More on Entrepreneurship/Creators
Esteban
3 years ago
The Berkus Startup Valuation Method: What Is It?
What Is That?
Berkus is a pre-revenue valuation method based exclusively on qualitative criteria, like Scorecard.
Few firms match their financial estimates, especially in the early stages, so valuation methodologies like the Berkus method are a good way to establish a valuation when the economic measures are not reliable.
How does it work?
This technique evaluates five key success factors.
Fundamental principle
Technology
Execution
Strategic alliances in its primary market
Production, followed by sales
The Berkus technique values the business idea and four success factors. As seen in the matrix below, each of these dimensions poses a danger to the startup's success.
It assigns $0-$500,000 to each of these beginning regions. This approach enables a maximum $2.5M pre-money valuation.
This approach relies significantly on geography and uses the US as a baseline, as it differs in every country in Europe.
A set of standards for analyzing each dimension individually
Fundamental principle (or strength of the idea)
Ideas are worthless; execution matters. Most of us can relate to seeing a new business open in our area or a startup get funded and thinking, "I had this concept years ago!" Someone did it.
The concept remains. To assess the idea's viability, we must consider several criteria.
The concept's exclusivity It is necessary to protect a product or service's concept using patents and copyrights. Additionally, it must be capable of generating large profits.
Planned growth and growth that goes in a specific direction have a lot of potential, therefore incorporating them into a business is really advantageous.
The ability of a concept to grow A venture's ability to generate scalable revenue is a key factor in its emergence and continuation. A startup needs a scalable idea in order to compete successfully in the market.
The attraction of a business idea to a broad spectrum of people is significantly influenced by the current socio-political climate. Thus, the requirement for the assumption of conformity.
Concept Validation Ideas must go through rigorous testing with a variety of audiences in order to lower risk during the implementation phase.
Technology (Prototype)
This aspect reduces startup's technological risk. How good is the startup prototype when facing cyber threats, GDPR compliance (in Europe), tech stack replication difficulty, etc.?
Execution
Check the management team's efficacy. A potential angel investor must verify the founders' experience and track record with previous ventures. Good leadership is needed to chart a ship's course.
Strategic alliances in its primary market
Existing and new relationships will play a vital role in the development of both B2B and B2C startups. What are the startup's synergies? potential ones?
Production, followed by sales (product rollout)
Startup success depends on its manufacturing and product rollout. It depends on the overall addressable market, the startup's ability to market and sell their product, and their capacity to provide consistent, high-quality support.
Example
We're now founders of EyeCaramba, a machine vision-assisted streaming platform. My imagination always goes to poor puns when naming a startup.
Since we're first-time founders and the Berkus technique depends exclusively on qualitative methods and the evaluator's skill, we ask our angel-investor acquaintance for a pre-money appraisal of EyeCaramba.
Our friend offers us the following table:
Because we're first-time founders, our pal lowered our Execution score. He knows the idea's value and that the gaming industry is red-hot, with worse startup ideas getting funded, therefore he gave the Basic value the highest value (idea).
EyeCaramba's pre-money valuation is $400,000 + $250,000 + $75,000 + $275,000 + $164,000 (1.16M). Good.
References
https://medium.com/humble-ventures/how-angel-investors-value-pre-revenue-startups-part-iii-8271405f0774#:~:text=pre%2Drevenue%20startups.-,Berkus%20Method,potential%20of%20the%20idea%20itself.%E2%80%9D
https://eqvista.com/berkus-valuation-method-for-startups/
https://www.venionaire.com/early-stage-startup-valuation-part-2-the-berkus-method/
Ben Chino
3 years ago
100-day SaaS buildout.
We're opening up Maki through a series of Medium posts. We'll describe what Maki is building and how. We'll explain how we built a SaaS in 100 days. This isn't a step-by-step guide to starting a business, but a product philosophy to help you build quickly.
Focus on end-users.
This may seem obvious, but it's important to talk to users first. When we started thinking about Maki, we interviewed 100 HR directors from SMBs, Next40 scale-ups, and major Enterprises to understand their concerns. We initially thought about the future of employment, but most of their worries centered on Recruitment. We don't have a clear recruiting process, it's time-consuming, we recruit clones, we don't support diversity, etc. And as hiring managers, we couldn't help but agree.
Co-create your product with your end-users.
We went to the drawing board, read as many books as possible (here, here, and here), and when we started getting a sense for a solution, we questioned 100 more operational HR specialists to corroborate the idea and get a feel for our potential answer. This confirmed our direction to help hire more objectively and efficiently.
Back to the drawing board, we designed our first flows and screens. We organized sessions with certain survey respondents to show them our early work and get comments. We got great input that helped us build Maki, and we met some consumers. Obsess about users and execute alongside them.
Don’t shoot for the moon, yet. Make pragmatic choices first.
Once we were convinced, we began building. To launch a SaaS in 100 days, we needed an operating principle that allowed us to accelerate while still providing a reliable, secure, scalable experience. We focused on adding value and outsourced everything else. Example:
Concentrate on adding value. Reuse existing bricks.
When determining which technology to use, we looked at our strengths and the future to see what would last. Node.js for backend, React for frontend, both with typescript. We thought this technique would scale well since it would attract more talent and the surrounding mature ecosystem would help us go quicker.
We explored for ways to bootstrap services while setting down strong foundations that might support millions of users. We built our backend services on NestJS so we could extend into microservices later. Hasura, a GraphQL APIs engine, automates Postgres data exposing through a graphQL layer. MUI's ready-to-use components powered our design-system. We used well-maintained open-source projects to speed up certain tasks.
We outsourced important components of our platform (Auth0 for authentication, Stripe for billing, SendGrid for notifications) because, let's face it, we couldn't do better. We choose to host our complete infrastructure (SQL, Cloud run, Logs, Monitoring) on GCP to simplify our work between numerous providers.
Focus on your business, use existing bricks for the rest. For the curious, we'll shortly publish articles detailing each stage.
Most importantly, empower people and step back.
We couldn't have done this without the incredible people who have supported us from the start. Since Powership is one of our key values, we provided our staff the power to make autonomous decisions from day one. Because we believe our firm is its people, we hired smart builders and let them build.
Nicolas left Spendesk to create scalable interfaces using react-router, react-queries, and MUI. JD joined Swile and chose Hasura as our GraphQL engine. Jérôme chose NestJS to build our backend services. Since then, Justin, Ben, Anas, Yann, Benoit, and others have followed suit.
If you consider your team a collective brain, you should let them make decisions instead of directing them what to do. You'll make mistakes, but you'll go faster and learn faster overall.
Invest in great talent and develop a strong culture from the start. Here's how to establish a SaaS in 100 days.
SAHIL SAPRU
3 years ago
Growth tactics that grew businesses from 1 to 100
Everyone wants a scalable startup.
Innovation helps launch a startup. The secret to a scalable business is growth trials (from 1 to 100).
Growth marketing combines marketing and product development for long-term growth.
Today, I'll explain growth hacking strategies popular startups used to scale.
1/ A Facebook user's social value is proportional to their friends.
Facebook built its user base using content marketing and paid ads. Mark and his investors feared in 2007 when Facebook's growth stalled at 90 million users.
Chamath Palihapitiya was brought in by Mark.
The team tested SEO keywords and MAU chasing. The growth team introduced “people you may know”
This feature reunited long-lost friends and family. Casual users became power users as the retention curve flattened.
Growth Hack Insights: With social network effect the value of your product or platform increases exponentially if you have users you know or can relate with.
2/ Airbnb - Focus on your value propositions
Airbnb nearly failed in 2009. The company's weekly revenue was $200 and they had less than 2 months of runway.
Enter Paul Graham. The team noticed a pattern in 40 listings. Their website's property photos sucked.
Why?
Because these photos were taken with regular smartphones. Users didn't like the first impression.
Graham suggested traveling to New York to rent a camera, meet with property owners, and replace amateur photos with high-resolution ones.
A week later, the team's weekly revenue doubled to $400, indicating they were on track.
Growth Hack Insights: When selling an “online experience” ensure that your value proposition is aesthetic enough for users to enjoy being associated with them.
3/ Zomato - A company's smartphone push ensured growth.
Zomato delivers food. User retention was a challenge for the founders. Indian food customers are notorious for switching brands at the drop of a hat.
Zomato wanted users to order food online and repeat orders throughout the week.
Zomato created an attractive website with “near me” keywords for SEO indexing.
Zomato gambled to increase repeat orders. They only allowed mobile app food orders.
Zomato thought mobile apps were stickier. Product innovations in search/discovery/ordering or marketing campaigns like discounts/in-app notifications/nudges can improve user experience.
Zomato went public in 2021 after users kept ordering food online.
Growth Hack Insights: To improve user retention try to build platforms that build user stickiness. Your product and marketing team will do the rest for them.
4/ Hotmail - Signaling helps build premium users.
Ever sent or received an email or tweet with a sign — sent from iPhone?
Hotmail did it first! One investor suggested Hotmail add a signature to every email.
Overnight, thousands joined the company. Six months later, the company had 1 million users.
When serving an existing customer, improve their social standing. Signaling keeps the top 1%.
5/ Dropbox - Respect loyal customers
Dropbox is a company that puts people over profits. The company prioritized existing users.
Dropbox rewarded loyal users by offering 250 MB of free storage to anyone who referred a friend. The referral hack helped Dropbox get millions of downloads in its first few months.
Growth Hack Insights: Think of ways to improve the social positioning of your end-user when you are serving an existing customer. Signaling goes a long way in attracting the top 1% to stay.
These experiments weren’t hacks. Hundreds of failed experiments and user research drove these experiments. Scaling up experiments is difficult.
Contact me if you want to grow your startup's user base.
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Cory Doctorow
2 years ago
The downfall of the Big Four accounting companies is just one (more) controversy away.
Economic mutual destruction.
Multibillion-dollar corporations never bothered with an independent audit, and they all lied about their balance sheets.
It's easy to forget that the Big Four accounting firms are lousy fraud enablers. Just because they sign off on your books doesn't mean you're not a hoax waiting to erupt.
This is *crazy* Capitalism depends on independent auditors. Rich folks need to know their financial advisers aren't lying. Rich folks usually succeed.
No accounting. EY, KPMG, PWC, and Deloitte make more money consulting firms than signing off on their accounts.
The Big Four sign off on phony books because failing to make friends with unscrupulous corporations may cost them consulting contracts.
The Big Four are the only firms big enough to oversee bankruptcy when they sign off on fraudulent books, as they did for Carillion in 2018. All four profited from Carillion's bankruptcy.
The Big Four are corrupt without any consequences for misconduct. Who can forget when KPMG's top management was fined millions for helping auditors cheat on ethics exams?
Consulting and auditing conflict. Consultants help a firm cover its evil activities, such as tax fraud or wage theft, whereas auditors add clarity to a company's finances. The Big Four make more money from cooking books than from uncooking them, thus they are constantly embroiled in scandals.
If a major scandal breaks, it may bring down the entire sector and substantial parts of the economy. Jim Peterson explains system risk for The Dig.
The Big Four are voluntary private partnerships where accountants invest their time, reputations, and money. If a controversy threatens the business, partners who depart may avoid scandal and financial disaster.
When disaster looms, each partner should bolt for the door, even if a disciplined stay-and-hold posture could weather the storm. This happened to Arthur Andersen during Enron's collapse, and a 2006 EU report recognized the risk to other corporations.
Each partner at a huge firm knows how much dirty laundry they've buried in the company's garden, and they have well-founded suspicions about what other partners have buried, too. When someone digs, everyone runs.
If a firm confronts substantial litigation damages or enforcement penalties, it could trigger the collapse of one of the Big Four. That would be bad news for the firm's clients, who would have trouble finding another big auditor.
Most of the world's auditing capacity is concentrated in four enormous, brittle, opaque, compromised organizations. If one of them goes bankrupt, the other three won't be able to take on its clients.
Peterson: Another collapse would strand many of the world's large public businesses, leaving them unable to obtain audit views for their securities listings and regulatory compliance.
Count Down: The Past, Present, and Uncertain Future of the Big Four Accounting Firms is in its second edition.
https://www.emerald.com/insight/publication/doi/10.1108/9781787147003
Vitalik
3 years ago
An approximate introduction to how zk-SNARKs are possible (part 2)
If tasked with the problem of coming up with a zk-SNARK protocol, many people would make their way to this point and then get stuck and give up. How can a verifier possibly check every single piece of the computation, without looking at each piece of the computation individually? But it turns out that there is a clever solution.
Polynomials
Polynomials are a special class of algebraic expressions of the form:
- x+5
- x^4
- x^3+3x^2+3x+1
- 628x^{271}+318x^{270}+530x^{269}+…+69x+381
i.e. they are a sum of any (finite!) number of terms of the form cx^k
There are many things that are fascinating about polynomials. But here we are going to zoom in on a particular one: polynomials are a single mathematical object that can contain an unbounded amount of information (think of them as a list of integers and this is obvious). The fourth example above contained 816 digits of tau, and one can easily imagine a polynomial that contains far more.
Furthermore, a single equation between polynomials can represent an unbounded number of equations between numbers. For example, consider the equation A(x)+ B(x) = C(x). If this equation is true, then it's also true that:
- A(0)+B(0)=C(0)
- A(1)+B(1)=C(1)
- A(2)+B(2)=C(2)
- A(3)+B(3)=C(3)
And so on for every possible coordinate. You can even construct polynomials to deliberately represent sets of numbers so you can check many equations all at once. For example, suppose that you wanted to check:
- 12+1=13
- 10+8=18
- 15+8=23
- 15+13=28
You can use a procedure called Lagrange interpolation to construct polynomials A(x) that give (12,10,15,15) as outputs at some specific set of coordinates (eg. (0,1,2,3)), B(x) the outputs (1,8,8,13) on thos same coordinates, and so forth. In fact, here are the polynomials:
- A(x)=-2x^3+\frac{19}{2}x^2-\frac{19}{2}x+12
- B(x)=2x^3-\frac{19}{2}x^2+\frac{29}{2}x+1
- C(x)=5x+13
Checking the equation A(x)+B(x)=C(x) with these polynomials checks all four above equations at the same time.
Comparing a polynomial to itself
You can even check relationships between a large number of adjacent evaluations of the same polynomial using a simple polynomial equation. This is slightly more advanced. Suppose that you want to check that, for a given polynomial F, F(x+2)=F(x)+F(x+1) with the integer range {0,1…89} (so if you also check F(0)=F(1)=1, then F(100) would be the 100th Fibonacci number)
As polynomials, F(x+2)-F(x+1)-F(x) would not be exactly zero, as it could give arbitrary answers outside the range x={0,1…98}. But we can do something clever. In general, there is a rule that if a polynomial P is zero across some set S=\{x_1,x_2…x_n\} then it can be expressed as P(x)=Z(x)*H(x), where Z(x)=(x-x_1)*(x-x_2)*…*(x-x_n) and H(x) is also a polynomial. In other words, any polynomial that equals zero across some set is a (polynomial) multiple of the simplest (lowest-degree) polynomial that equals zero across that same set.
Why is this the case? It is a nice corollary of polynomial long division: the factor theorem. We know that, when dividing P(x) by Z(x), we will get a quotient Q(x) and a remainder R(x) is strictly less than that of Z(x). Since we know that P is zero on all of S, it means that R has to be zero on all of S as well. So we can simply compute R(x) via polynomial interpolation, since it's a polynomial of degree at most n-1 and we know n values (the zeros at S). Interpolating a polynomial with all zeroes gives the zero polynomial, thus R(x)=0 and H(x)=Q(x).
Going back to our example, if we have a polynomial F that encodes Fibonacci numbers (so F(x+2)=F(x)+F(x+1) across x=\{0,1…98\}), then I can convince you that F actually satisfies this condition by proving that the polynomial P(x)=F(x+2)-F(x+1)-F(x) is zero over that range, by giving you the quotient:
H(x)=\frac{F(x+2)-F(x+1)-F(x)}{Z(x)}
Where Z(x) = (x-0)*(x-1)*…*(x-98).
You can calculate Z(x) yourself (ideally you would have it precomputed), check the equation, and if the check passes then F(x) satisfies the condition!
Now, step back and notice what we did here. We converted a 100-step-long computation into a single equation with polynomials. Of course, proving the N'th Fibonacci number is not an especially useful task, especially since Fibonacci numbers have a closed form. But you can use exactly the same basic technique, just with some extra polynomials and some more complicated equations, to encode arbitrary computations with an arbitrarily large number of steps.
see part 3
Dmytro Spilka
3 years ago
Why NFTs Have a Bright Future Away from Collectible Art After Punks and Apes
After a crazy second half of 2021 and significant trade volumes into 2022, the market for NFT artworks like Bored Ape Yacht Club, CryptoPunks, and Pudgy Penguins has begun a sharp collapse as market downturns hit token values.
DappRadar data shows NFT monthly sales have fallen below $1 billion since June 2021. OpenSea, the world's largest NFT exchange, has seen sales volume decline 75% since May and is trading like July 2021.
Prices of popular non-fungible tokens have also decreased. Bored Ape Yacht Club (BAYC) has witnessed volume and sales drop 63% and 15%, respectively, in the past month.
BeInCrypto analysis shows market decline. May 2022 cryptocurrency marketplace volume was $4 billion, according to a news platform. This is a sharp drop from April's $7.18 billion.
OpenSea, a big marketplace, contributed $2.6 billion, while LooksRare, Magic Eden, and Solanart also contributed.
NFT markets are digital platforms for buying and selling tokens, similar stock trading platforms. Although some of the world's largest exchanges offer NFT wallets, most users store their NFTs on their favorite marketplaces.
In January 2022, overall NFT sales volume was $16.57 billion, with LooksRare contributing $11.1 billion. May 2022's volume was $12.57 less than January, a 75% drop, and June's is expected to be considerably smaller.
A World Based on Utility
Despite declines in NFT trading volumes, not all investors are negative on NFTs. Although there are uncertainties about the sustainability of NFT-based art collections, there are fewer reservations about utility-based tokens and their significance in technology's future.
In June, business CEO Christof Straub said NFTs may help artists monetize unreleased content, resuscitate catalogs, establish deeper fan connections, and make processes more efficient through technology.
We all know NFTs can't be JPEGs. Straub noted that NFT music rights can offer more equitable rewards to musicians.
Music NFTs are here to stay if they have real value, solve real problems, are trusted and lawful, and have fair and sustainable business models.
NFTs can transform numerous industries, including music. Market opinion is shifting towards tokens with more utility than the social media artworks we're used to seeing.
While the major NFT names remain dominant in terms of volume, new utility-based initiatives are emerging as top 20 collections.
Otherdeed, Sorare, and NBA Top Shot are NFT-based games that rank above Bored Ape Yacht Club and Cryptopunks.
Users can switch video NFTs of basketball players in NBA Top Shot. Similar efforts are emerging in the non-fungible landscape.
Sorare shows how NFTs can support a new way of playing fantasy football, where participants buy and swap trading cards to create a 5-player team that wins rewards based on real-life performances.
Sorare raised 579.7 million in one of Europe's largest Series B financing deals in September 2021. Recently, the platform revealed plans to expand into Major League Baseball.
Strong growth indications suggest a promising future for NFTs. The value of art-based collections like BAYC and CryptoPunks may be questioned as markets become diluted by new limited collections, but the potential for NFTs to become intrinsically linked to tangible utility like online gaming, music and art, and even corporate reward schemes shows the industry has a bright future.