Where do mission-driven startups find seed funding?

Tumml has wrapped up its Tumml's Summer 2015 Cohort – but our entrepreneurs are still rolling! Check out Tumml's latest impact stats, highlighting that our 33 startups have raised $35M in funding, created 280+ jobs, and touched the lives of 2.2M people. And, while much of the tech industry suffers from a lack of diversity, 76% of Tumml startups have a woman or person of color on the founding team.

It's been a big few weeks for our portfolio companies. Our alum Neighborly announced a $5.5M funding round and Scrumpt was a TechCrunch Disrupt SF 2015 Battlefield Finalist!

Want to learn more about how Tumml thinks about urban impact? Read our take on bridging the capital gap for mission-driven entrepreneurs in the Stanford Social Innovation Review. And check out Julie's TEDx talk on how public and private collaborations drive urban innovation. Please help us spread the word on Twitter!

You can read more updates from Tumml here, as well as news stories we're following. TechCrunch has an interesting story about how startup Zumper argues that one-third of San Francisco's rent is attributable to VC funding.

Startups can't afford to ignore government

We first published this article in TechCrunch on July 22, 2015.

Last Week, California threatened Uber with license suspension for failing to comply with state laws. Last month, Santa Monica banned Airbnb vacation rentals. But in spite of regulatory challenges faced by companies like Airbnb and Uber, entrepreneurs still act like government isn’t an issue. After all, startups are disruptors, and government is just a monolithic barrier to innovation, right?

Government as enemy?

 The prevailing view in Silicon Valley is that entrepreneurs are changing the world, while government is just standing in the way. And it’s exactly this mentality and media narrative of the ‘disruptors’ versus the ‘regulators’ that’s holding back our startups.

A new era in startup innovation

The truth is that government is now more critical to the success or failure of startups than ever before. Many of today’s largest and most successful private startups are playing in a public space that is highly politicized, highly regulated, or traditionally run by government.  Let’s take a look at the data.

For half of the most highly valued, venture-back private companies, interaction with government is core to their success. The top five list is even more telling – between Uber, Airbnb, and Palantir, you have the GDP of a sizeable country.  And this trend continues as you go down the “unicorn” list of billion dollar startup valuations – from employee benefits platform Zenefits, and fintech startups like Stripe and Credit Karma, to energy company Bloom Energy.

Just a few years ago, the move of startups towards highly regulated industries was unthinkable. But, with governments now cash-strapped and unable to provide all the quality-of-life services for residents, entrepreneurs are uniquely positioned to step in.

And clearly, if startups can master the tight-rope act of engaging with government, they can be big winners.

Moving beyond the philosophical and into the practical

It’s time for startups to stop treating government with disdain or, even worse, ignorance. There is a clear business case for working with government. But you have to be savvy. Let’s take some lessons from entrepreneurs in the trenches.

1) Not everyone will like you just because you’re innovating

 In fact, people may hate you more because you’re disrupting highly entrenched industries. And they will actively try to run you out of town.

Take the example of Zenefits – a startup that helps small businesses manage employee benefits. The startup is disrupting the health insurance market by cutting out the middlemen, known as health care brokers. Earlier in 2015, the Zenefits business model was declared illegal by the state of Utah, on the basis that its model violated a law against rebates. While consumers love Zenefits, the insurance brokers cried foul.

Zenefits proactively engaged government and regulators to change the situation. Fortunately for Zenefits, Utah’s governor and legislature stepped in, clarifying that the Zenefits business model is legal earlier this spring. Just a few weeks later, Zenefits announced a funding round of $500 million at a $4.5 billion valuation. Clearly, it pays to engage with government.

2) Your approach matters

 You need to be tactical about when and how to engage with regulators.

Let’s take the example of Night School, a shuttle service that would use school buses to transport individuals between San Francisco and Oakland, in the evenings, when public transit was slow or nonexistent. But the startup was shut down before they could fully launch. Unfortunately for Night School, they engaged with regulators in the wrong way. They asked for permission before they had broad-based community support or validation of their service. And without a war chest of funding, they couldn’t afford to fight.

3) It takes a village

Productive engagement with government requires investment of time and human resources.

Let’s look at Airbnb. Airbnb has experienced a backlash in some cities around taxation and fears that it reduces the affordable housing supply. But the startup has taken an incredibly proactive approach to working with government. First, they speak the language of government – collecting and sharing data on housing impacts, spending, and tourism.

Second, Airbnb has a collaborative approach to lobbying – with an expansive government relations and civic partnerships team, public relations, lobbyists, and key lawyers to help navigate the complexity. It truly takes a village to work with government, and Airbnb’s village is designed to productively engage policymakers.

Uber is an exception

 Perhaps no company’s battles with regulators have been as public as Uber. The ridesharing service has grown to 300 cities across the globe, developing notoriously antagonistic relationships with many regulators along the way.

And frankly, Uber is going to be successful in spite of itself because it has the money to fight these battles. Its combative strategies have alienated a lot of regulators – and this is going make it more difficult for the new startups that come after them.  Which is why it’s important for startups to work even harder to engage with government. Because, unlike Uber, you probably don’t have the multi-billions in cash to fight.

Wake up and smell the regulation

We’ve entered a new era of startup innovation – one where government will mean life or death. It’s time for startups to get over their indifference to government. In this era, the most successful startups will see government as a partner, not a problem.

3 way startups can prove traction

Tumml RAs May Samali and Jeff Carlson suggest ways for early-stage startups to show traction in the market
First appeared in Medium on July 15, 2015

Before handing checks to startups, investors want proof of business concept. 

As we mentioned in an earlier post on preparing for investor pitches, showing market traction should be a key part of the message communicated to investors. In simple terms, entrepreneurs must demonstrate actual market interest in their product. 

For most businesses, producing sales and revenue is the best way to show traction. But in our experience, many entrepreneurs struggle to demonstrate meaningful traction, particularly at the pre-revenue stage.  To assist early-stage startups, we’ve compiled a list of three ways to prove market traction:     

1. Collect pre-orders for your product: Before building your product, connect with potential customers to gauge interest. If early conversations go well, invite them to pre-order your product. The more people willing to put money and weight behind a proposed product, the stronger the evidence of product-market fit. One way of collecting pre-product sales is via crowd-funding platforms such as KickStarter or Indiegogo. These platforms provide quick access to a large pool of potential customers and can be a powerful way to demonstrate that your idea has merit. Pre-orders can also give your business a cash infusion to finish product development. If customers are initially reluctant to pay, suggest they try a pilot.    
   
2. Show that you have a large user base: For many early-stage technology platforms, growing a user base should be a priority. This is because rampant user growth is a powerful early signal to investors that your product resonates with the market. For example, from May 2011 to Jan 2012, Pinterest’s number of unique users skyrocketed 30-fold. But how can an early-stage company demonstrate user growth? Use off-the-shelf tools like LaunchRock to lower the barriers to signing up. Allow your users to register through Facebook. Encourage users to recommend that their friends join them on your platform. You can focus on monetizing your product once you’ve established a strong following.    
   
3. Demonstrate that your users are engaged: Even if your user growth hasn’t yet exploded, you can still show traction. Focus on the users you do have, and prove that they love your product. Demonstrate that users come back to your product (number of repeat use), or that they are hesitant to leave (low churn). Send customers a quick Net Promoter Score (NPS) survey to quantify their loyalty. Goodreads is a great example — it took nearly five years for the company to reach 5 million users, but with a base of passionate users it was able to court investment. 
   

One last tip: Let metrics be your driver! Tracking metrics over time gives you and your potential investors insight into how well your product is performing. But you need to be intentional about measuring your progress. First, identify what you need to measure. Every product and market is unique, so decide thoughtfully. And avoid generic or vanity metrics. Then build tracking tools into your product and report your findings. After all, as AngelList co-Founder Naval Ravikant says, traction is “quantitative evidence of market demand.”