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Startup Digest Reading List: Defense of IPOs, Revenue Types, Incubations, and YouTube’s Investment Memo

Welcome to this week's edition of Startup Digest's Reading List featuring stories I found interesting
Issue #124  •  September 28  •  View online  •  Suggest a link
Startup Reading List
Startup Reading List
A weekly curated newsletter on startups and technology.
Welcome to this week’s edition of Startup Digest’s Reading List featuring stories I found interesting on startups, venture capital, and fintech.
Hope everyone had an awesome weekend! On to this week’s featured articles.
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Written by Chris McCann, General Partner @ Race Capital, former Greylock Partners. More about me
This Startup Digest Reading List goes out to a wide membership base of founders, technologists, investors, and operators. Feel free to share with others, sign up here: https://startups.startupdigest.com/
In Defense of the IPO
Whenever a tech company IPOs and the stock trades up on the first day, all of the pundits rush to exclaim the company was mispriced and the bankers took money away from the company! 
However, as Alex Rampell and Scott Kupor of A16Z detail out in their breakdown of the IPO process, this is not necessarily the case.
In reality, there is a very thin amount of stockholders that can and want to sell on the first day of trading so when demand > supply - the price goes up accordingly. There are also strong incentives to want to create a happy base of strong shareholders & liquidity providers - all of which favor this continued dynamic of increasing prices on the first day of trading.
Dissecting Different Types of Revenue
Revenue seems like it’s one of things that would be consistent across all companies and all situations, but alas the world is more complex than it seems. 
Caitlin Bolnick of OpenView Partners breaks down some of the more common categories of revenue in her recent tweetstorm. TLDR: 

  • Bookings - Revenue that has been booked (but the length of contracts could be variable e.g. 1 year, 2 year, 3 year, etc.)
  • cARR - Committed revenue (relevant for companies with long implementations
  • ARR - Revenue for that specific year period that is recurring for the next year
Be careful about companies that have revenue whose revenue is not recurring, but still define it as ARR.
The Incubation Playbook
One of the biggest winners of the Snowflake IPO was Sutter Hill Ventures and Mike Speiser who originally incubated Snowflake. 
My former colleague at Greylock, Kevin Kwok, details out the potentially repeatable process of incubation Mike is following and some broader implications for incubating companies at large.
This is a great read and hard to summarize succinctly so I would recommend reading it in full. We are personally doing a handful of these formation type companies at Race Capital so I can relate to many of the insights he detailed out in the post.
Sequoia Capital's Investment Memo for YouTube
It’s easy to point out why companies are already successful, but it’s much more difficult to predict which companies will be successful without any hindsight bias. 
This is why I love looking at these classic investment memos to better understand the rationale at the time of investment.
Here is the 2005  investment memo of Youtube by Roelof Botha of Sequoia Capital. This was for their seed round investment of $1M, with an option to lead the Series-A if things went well.
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This Startup Digest Reading List goes out to a wide membership base of founders, technologists, investors, and operators. Feel free to share with others, sign up here: https://startups.startupdigest.com/
Techstars Startup Digest Startup Reading List is curated by:
Chris McCann Chris McCann - General Partner @ Race Capital, former Greylock Partners
chris@startupdigest.com
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