Philadelphia, PA Venture Capital and Angel Investors
Top 5 Ranked-Startups in Philadelphia
SLYCE is a mobile Visual Purchasing System that allows consumers to purchase products simply by taking a picture at the "Point of Interest" where they are most likely act on impulse. SLYCE is a disruptive technology platform that is being developed in a rapidly growing industry, mobile commerce. SLYCE is currently engaging with both small and large brands to integrate its product in the mobile commerce industry.
Perceptual Networks, Inc. operates as a technology company in Philadelphia. It offers a range of applications that enable users to make friends, fall in love, find a career, and find a place to live.
Zoomer is a platform that handles an extraordinarily high volume of concurrent deliveries from restaurants that already deliver (i.e. pizza, wings, sandwiches, etc.). They bring a much needed change to local high-volume delivery restaurants that are still doing delivery the way they’ve always done it.
Top 3 Angel Investors from Philadelphia
Michael Aronson is the founder of Reality Online. He has invested in well-known startups such as: Ticketleap, Warby Parker and Innova Dynamics
Arie Abecassis is the co-founder of AppStori and a board member of several startups such as: Adapt.ly and Bizness Apps. He's also invested in startups such as: SeatGeek, Sidestep and Flux.
Gabriel Weinberg, author of the book we've mentioned before, Traction, is also the CEO and founder of startup, DuckDuckGo. He's also an investor in two of the startups we've mentioned here: Perceptual Networks and Zoomer, and of course, his own startup, DuckDuckGo.
What Should Philadelphia-based Investors Look For In A Startup's Financials?
There’s nothing better than a startup that is already in the black. They don’t need your money, which makes you want to give it to them all the more!
But profitable startups are a different animal. In this case, the unicorn (or potential unicorn) isn’t hard to spot – the company is already throwing off cash, and you and every other investor is fighting to get in!
Instead, the key risk is whether or not you’re overpaying for the unicorn, and how hard and fast the unicorn can run.
Three key questions to ask when analyzing a profitable startup are:
1. Why is this company able to achieve profitability?
2. Where are the untapped areas of growth, and why would a capital infusion not only increase, but turbocharge growth?
3. What metrics do you need to hit to give investors a return of three to ten times capital?
Ok, give me an example…
Buffer, an Angel Kings Investment, is a great example of a promising startup that is already profitable. In late 2014, Buffer raised $3.5 million in Series A financing at a healthy $60 million valuation. Even to the casual observer, Buffer had great financials, but what were the underlying indicators that it had a strong chance of providing venture–sized returns for investors?
Buffer's Low Cost Growth
Buffer grew monthly revenue 140% –from $180,000 in October of 2013 to $440,000 in October 2014. It did this without the assistance of any external financing, as the last round it did (prior to the Series A) was back in 2011.
As a social media SaaS provider, Buffer’s business model is extremely lucrative: For every $100 in revenue, about 15% goes to payment processing, servers, and other software / tools. The rest goes to gross profit, and Buffer’s 85% gross margin gives it a lot of, well, buffer to pay salaries and other operating expenses, grow the team, invest in growth initiatives, and still clear a small but healthy profit.
One of the key signs that Buffer is onto something big is that it spends a paltry 1.8% of revenue on sales and marketing. In other words, the product pretty much sells itself. Investors can take comfort in knowing that any additional capital investment in sales and marketing will be targeting extremely low–hanging fruit.
One other key aspect of Buffer’s profitability is that most of its revenues are “fixed” – in other words, as Buffer scales revenues, its largest expense (salaries) probably won’t grow as fast. As a result, Buffer’s net income margin should improve asymmetrically over time.
Is Buffer a Future Billion-Dollar Startup?
As mentioned, Buffer raised its Series A at a ~$65 million post–money valuation. Is it possible, without making crazy assumptions, for Buffer to “grow into” a $200 million to $1 billion valuation over the next five years, thus providing its investors with a 3–10x venture return?
At the time of the Series A financing, Buffer’s run–rate revenue was $5 million and it was growing by 140 percent.
For Buffer to achieve target returns for its investors, let’s assume that it will need to grow into a $40 million to $80 million revenue company (fast–growing SaaS startups are typically valued at five to ten times revenue), with no additional financing. In order to do this, Buffer will need to grow 50–70% over the next five years.
While growing 50–70% won’t be a walk in the park, Buffer has a few things going for it:
1. It already demonstrated 140% (compared to the prior year, in 2014), and achieved this without any financing.
2. As a small startup ($6 million in ARR as of March 2015), Buffer has the ability to engineer a paradigm shift upward in revenue growth. For example, a single business development deal with the right partner could conceivably double (or more) revenue.
3. Buffer has spent little money on sales and marketing, so any capital infusion should be extremely productive
4. Buffer’s product team and engineers can reasonably be expected to introduce new features that significantly increase value to the user, and significant additional sources of revenue.
So will Buffer’s Series A investors earn a venture–like 10x return? Time will tell, but the indicators are all flashing green.
What Should Startups in Philadelphia know:
I have three must-read books that I've not only read, but I promote them quite a bit. I don't get anything off them, but I think they're fantastic for startup founders!
The number one book is a book by Peter Thiel called "Zero to One." I've read it many, many times and it was based off of Peter Thiel who's the founder of PayPal and investor in many great companies. He wrote the book and it was based on his lectures at Stanford University. I think it's a great read for any founder, any startup, because it rethinks and reimagines the way that companies are put together. It's very counterintuitive. And to juxtapose that book, I also think that "The Lean Startup" by Eric Ries is an important book. I don't necessarily agree with all of what he has to say about the minimum viable product or on how startups can be successful. I think there's many, many ways beyond the lean startup that a company can succeed, but I also think it's a great book to read.
The third book is called "Venture Deals." I mentioned this in a previous video, but "Venture Deals" is excellent, especially for a startup founder, who more often than not relies on lawyers and people to put together the term sheet, and then they don't understand the term sheet. If you want to understand the nitty gritty of term sheets, how founders should raise capital and how they should deploy their capital, "Venture Deals" is another great book.
Those are great books. I mean, we wrote "Kings Over Aces" as well, which I'm very proud of, but it's an excellent book, especially if you're into investing or want to get into startup investing under the new JOBS Act. I like all those books and hopefully those will help you get a start into startups.