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How To Adapt and Overcome To Reach Success With Your Startup
Spencer Rascoff
andSpencer Rascoff serves as executive chairman of dot.LA. He is an entrepreneur and company leader who co-founded Zillow, Hotwire, dot.LA, Pacaso and Supernova, and who served as Zillow's CEO for a decade. During Spencer's time as CEO, Zillow won dozens of "best places to work" awards as it grew to over 4,500 employees, $3 billion in revenue, and $10 billion in market capitalization. Prior to Zillow, Spencer co-founded and was VP Corporate Development of Hotwire, which was sold to Expedia for $685 million in 2003. Through his startup studio and venture capital firm, 75 & Sunny, Spencer is an active angel investor in over 100 companies and is incubating several more.
Wil Chockley
WIl Chockley is a partner at 75 & Sunny, where he evaluates potential investment opportunities across sectors and works with founders to build their strategy and execute on their vision.
What’s the best way to land a plane on a short runway? Maintain control of your descent. The same logic holds for early- to mid-stage startups that are facing harsh financial conditions in 2023. Research from the end of last year found that 81% of early stage start-ups have less than 12 months of runway left. Yikes. Pair that with the current post-SVB venture investment freeze, and it paints a stark picture of what’s ahead.
A huge number of companies are going to be scrambling to find the emergency exit this year, as macro conditions make growth more challenging, and a dearth of venture capital means you need to move more quickly than ever.
If you’ve been grinding on your startup for years and haven’t found product/market fit, you have a critical decision to make now that capital is hard to come by.
You can keep doing what you’ve been doing, pivoting and hoping to find product/market fit. Eventually you’ll need a new source of capital to keep the lights on or a strategic acquirer when you’re at the end of your runway. You could also shut down the company and return cash to your shareholders. There is another option, though. You can flip your mindset and think like an investor to give yourself a more graceful landing.
Imagine, for example, a Series B stage startup with $20 million of cash, but burning $2 million a month. The company has 10 months of runway, is not likely to be able to raise a Series C, and does not yet have a path to profitability with its current business model. Instead of continuing with the current path and driving off the cliff when the 10 months are up, the company might consider cutting burn to almost zero, and sitting with its $20 million of cash.
In this hypothetical scenario, the startup could then try to find another company to merge with, providing its intellectual property, its user base, whatever team members remain, and most importantly its cash, as consideration (and leverage) in the merger. The $20 million of cash is something other companies want desperately in today’s market. Rather than driving off a cliff into a complete winddown or a small acquihire, this company could end up owning 25% of some other company, providing a clear path forward and a real chance at redefined success.
If you find resonance in this cautionary tale, remember: there are a lot of great potential acquirers out there who have found product/market fit and are scaling rapidly, but still can’t raise a venture round in today’s economic climate. These companies are looking for cash wherever they can find it. Said another way, they might have product/market fit but not enough cash, and you have cash but no product/market fit. Seems like a decent marriage, right?
If you’re a founder with cash on your balance sheet but no path forward, you have a unique opportunity to think of yourself as a venture capitalist and “invest” your company’s cash and equity into a new business.
So how do you do this? The key is to move fast and preserve your cash.
- Bring in the board. Have a frank discussion with your board and lead investors to decide if it’s time to call it quits. Most investors have seen a number of companies wind down or go through M&A exits, so they can be a great sounding board as you chart a path forward. They can also be great leads for potential acquirers and facilitate introductions.
- Slim down. In order to preserve your greatest asset—your cash—you unfortunately need to reduce burn everywhere you can including marketing, software spend, and headcount. Ideally, your ongoing costs should be minimal.
- Make a list. Think of all the companies in your space who could see acquiring your company as a good strategic move. Who do you respect most in your industry? Are they in a position to grow, and could this move turbocharge that growth? Who might benefit from the expertise on your team?
- Start the conversation. Once you’ve brainstormed, mine your contacts for warm intros and begin talking about your collective options. The M&A process can take a long time, so the sooner you get moving, the better.
- Negotiate terms and make your decision. Once you nail down the options, it’s up to you to decide whether or not a deal is the right move. Hopefully you can work with your acquirer and your investor base to find a good outcome for everyone involved.
If your startup is one of the many with cash in the bank but without a clear path to a next financing round, don’t panic. Now could be the chance to reimagine your best case scenario—invest your cash to find a new home for your company.
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Spencer Rascoff
Spencer Rascoff serves as executive chairman of dot.LA. He is an entrepreneur and company leader who co-founded Zillow, Hotwire, dot.LA, Pacaso and Supernova, and who served as Zillow's CEO for a decade. During Spencer's time as CEO, Zillow won dozens of "best places to work" awards as it grew to over 4,500 employees, $3 billion in revenue, and $10 billion in market capitalization. Prior to Zillow, Spencer co-founded and was VP Corporate Development of Hotwire, which was sold to Expedia for $685 million in 2003. Through his startup studio and venture capital firm, 75 & Sunny, Spencer is an active angel investor in over 100 companies and is incubating several more.
Wil Chockley
WIl Chockley is a partner at 75 & Sunny, where he evaluates potential investment opportunities across sectors and works with founders to build their strategy and execute on their vision.
https://twitter.com/spencerrascoff
https://www.linkedin.com/in/spencerrascoff/
admin@dot.la
LA’s Upgrade in Travel and NBA Viewing
08:41 AM | July 26, 2024
Image Source: Los Angeles World Airports
🔦 Spotlight
Exciting developments are underway for Los Angeles as the city prepares for major upgrades in both travel and entertainment. The Los Angeles Board of Airport Commissioners has approved an additional $400 million for the Automated People Mover (APM) at LAX, increasing its total budget to $3.34 billion. This boost ensures the elevated train’s completion by December 8, 2025, with service starting in January 2026. For Angelenos, this means a significant improvement in travel convenience. The APM will streamline connections between parking, rental car facilities, and the new Metro transit station, drastically cutting traffic congestion around the airport. Imagine a future without the dreaded 30-minute traffic delays at LAX! The APM will operate 24/7, reducing airport traffic by 42 million vehicle miles annually and carrying 30 million passengers each year, while also creating thousands of local jobs and supporting small businesses.
Meanwhile, the NBA is also making waves with its new broadcasting deals. The league has signed multi-year agreements with ESPN, NBC, and Amazon Prime Video, marking a notable shift in media partnerships. ESPN will maintain its long-standing role, NBC returns as a network broadcaster after years away, and Amazon Prime Video will provide NBA games through its streaming platform. Starting with the 2025-2026 season, these deals will enhance the league's reach and revenue, aligning with the NBA's goal to expand its audience and adapt to evolving viewing habits. Whether you're catching the action on TV or streaming online, these changes promise to elevate the fan experience and bring more basketball excitement to Los Angeles.
🤝 Venture Deals
LA Companies
- Pearl, a startup that makes AI-powered software that assists dentists in identifying cavities, gum disease, and other dental conditions, raised a $58M Series B funding led by Left Lane Capital with Smash Capital, and others also participating. - learn more
LA Venture Funds
- Fulcrum Venture Group participated in a prior $3.5M Pre-Seed Round for Code Metal, a developer tools startup. - learn more
- B Capital co-led a $12.5M Seed Round for Star Catcher, a startup that aims to develop a space-based grid that captures solar energy in space and distributes it to satellites and other space assets. - learn more
- Mantis VC and Amplify participated in a $140M Series C for Chainguard, an open source security startup. - learn more
- Prominent LA venture capitalist, Carter Reum and wife, Paris Hilton, participated in a $14M Seed/Series A for W, the men’s personal care brand from Jake Paul. - learn more
LA Exits
- Warner Bros. Games acquired Player First Games, developer of the recently launched MultiVersus free-to-play platform fighter videogame. - learn more
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Dental Startup Pearl Gets FDA Clearance for AI-Powered X-Ray Platform
04:57 PM | March 08, 2022
Courtesy of Pearl
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A West Hollywood-based startup has received Food and Drug Administration clearance for what it calls the first artificial intelligence-enabled product that can read dental x-rays and identify cavities, plaque and other dental conditions.
Second Opinion is an AI detection platform created by Pearl, a dentistry startup founded in 2019 to leverage machine learning and AI to help dentists detect problems in otherwise healthy teeth. The startup raised $11 million in Series A funding in 2019 from Craft Ventures and Santa Monica-based Crosscut Ventures.
To develop Second Opinion, Pearl gathered over 100 million dental x-rays from dental practices and academic institutions. The AI platform points out discrepancies found in an x-ray and also serves as a patient communication tool, allowing dentists to show different models of a patient’s teeth and point out problem areas.
“I do think that this is going to become very fundamental to the category [of dentistry] very quickly, and therefore will actually serve as a model for the rest of medicine—for how to infuse and deploy a AI widely at scale, with the ultimate benefit and potential of really elevating the standard of care in a provable way,” Pearl founder and CEO Ophir Tanz told dot.LA.
Pearl’s AI program examine teeth.Courtesy of Pearl
The FDA’s clearance comes amid ongoing skepticism from some within the medical community about the effectiveness of AI applications. A presentation made by the American College of Radiology to the FDA in 2020 reported that 95% of clinicians thought AI was too inconsistent or inaccurate to be used by medical practices. Though the FDA is the largest regulatory body in health care, it has no consistent framework for signing off on a piece of AI that can guide diagnostics, such as the number of reference images used, the diversity of its dataset or its accuracy rate. This has slowed down the clinical adoption rate of such technologies—and while the FDA has proposed a framework to address some of these challenges, nothing has been implemented yet.
Second Opinion’s journey to receiving FDA clearance involved a multi-year process to test every single use case that the platform is trained to do—such as identifying tooth decay, plaque, bone lesions around a tooth and a handful of other discrepancies in otherwise-healthy teeth. Receiving FDA clearance entails a separate and different process than receiving FDA approval; while the former indicates that a product is as good as existing alternatives already on the market, the latter requires a different set of processes for more novel or riskier products to prove that their benefits outweigh potential drawbacks. Tanz noted that the FDA sought only clearance for Second Opinion, and neither required nor asked for approval to allow the product to be marketed in the U.S.
A patient goes under the lights in the dentist’s office.Courtesy of Pearl
Though some critics claim that AI can’t pick up on certain nuances that a human dentist might, Pearl contends that those critics often fail to account for the counter-argument of human error. Through the nonprofit Dental AI Council, the startup commissioned a study that found when presenting a panel of 136 dentists with an X-ray to review, roughly half of them found a cavity, while the other half found none.
Tanz said he is not interested in expanding Pearl’s services into radiology at large, and acknowledged that bottlenecks in the FDA process make it harder to develop, clear and adopt similar technology. Already, the startup has received regulatory approvals from Canada, Australia, the U.K., the European Union and the United Arab Emirates, and is working with roughly 4,000 dental organizations and radiograph manufacturers.
“We think of this as a utility, kind of like water or power,” Tanz said. “You're not going to have any dental practice where this is not going to be powering the radiographic side of things… We really do believe that this will be integrated into every practice in the world in a relatively short period of time.”
Update, March 10: This article has been updated to clarify the difference between FDA clearance and FDA approval, and to specify that Pearl's Second Opinion product did not require FDA approval to be marketed in the U.S.
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Keerthi Vedantam
Keerthi Vedantam is a bioscience reporter at dot.LA. She cut her teeth covering everything from cloud computing to 5G in San Francisco and Seattle. Before she covered tech, Keerthi reported on tribal lands and congressional policy in Washington, D.C. Connect with her on Twitter, Clubhouse (@keerthivedantam) or Signal at 408-470-0776.
https://twitter.com/KeerthiVedantam
keerthi@dot.la
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