After all the talk of VCs vs. Founders.
This is the kind of relationship we’re all hoping to build with the founders we back.
Congratulations to all involved.
the story of a startup always wants to be told in broad, antiseptic strokes about VCs, founders, A-rounds, “traction,” valuations, “value add” and a bunch of other ways that we try to normalize the whole company building process.
at the end it is just about human relationships and the things they create.
My friend and colleague Siqi Chen, never afraid to question the status quo, wrote a comment questioning the wisdom of “not pricing a round of financing too high”:
“Whenever I hear advice about pricing a round too high for the next round, I can’t help but think: well, if the choice (ceteris paribus) is between
a) doing what is effectively a down round preemptively when I don’t have to, by underpricing my current round in this market vs
b) accepting the market price along with some risk of taking a down round in the future, if I don’t hit my milestones,
why would I ever choose b)?”
Mark Suster then responded with a good post about the psychology of down rounds on fundraising, best summed up as, “a down round is even more complicated than having no demand for your investment round.”
That is true, but we also shouldn’t ignore the psychological impact on the team should a down round actually get done.
If you’ve ever been part of a public company with a collapsing stock price you’ve got an idea of what this does. Skeptics on the team start to win arguments, especially when the founders aren’t in the room. It can be quite hard to keep trust with the team, especially since you’ve now shown poor judgement as a leader by guiding the team to this down round. That can feel doubly worse if it was a self inflicted wound caused because you over-optimized on price previously.
And although I made the analogy to a public company stock price, in practice it is much worse than that because you are by definition in a much more vulnerable state. Sure, the team may believe in your long term vision, but that is balanced against their calculus about whether it is actually going to happen. And you just added a whole lot of doubt to that.
In worst case scenarios I’ve spoken to founders who have nicely growing companies, but have a team that has become suddenly demoralized despite their success because of the down round they just were backed into.
Imagine you are coaching a basketball team and you are always saying, “we are going undefeated the next 10 games no matter what!” then you may have set an audacious goal but keeping people’s faith is going to be tough over the long term. And winning eight games suddenly feels like failure when it may have been great. The best founders, and coaches, take it one game at a time, continually building one brick on top of the other.
Managing the psychology of success has a massive impact on everything from ability to hire, to fundraising, to retaining talent, to team cohesion, to ability to do bizdev deals.
It’s worth keeping in mind that it is a balance between price, dilution, capital, investors, founders, and team. As with most things, nothing is free so just be certain you understand what you are giving up if you are pushing one part of this equation abnormally high.
Bitcoin could basically be thought of as the Internet, applied to Money — Let’s Cut Through the Bitcoin Hype: A Hacker-Entrepreneur’s Take - Dan Kaminsky - Wired Opinion
Picking up our own tab -
The first time I raised venture capital, over a decade ago, I was hit with the same shock that I think every founder goes through, “wait, what, I have to pay the VCs legal bills?” It just seemed strange when the whole point was to talk about how much money the business needed to succeed, not to start siphoning it off immediately for other stuff.
I’m happy that we can say we are now footing the bill for our portion of legal expenses. Bijan has a good post on the details: “My partners and I at Spark Capital are going to pay our own legal fees at the earliest days of the company up to a cap of $25k going forward. If this cap lasts a few rounds even better. The only fine print we can think of is if there are multiple co investors we would ask them to pay their own way as well. If not than we wil just pay our pro rata.”
It’s a small thing, but it’s another way we can keep the focus where it should be - on helping to build great companies not financial engineering.
(cross posted at Techcrunch)
It’s no coincidence that the last 12 months have seen an explosion in human-computer interfaces (HCI). Google Glass, Oculus Rift, Myo, Leap Motion, and several others that are still in stealth mode and are quickly forming the new class of companies transforming our computing environments. And unlike previous generations, this new group is generating the strong public and developer support, in some cases combined with millions in pre-orders, that are necessary to have a chance at breaking through.
We’ve been talking about augmented reality, virtual reality, and wearable computing for quite some time now. When I moved to Boston some 12 years ago, it was largely because of the MIT Media Lab, a hub of innovation that was focused on that crazy mixture of art and technology that they rightly believed would lead to the next stage of computing.
While it was a fruitful era for ideas, and wonderfully geeky photo opportunities, it was a failure for a new generation of global companies. There were advances thanks to eInk, Harmonix, Color Kinetics, Ambient Devices, iRobot, and others, but there have been no truly iconic companies – the Apples and IBMs – that the first generation of computing created. More importantly, our experiences with computers stayed largely the same.
So what has changed that may make things different this time? Two small things, and one big thing.
1. Technology. Core components, from accelerometers to displays, that used to be expensive and custom, are becoming commodities thanks to cell phones. Leap Motion, for example, hugely benefits from the hundreds of millions of cameras embedded in cell phones every year that have drastically reduced their price points.
2. Pitch and design. With any startup, getting people to believe is the hardest thing, and it is doubly hard when you are pitching a new category of experiences. Thanks to many factors, from 3D printing to the video demo culture pioneered by Kickstarter, companies are learning how to make a broad market message of beautiful design and ease of use at their earliest stages.
3. Culture. Sometimes the timing is just right culturally. While much of the technology involved here is difficult, it is not unique to this time and place. I believe the current wave has as much to do with the last generation of gaming consoles and cellphones than about cheaper components or a slick video.
That may sound strange, but I believe it was Nolan Bushnell who said that every great technological advancement starts out seeming like a toy.
The first commercial peripheral to use your body was the Nintendo Power Glove back in 1989. It was a commercial failure, selling 100,000 units, grossing under $100 million, and driving the parent company into bankruptcy. It was geeky fun kids stuff, but the product wasn’t awesome.
Fast forward and the picture of the advances in HCI is much more like this.
The last five years have seen the sale of 120 million Wii’s, the widest-selling game platform in history. It has seen unique interfaces such as Guitar Hero and DDR used to create powerful, even transformative, experiences. It has seen the Xbox Kinect sell 8 million units in its first 60 days, making it the fastest-selling consumer electronics product in history. And of course it has seen the Apple iOS devices introduce the world to flicking angered birds on touch interfaces.
In that context, the last five years starts to feel like it was softening the ground for a mainstream populace to accept new inputs. All of these advancements haven’t just taught people to stand in front of their televisions or tap away at their screens. It is teaching people to expect more out of interacting with their computers.
And that’s enough to make one very optimistic about the next five years of computing and the hardware startups that will be building it.
It’s almost on the exact one year anniversary of me joining Spark that we’re happy to announce the raising of our fourth fund.
As a firm we spend a lot more time helping promote and assist our portfolio of companies than ourselves, so it was nice to have an occasion for my partners Todd and Bijan to talk about the values that matter to us.
We’re a pretty odd firm, really. The nine folks around the table have incredibly diverse backgrounds, both ethnically and professionally. Plus we are in Boston & NY, not the center of the startup ecosystem, but have been able to get a chance to work with some of the best companies both locally and around the globe. And while a bunch of other folks have tried prolific seed strategies and late stage growth deals, we have been successful by investing in what we love and know best; early stage consumer startups at the precipice of turning from product into purpose.
As Sarah talked about in her coverage, it’s not exactly a model that most folks thought would have worked when the firm started. But that’s the nature of startups, the winners can always surprise you. All you can do is get behind a mission you believe in and work with people you respect and admire.
I feel privileged to get a chance to do that with these partners and the entrepreneurs we work with.
Reid Hoffman wrote a excellent counter-trend post this week, when founders should hire professional CEOs. It reminds me of Horrowitz’s post on The Case for the Fat Startup, in that it helps to reset expectations on a trend that might just be getting too dogmatic. The cult of the Founder is at a massive high right now, so much so that VC firms name themselves after them, they get their own corporate cards, and I even know of a startup that allows -every- employee to earn the title Founder.
So it’s natural for someone to want to give a dose of reality that founder/CEOs of successful companies are actually more of the exception than the rule. That most companies, like Yahoo, Google, and Cisco, didn’t have Founder/CEOs. In followups he said, “When do we stop listing Yahoo and Google and LinkedIn as exceptions and realize the rule we’ve all started to believe over the last few years is actually incorrect?”
But I think the correlation arrow might be pointed in the wrong direction here. Twenty years ago the common feeling was that one needed a professional CEO - it was the “cultural norm.” That meant that VCs pushed for it to happen, more Founders asked for it to happen, and so it happened more often right or wrong. By comparison, it is also the cultural norm today that women are paid 90% of the wages men are paid for the same work, but that does not make it a good or proper thing.
The cultural norm has now clearly shifted to the Founder as CEO, and I couldn’t be happier about that. The goal for any growing startup is to build a culture of people who are “missionaries” not “mercenaries” for your company. And the best way to make that culture happen is to have someone at the helm who was there when no one believed. Someone who is clearly on a mission. The job of CEO can really only be learned through the crucible of doing, and the absolute best case is that the Founder is the person who learns it, a point Reid himself admits.
Of course, the perfect counter-example is his own company, LinkedIn, so this is very much a personal story for him. That’s a case where a Founder came to the realization that he didn’t have the skills or desires necessary to run the next stage of a company. If Reid’s post helps a few Founder/CEOs realize they need to do this, then he’s doing a great service. But I for one hope the cultural norm stays about where it is now, and we do a better job helping great Founders become great CEOs.
A startup CEO sent me a pained email the other day looking for a little reassurance. I’ll keep the person anonymous as the specifics are less important.
The gist was that a competitor (loosely defined) had just released a great new feature to their product. That feature had been on the drawing board for this CEO for months, and they even had a prototype built. But they hadn’t finished it because they were focusing on a growth-oriented pipeline and this wasn’t on it.
Any of us who have built product have had this happen. Ideas move faster than action, so inevitably something on the drawing board gets produced elsewhere first. What follows sometimes is the agonizing stream of Twitter comments and Techcrunch articles about how this feature was amazing and pioneering. Even the most zen-like product makers can have a twinge of regret and envy.
You know that should you release a similar feature in the future, it will go from “pioneering” to “copycat”, and won’t be nearly as surprising and delightful for your users. It’s not an entirely logical feeling, but it is a painful feeling for creators nonetheless.
When this used to happen to me, I’d usually try and center myself by thinking through a few thoughts. I shared these with the CEO and thought I’d repost here for the next time this may happen to you.
- Pipeline: The pipeline of your ideas is always larger than your possible throughput. So matter what you’ve made priority #1, someone else is going to get to item #12 on your list first.
This is a good checkpoint to make sure you have a clearly prioritized pipeline, and arent just flapping in the wind. It’s also a good milestone to remind your team again why you are prioritizing the way you are. In this case the CEO was properly focused on growth, so it makes sense they hadn’t gotten to this retention feature (yet). Especially since they already have amazing retention and users love the product.
- Ego karma: Don’t forget that you are releasing features too. Instead of pining after what was lost, focus your energy on making the next feature something that delights your users so much it would make all your competitors envious.
What’s to say that your next feature wasn’t #12 on your competitors list? Make it count, less for your competitor, more for your users.
- Call it an alpha: On the product side, it’s not necessarily a bad thing to have someone else release the first version of an idea. You get to form a perspective on what they did right, and wrong, and how that might translate to your product. That is, once the time is right.