feedback?
AR: Listen to objections. Is the objection to you poorly articulating the problem or a disagreement on the market opportunity? The former is your fault. But if they don't believe in the opportunity, don't waste your time on "missionary" work. Startups can't afford to do that. Preach to the choir. Not everyone needs to like your idea.

Related Posts by Andy
To be a great entrepreneur, you must be non-consensus and right
Entrepreneurs in Silicon Valley love to talk about disruption, though few know what it really means. They mistake better products for disruptive ones. 

Andy Rachleff is president and CEO of Wealthfront, an SEC-registered software-based financial advisor, and teaches at the Stanford Graduate School of Business. Before Wealthfront, he co-founded and was general partner at Benchmark Capital. @arachleff
Nadim Hossain is a SaaS entrepreneur based in San Francisco. He was the CMO at PowerReviews (NASDAQ: BV), and was previously a marketing executive at Salesforce.com. @NadimHossain