Protocol Pipeline
The inside story of the venture capital and startup world by Biz Carson.
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A startup’s playbook for going international

A green illustration of a globe with red dots scattered across it.

Hello and welcome to Pipeline. This week: What happened to summer break, (exactly) how a CEO spends the day and what it takes to take your startup global in 2021.

Overheard

  • So much for VCs' summer break? August used to be the dead zone where VCs dropped off the map for a few weeks before re-emerging at YC Demo Day. Now it feels like every VC I talk to is slightly out of breath and still struggling to wrap their head around why they're paying such high prices for startups.
  • Speaking of Demo Day season … "What's YC Demo Day even for anymore? All the companies I know in S21 are done raising already or will be by DD," tweeted Cantos Ventures' Ian Rountree. It's a refrain that comes up every year after top startups raise early. We're hearing that startups like Slope are attracting a lot of investor attention from this current batch.
  • "Eventually, the proverbial bath water will turn from tainted to toxic and babies may not just be thrown out with the bathwater but forcibly hurled," Lux Capital wrote to its LPs. That's one way to describe what might happen as a result of this funding environment.
  • Mike Moritz is back in the journalism game (kinda). The journalist turned VC is now chairman of Here/Say, a new media project in San Francisco that Moritz backed with $10 million.
  • Kids say the darndest startup ideas. Are chocolate veggie drops the latest biotech frontier? Is Borrow My Bear the next hot marketplace? Maybe not, but kids did come up with the cutest startup ideas.

Biz on Biz

A whole new world, a new fantastic point of view

It used to be that investors were rightly wary of startups going global too quickly. A decade ago, it was a matter of controlling burn and keeping a company focused versus feeding an oversized appetite for expansion. But that's changed for today's startups, thanks to a combination of more capital than ever willing to fund an aggressive strategy and product-led growth strategies that enable companies to find global customers without having to build an office in every major city.

"I think the risk now is often being too slow," Accel's Rich Wong told me during this week's Protocol Pipeline event on Going Global.

  • "There is a point when it's too early," Wong warns. Startups need to have the basic fundamentals of product-market fit, know what segment of the market they're in and what their entry point will be, he said.
  • If he had to put a number to it, Wong said the $10 million ARR mark for a SaaS business is when it's time to expand.
  • The caveat to all of this is for companies based outside of the U.S. who might have a smaller starting market. Wong's portfolio company UiPath was founded in Romania and an example of a startup that had to build that international muscle early to find the fit. In 2015, it reincorporated in the U.S., and it went public on the NYSE this year. "Sometimes it's an advantage for the startups coming from small countries that they actually have to truly plan to go global from the beginning," he said.

A startup's strategy will be different if it's a consumer marketplace, product-led enterprise or heavy enterprise — and then it can still be country-dependent.

  • Product-led growth is by far the most efficient. "If you can get to market without having to put all of the fixed costs of the offices and headcount into every country that you want to find customers in, that tends to be a better way to go-to-market that tends to be more profitable," Wong said.
  • Swathy Prithivi, an early Uber city launcher, saw the flipside of running a very capital-intensive, hyperlocal launch. She advised those consumer marketplaces to understand what their durable advantages are in the market, not just the ones they'll get from being first to a city. "Building supply and demand locally is very expensive," Prithivi said. "A hyperlocal supply-and-demand marketplace is likely to create lower margins, but maybe over time it can also be built into adjacent businesses and increase in growth that way." So for a company like Uber, it wasn't an investment just in a rides business, but also expanding into food delivery or courier services from there.

Remote work is changing the equation of where companies establish offices. While much of the talk about global expansion is from a sales perspective, tapping into talent internationally is another prong of an international expansion strategy.

  • Hiring low-cost engineers or customer support in other markets has been a part of the playbook — and is sometimes a great place for companies to make their first move. "You can actually first go after talent to serve your existing customer base, and then after you get to sustainable product-market fit, then you can think about leveraging that to serve a different customer base," said Prithivi.
  • The rise of remote work from COVID-19 and employees scattering to far-flung regions is also changing the game. "I think it's unrealistic these days to have a direct mapping of customer cities to where your employees are based. And that is a change from 10 to 15 years ago, where you were very deliberate about putting offices in very specific places and specifically where customers were growing," Wong said. Instead, more companies are optimizing having offices in the same time zones as their customers rather than trying to match it city by city.
  • There are exceptions to the rule though: "There are certain markets like Japan, that the nature of the type of customer support, in order to sell successfully in Japan and scale, generally, you do have to put an office there, or at least have local language support," Wong said.

Going international may be more demystified, but it's also more competitive than ever, points out Prithivi. There are more international founder types who can help companies go public, but at the same time, there's now a shorter window for when clones will pop up to compete over the local market. As founder-in-residence at Atomic, she says today's class of entrepreneurs have to think about going global from the beginning.

"If we have global aspirations, we need to start planting those seeds now," said Prithivi. "Because there's probably two to four YC cycles before there is an 'X for us' in Indonesia and India and Brazil. And we need to get ahead of that."

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Due diligence

Stay in the know with upcoming Protocol virtual events:

  • 8/17: "A Better Meeting." How to have meetings that aren't "this should've been an email" level. Hosted by David Pierce and featuring Mural and Calendly. Sign up here.

Inside Track

Need to Know

  • DoorDash and Instacart considered merging, according to the Information. There were regulatory concerns over a combined delivery empire that reportedly cooled the deal talks. Meanwhile, Uber's GoPuff deal may have also caught regulators' eyes, and not in a good way.
  • SoftBank hit the brakes on China investing. It's pausing until it knows how the regulatory market will shake out.
  • Chris Sacca is back. He's raised $800 million for his new fund, Lowercarbon Capital, to, as he puts it, "keep unfucking the planet."
  • Double decacorns. Both Gusto and Reddit raised new funding at $10 billion valuations, the new hot milestone for startups. Discord could be the next one as it's rumored to double its valuation.
  • Trouble inside a favorite startup recruiting firm. A former employee sued Daversa Partners, accusing one of its (now former) partners of repeated sexual harassment and assault.
  • Release radar: Felt. Think Figma meets Mapbox, Felt is a new multiplayer mapping app in private beta.
  • On Protocol: Do you know what Corporate Memphis is? Neither did I until I read my colleague Hirsh Chitkara's article on why tech illustration is stuck on repeat.
  • Also on Protocol: Vaccine mandates aren't enough. Big Tech wants employees to prove it.
  • Your weekend reading: If you want the world's best mangoes, you have to order them off WhatsApp. Eater has the story: "Inside the secretive, semi-illicit, high stakes world of WhatsApp mango importing."

Five Questions With...

Uncork Capital's Andy McLoughlin

The former co-founder of London-based Huddle, Andy McLoughlin relocated to Silicon Valley in 2010 and was an early angel investor in companies like Intercom, Calm, and Postmates. He joined Uncork in 2015 where he is focused on the enterprise and developer tools like LaunchDarkly, which hit a $3 billion valuation this week. Also in the news was McLoughlin's promotion to managing partner of the seed-stage firm.

What is the biggest issue that your partners are thinking and talking about at your Monday partner meeting?

Like most small funds, we're currently wrestling with reserve strategy — where to put follow-on dollars to work, ensuring we don't run out of cash to support every company that needs it, etc. 2021 has thrown all of our fund math out of the window as follow-on rounds are being done faster than ever, often at eye-watering valuations.

What product or service are you totally, even irrationally, loyal to?

I still religiously use Evernote, despite it crapping out on me a few times per day. I've been keeping notes in it for well over a decade and it's the digital equivalent of that drawer everyone has — it contains all sorts of junk but I know that if I need one thing (like a loyalty number for an airline that doesn't exist anymore), I'll find it in there. I know that I could probably move to another product but that seems like a headache so I'll stick with what I know sort-of works. I've become my dad in that regard.

What problem do you want to see a startup solve?

See above.

Aliens visit Earth and you can only show them one movie. What would it be?

Not a movie, but "Band of Brothers" is the greatest TV show ever made. They can watch it in one sitting if they want, like a very long but super awesome movie.

Sam Lessin's essay on the "End of venture capital as we know it" caught the eye of a lot of folks. Do you think this is the end of VC as you know it?

People have been talking about the end of VC as we know it for the last 10 (or more — I'm still a newbie) years. The aggression of the Tigers et al. will certainly crush a few firms sitting in the difficult middle, but very-early-stage firms like ours are nimble and can easily adapt strategy. There will definitely be a big shift in venture in the coming year, but that's been true of every year I can remember.

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