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Charlie O' Donnell
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Last week, I heard the word "difficult" describing investors twice. Once was about me and once wasn't.
The founder and investor relationship is, in fact, a difficult one to get right. Both sides walk in with a lot of cognitive biases and style differences unique to every pair. Meanwhile, the work of trust building is hard and takes a long time.
In one instance, there was an investor holding up a round after agreeing to sign off on something verbally. They weren't wrong about the term in question, but the dollar impact to their investment was so small that it wasn't meaningful to a fund of their size. That's the kind of thing where you have to choose between being right and seeing the bigger picture in order to facilitate a transaction that was good for the company.
No one wants that kind of difficulty in an investor and it frustrates me on behalf of my founders to see that.
That being said, I can be difficult in other ways.
On my side, I was told by a founder that they found some of our interactions difficult--a little too blunt without enough understanding of where the entrepreneur was coming from, doing all of this for the first time.
The most successful founders have often told that they're crazy or stupid or both on many many occasions on their way up--and none of that helped them get there, at least, not on a productive way. It's important as an investor in the company to make sure that when you have constructive feedback, it comes with support and respect. Founders are going to hear a lot of naysayers from the outside, and so when you're on board with the company, you want a founder to feel like you believe in them personally, even if you disagree with them.
This isn't always easy.
VCs get the benefit of having worked with dozens and dozens of companies--and so it's easy to have a dismissive reaction to what you might see as a bad course of action, without realizing that the founder doesn't have the benefit of your experience. Not only that, but a founder is basing their decisions on a lot more information than you--so while you're concerned about the what, perhaps you should be diving deeper into the why before you react.
Being a founder can feel like driving a car for the first time. You're nervous enough--the last thing you need is a parent yelling at you for clipping the curb with the back tire on a turn.
Doesn't mean it isn't hard to freak out when you're a passenger in that car when you hit something!
Still, it's something I need to work on more.
At the same time, there's also a "good difficult"--being willing to deliver tough feedback or pushing the founder to do difficult things they'd rather not do that are better for the company in the long term.
This is something I'm unapologetic about.
I can think of a few instances where I've been "difficult" and I think ultimately it was better for the founder and the company.
For example, I've been putting in a spending clause in my term sheets lately, where above a certain one-time spend triggers a conversation. The founder can spend whatever they want whenever they want, but we just have to talk about it. It's a seed round, and so it winds up happening around hires, rent, and contracts with agencies or lawyers most often.
Some might see that as a pain because other investors won't ask for that--but it's already facilitated a lot of great conversations.
For example, it helps to hear why you're hiring who you're hiring early on. I want to understand your thought process and make sure that you have a method to salary and equity compensation. That's not only good discipline, but it helps me figure out who to send you to help with recruiting in the future, because I have a sense of how you evaluate candidates.
Still, it's always your call.
Communication is important to me. The more I know about what's going on, the more helpful I can be--and everyone's got blind spots. (Especially your investors!!) Sharing more with your investors is critical for founders because the number of things a founder has to keep an eye on is overwhelming. It's just good practice to have a few people around asking the right questions at the right time.
It doesn't mean they don't trust you.
They're being difficult because being a great founder and building a great company doesn't come easy.
I've requested a meeting with you during the first week of March. Here are ten reasons why you should take the meeting..."
This is an e-mail I got from Amanda Weeks in February 2014, and the beginning of a two and a half year journey that culminated with Brooklyn Bridge Ventures leading a pre-seed round for Industrial Organic that kicked off about a year ago. The round, which was raised in two tranches, was recently announced by Inc Magazine.
Amanda and her co-founder Brett Van Aalsburg researched for two years and developed an anaerobic fermentatio process that quickly breaks down food waste in a matter of days. Byproducts of the process can be turned into other goods like organic fertilizer and natural surface cleaners. When I funded the company, it was little more than a science project in a garage in Brooklyn and soon, they'll open up a waste processing facility in Newark--one that didn't require tens of millions of dollars to setup and also won't pollute the local neighborhood with odor. It won't throw off dangerous gases, and yes, the process will make a profit.
A post shared by Charlie O'Donnell (@ceonyc) on Jul 6, 2017 at 9:31am PDT
I was once asked by a potential investor what I thought the exit of this company will be. The conversation went like this...
"Well, acquisition or IPO."
"You think this company will IPO??"
"Can you prove to me that a company serving a market where every last human being on the face of the earth creates organic waste, which they get paid to process and then paid again for what they turn it into, *won't* IPO?"
That's how I think of this company--a huge problem, bet on early, with a solution exponentially cheaper, faster, safer and more urban friendly than the competition, built by scrappy founders knowledgeable enough to be dangerous but not so experienced as to get held up by old paradigms.
You give me 30 opportunities to make that bet at pre-seed valuations and I'll give you a winning portfolio, and a very very interesting set of companies to work with and be proud of.
A post shared by Charlie O'Donnell (@ceonyc) on May 19, 2017 at 11:28am PDT
Also, very excited to once again be investing with Nisha and Susan at BBG Ventures in our fourth investment together (goTenna, The Wing, Ringly being the others), as well as Newark Venture Partners, 3G Investments, and several angel investors who are LPs in Brooklyn Bridge Ventures.
I'm a lead investor.
That means I'm usually the first person to put down a price on what your company is worth--a dollar value on months, if not years, worth of your work, blood, sweat, tears, stress, etc.
"Here's a piece of paper that says how much I think your dreams are worth."
The reality is, any price that I put down at the stage that I invest isn't going to feel like enough--and if it doesn't feel like enough, I'm probably grossly overpaying. But, you don't feel like that as the founder.
Your company is special, which, I 100% agree with.
That's why, out of the 2,000 opportunities I saw this year, you and your company are one of the 8-10 I gave a term sheet to. So, congrats! All the reasons why you think you should get a much higher price for this round are the very reasons you made it past the 1,992 other companies.
But, at this stage, starting from a Powerpoint, prototype, or even a demo product, you probably have just as much chance of going under as any other company. It's sooo early in the life of the company that it's nearly impossible to determine if, in 7 or 8 years, whether or not you have a better chance at success than anyone.
If picking out the winners were so easy at this stage, VCs would be a lot better at it.
Really, the biggest determinant of price is supply and demand--and so, more so than a qualitative judgement on your worth as a human being, consider this bid a data point. This is where I think the market is for this company right now.
That other company, I can't speak to what happened there and why they got a $10mm pre-money. I passed on that deal. Maybe those investors were smarter than me.
What they aren't, however, is harder working--and I have to say, it really bugs me when I invest in someone super early and then the next round comes in and the price isn't that much higher than what I paid for it. It's like, "Why did I take all this risk at this stage if the next round is going to be a $3mm round on a price of $12mm?"
Makes my $7mm pre seem not really worth the risk in the grand scheme of things.
But back to us.
Look, we're just not aligned here. I'm just trying to get the best price possible for my investors, and you're just trying to take the least dilution.
I hope we can meet somewhere in the middle, but yeah, this part is kind of going to suck. The only thing I can really do is tell you how I came to this price, what other deals I closed with similar pricing, and show a willingness to be flexible if it turns out we underpriced it and the round is oversubscribed.
Besides, the only thing that matters is how big it gets in the end, and how self-sufficient we can make this company over time. A million dollars on the pre-money now pales in comparison to the dilution of having to take a few more rounds down the line.
Posted this in what used to be my tech newsletter, and what has lately been about more...
Yesterday wasn't just any given Sunday, was it?
I would imagine most of the NYC-based readers of this newsletter don't take the position that "these athletes should just stick to sports" nor do they feel that way about Jimmy Kimmel and his recent conversations around healthcare. So, telling you that I support their willingness to share their views and why seems a bit like preaching to the choir.
What I will say is that there's no way either side of this conversation is going to "win" unless both sides start asking each other why they feel that way, and actually listening. No, I don't mean listening to Trump and asking him why he feels the need to call private citizens SOBs. Honestly, he's got the least important opinion in this whole equation--it's just the wasted noise of an old racist without any character or class.
No, I mean that athletes need to understand and listen to people about what the flag and the anthem means to them--and why they feel offended by the protest, as is their right.
And anyone who says anything about these athletes needs to open their ears and listen to their stories. They need to listen to firsthand accounts of what it means to be black in America. Go read a book like The New Jim Crow. Then, feel free to say you disagree with the protest.
But never tell someone they don't have a right to *peacefully* protest--because then you simply don't understand the basis on which this country was even founded.
The Lovett or Leave It podcast recently had Normal Lear on--the creator of All in the Family. He was saying how "in love" his generation (he's 95 now) was with America. We had not only won a World War on two fronts, but we were successful in helping to rebuild wartorn Europe and Japan. We had a lot to be proud of.
What strikes me about these protests is what kids and young people likely think about this country today and whose side they're likely to be more sympathetic to. They see the widening gap between the rich and the poor. They see our inability to deal with drug addiction and gun violence or our problematic education system--all things other countries seem to have a better handle on. They see us mired in a war in Afghanistan that, in two years, will start recruiting kids who weren't even born on 9/11. I have a feeling that the idea that the flag and the anthem is unquestionable in any way isn't something that's going to hit home.
One thing Trump got right in the election is that there are a lot of people who feel like America isn't so great anymore--but what I hope he's wrong about is that the people fixing that aren't turning back the clock for answers. We're not going to regain greatness by waging war or nation building. We've got to do it by coming together to solve tough problems like inequality of all kinds. We've got to get healthier and smarter--and that's going to take creativity and courage to change systems full of friction.
People wanted change last November. They didn't get it. When a politician doesn't listen, that's not change. That's more of the same.
When every single NFL game has players protesting in solidarity--that's different. That's change. That's going to make an impression that people will notice.
If they ask why and actually listen, Trumpism is done.
If economists tried to measure the cost of the malaise that the election of 2016 left, we'd undoubtedly see billions, if not more, lost in worker productivity.
At the same time, I don't think I've ever seen more political engagement in my lifetime--and not just political engagement, but all sorts of action around causes they care about.
These two realities are linked. If you're not doing something to positively affect the world around you, you've likely been overcome by a lack of motivation. You're realizing that passing your work hours for pay alone, without meaning and impact, just isn't cutting it anymore.
We've seen the move towards more flexible work, but I think it will pale in comparison to the shift towards meaningful work. The best and brightest are going to need a much better reason to work for your company than the perks and benefits--the work itself is going to have to be meaningful.
That meaning isn't going to be something you search for on a traditional job board branded around impact--it's going to be an inherent part of the way you search. What you care about is going to be a filter as important as geography.
That's where Wethos comes in. I met Rachel Renock a few months ago at a SheWorx pitch event. I got what she was doing right away. Starting with freelancers, she was creating a place where impact was the guiding principle by which talented people sought ways to share their professional talent.
It reminded me of when I first heard the pitch for Kickstarter and then witnessed what it would become. While it may have been the way some bands would start funding their next album, it would go on to affect and inspire a whole generation of not only creative projects, but business plans as well. Pre-sales would enable companies to exist off the financing of the fans most passionate about their vision for products.
I was reminded of that when I interviewed Rachel's co-founder Kristen about how she hired their first two developers on the Startup Recruiting Podcast. What struck me was how they were bought into the passion of the team so early on--almost in a way that made it seem all too easy to hire them. That's going to be the case in the future. If you're not convincing someone of the impact they can make doing their primary job, you're going to have to overpay to make up for the lack of meaning you're providing. While they're focused on just freelancers today, still a huge market, I'm convinced they'll not only expand to all meaningful work in the future, but they'll help turn more work meaningful by changing the way companies design roles for their talent. Eventually, they'll impact how companies design their own goals--because otherwise they'll die from lack of talent.
I look forward to working with the Rachel, Kristen, and Claire, as well as some fantastic co-investors, like Flybridge and Corgin. Jesse Middleton at Flybridge led their investment--and Jesse knows a fair amount about seeing the future of how people work from his days as the founder of WeWork Labs. Also joining our round is Fabio Rosati, who was CEO of Upwork/Elance. Together, we'll help impactful organizations find the talent they need to make a difference--and help talent find work that makes a difference in their lives.
One of the biggest fears about the future of data is that everyone will turn into a number--that algorithms will turn everyone's personal experience into a single score that will decide whether or not you get what you want, a job, a house, a car, financing for a new business etc. or whether you get shut out.
Actually, you don't have to wait for that to happen. Consumers have been living this reality since 1956. That's when a company called Fair Issac, or what we now today as FICO, started selling consumer credit data to lenders. A four billion dollar publicly traded company basically decides who gets credit and who doesn't--and if you don't already have credit and you're invisible to FICO, you're going to get financially left behind. As they say, it costs money to make money, and without access to credit at key moments in your life, you're going to wind up on the wrong side of the growing gap between the rich and the poor.
Just because you're invisible to FICO doesn't mean you haven't been doing anything financially. You've been paying your bills on time, socking some money away for savings--you just never had a credit card or took out a loan. Maybe you immigrated from another country. Either way, this shouldn't stop you from being able to get credit when you need it.
Petal is a simple, no fee credit card that looks at the money you make and the bills you already pay to help you qualify instantly. That means you can get a great credit card and start building your credit history, even if Petal is your first credit card. You can sign up to be one of their first customers here.
It's not only about building up a score--it's about learning how and where to use credit appropriately. Petal provides transparency to consumers through their technology to help them make smart credit decisions. What card do you know tells you how much you'll pay in interest *next month* based on what you pay now?
I first got introduced to them by my friend Kevin Marshall back in March of 2016 when they were Creditbridge (Petal is to Creditbridge what Frogger is to Highway Crossing Frog, I suppose). He sent me a pitch and I didn't quite understand the issue, so I passed. Undeterred, they kept plugging away, working on the brand and the message. They got mentioned to me again by Nan Li at Obvious as an interesting team he had just met. When you start to hear of a team multiple times from multiple people (which is the same thing that happened to me with Canary and The Wing), you take notice. I don't mind cold intros, but market buzz helps push things over the line to at least take a meeting.
In our first meeting, which was theoretically scheduled for 45 minutes, I sat down with co-founders Jason and David for more than two hours. What sold me was their fluency in this market. It was obvious that they had spent most of the year becoming the smartest possible founders they could in their space--and talking to every founder who had done anything adjacent. That's important for a VC. You don't want to be able to be smarter than your founder about a pitch after an hour of Googling around.
In the last ten months since I've invested, I've seen them execute in the most organized and professional way possible--it's not easy to stand up a consumer credit card company from scratch. They've gained the attention of large players in the space and attracted some high quality talent to their team.
As we saw with the Equifax breach just yesterday, the monolithic world of centralized control over your financial life is being disrupted more and more each day. New consumer friendly brands are being created and new products are coming to market. It's a dynamic space and I'm excited to have gotten the opportunity to back Jason, Andrew, David, Jack and Berk and the rest of the team in their mission to bring credit and financial opportunity to underserved "thin file" consumers.
I don't think there's ever a time when I feel more like I'm raining on parades as when founders tell me how interested other VC firms are in investing. I've seen it time and time again where founders, understandably apprehensive about fundraising, read too much into their engagement with investors--especially non-partners at firms.
The founders will say things like the following--and then comes my splash of cold water, which is honest, but also makes me feel like the bad guy, or not enthusiastic about the company. In reality, I just don't want the founder spinning their wheels and wasting their valuable time.
"They're interested, but it's too early."
There are tons of examples of later stage venture firms not only placing seed bets, but also skipping right to Series A with huge "seed" rounds right out of the gate. If Mark Zuckerberg was going to start a new company tomorrow, do you think he'd be too early for anyone? No. There are also lots of examples of companies who get funded by later stage firms that don't have the metrics that we've been told you need--$150k in MRR, a million users, whatever.
"Too early" is a pass.
You might take enough risk off the table for them in the future and they might come in at a later right, sure... but if they're not writing a check now, they're passing. When you get a pass, move on, don't keep your hopes up, and go back to work.
"They're very interested if you can get a lead."
There are some firms that, as a policy, don't lead. That's fine, but saying you're interested pending a lead is not saying you're committed. Committing is saying "If you find a lead, we'd like to come in for $200k, assuming standard terms and the price isn't anything more than X." Even better is when that firm reaches out to firms that do lead and says, "We've committed, but we need a lead." Those people are basically in, and everyone else is just sitting on the sidelines with their thumbs in their butts wasting your time. Many of those people are assuming you won't get a lead, and they're just being polite, and if you do get one, it's a good way to cover themselves in case they missed something. This way, they try to guarantee that if someone else jumps in, they get a second look. It's a free option, so why ever give a definitive no?
"[Non-partner] is really excited about it and is going to bring it to their partner meeting."
Listen analysts and associates... I've been in your shoes. I've been the junior person around the table trying to get partners excited about a deal. The absolute worst thing you can do is fail to be transparent with a founder as to where your team is on a deal, and to lack the firm awareness to realize whether you have any internal traction. It wastes founders' time and ruins your credibility. So, when you know that founders are going to hinge on every little indication of interest, you should be straight with them about your process and who gets to make the decisions.
Unfortunately, even when you are transparent, the words "partner meeting" make founders think they are just a week away from a term sheet when, in reality, they're one of many line items likely to be passed over.
What you really need is partner interest. Even when you've got a principal, like I was at First Round, who can do deals, you still need partner interest to get the check approved. So, realistically, unless you've got partners showing up to meetings with you, staying the whole time, and engaging with you after, taking multiple meetings, you really don't have anything.
Two things to watch out for: The partner who gets dragged into a meeting. Who set this meeting up? Does the partner leave after ten minutes? Do they engage with you after? Do they show up in the next meeting?
Two is the partner cc'd on e-mail while the junior person does all of the talking. This happens a lot with growth stage firms that do a lot of random cold calling. I'll bet these firms have a special account or filter that allows them to ignore that CC, but it makes you feel like the partner is interested.
"We want to see you get up to X milestone."
First off, like I said before, there are plenty of examples of firms that invest before conventional milestones if they really like something.
Second, this isn't a progress. It's "come back to us when you get there". If a firm really thought you had a 100% chance of getting there, why would they wait, potentially risk losing the deal, and pay up for it later? The reality is that they're just setting a time for a check in. It really doesn't mean interest at all--especially if they're not engaging. Engagement means continued customer introductions, or potential talent introductions. They start acting like an advisor--maybe even having regular calls with you.
So how can you tell whether or not a firm is actually interested in investing?
a) They give you a term sheet or actually start discussing not only the terms of a deal, but how much they'd like to put to work.
b) You've met all of the people necessary to put a deal together, and those people take initiative to be engaged with you, multiple times.
c) You actually get invited to an official weekly partner meeting. That's a thing.
d) Senior people keep hounding you--like, daily.
How else would you know? You ask them.
Founders should be asking filtering questions--the kinds of questions designed to kick investors out of their pipeline. I know it feels good to have a lot of names in a Google sheet, but a lot of those leads are cold or dead. Find reasons to knock them out by asking questions like "By when can I get a firm yes or no?" "Who needs to sign off on this?" "What are your remaining issues?" "Who in the firm has said they'd like the firm to invest?" "Who is against the deal that I need to work on?"
Better to be positively surprised that someone came up with an offer than to feel like you're going to get something done and then have your pipeline fall apart.
On no sides is genocide an ok thing to promote with your free speech or to organize a group around.
On no sides is the Confederacy, the sole purpose of which was to defend the institution of slavery, a thing to be admired.
On no sides is the eradication of Nazis and the KKK a slippery slope to the end of free speech in our country. It is perfectly right and acceptable for a society to draw lines--to point to levels of despicable behavior and say "No--in no uncertain terms. No way. Not here." We certainly do this around the abuse of children. These things do not belong in any kind of healthy, functioning society. They have no more right to be here than anyone would suggest that cancer cells are a living part of your body that deserve a home. I'm perfectly ok if a corporation decides that they don't want to be in the business of working with the Daily Stormer--and no, telling a Jewish software developer that they don't have to work for a company protecting Nazi websites is in no way anywhere near the same as saying it's ok for a florist not to do the flowers at a gay wedding. If you think that a hate site promoting genocide is on the same level as two people who come together because they love each other, I'm at a loss for words for you.
Millions of patriots have already lost their lives in our history fighting these kinds of cancers--cancers that grew or persisted far too long because we didn't draw the kinds of lines that a healthy society should draw. They didn't die on the beaches at Normandy to allow Nazis to march on our streets here. They didn't die at Gettysburg to see Confederate soldiers memorialized in our parks. To argue that removing these groups and movements is desecrating history would be to desecrate the memories of all those who made the ultimate sacrifice protecting us from them.
Let's talk for a moment about false equivalency and the agenda of the right. There is a narrative that stretches as far back as slavery itself that blacks are angry, savage, and need to be checked. Even when the law said we were all equal, our society went down a path of "Yeah, but let's keep them over here." The country needed a savage narrative to justify that--and it persists today. Countless media studies have proven that the images we see of people of color in the media are disproportionately skewed. "Whites represented 43% of homicide victims in the local news, but only 13% of homicide victims in crime reports. And while only 10% of victims in crime reports were whites who had been victimized by blacks, these crimes made up 42% of televised cases."
When someone tells you that Black Lives Matter is a hate group and uses police shootings in Dallas as their proof, get smart about their agenda and the facts:
1) First, the Dallas police shooter was not associated with Black Lives Matter. He interacted with other extremist groups on social media, but not BLM.
2) Second, the BLM movement has been quick to denounce racially charged violence, unlike the hate groups protesting in Charlottesville where *leaders* of these groups have, on multiple occasions, supported or praised the death of Heather Heyer.
3) Third, just look at the reasons why these groups exist. Black Lives Matter started after the acquittal of a man charged with killing an innocent black teen. It was *in response* to violence against black people. There's no equivalent origin story around white supremacy--of whites being oppressed or being unfairly treated that any rational person would give equivalence to.
4) It has been shown that stories of mass violence on behalf of BLM protestors are either inaccurate anecdotes or cherry picked stories of what winds up being self-defense. People think they've seen lots of images of angry BLM protestors when the reality is that hundreds of peaceful protests go on in its name with no incidents whatsoever. The same cannot be said for white nationalism gatherings.
It's all too easy, though, for working class whites to accept the narrative of angry masses of African Americans pitched against them in opposition. It's the culmination of the media narratives they've grown up consuming--narratives driven by the agenda to keep working class people divided against each other. Without division and fear, why would the masses of working class people ever cede the kind of power held by wealthy white people? You'd never vote to allow corporations to run unchecked or for the gap between the rich and the poor to grow so large unless it was bundled with a set of fear driven policies meant to keep "law and order" by unfairly targeting and keeping down people of color, immigrants and other minorities.
So while we tear ourselves apart, the rich are picking our pockets.
Slavery is like having a flood in your house. You don't just pump the water out and call it a day. You have to throw out every single thing that got wet, otherwise you can get mold. Slavery was just the water, and by ending it, all we did was get rid of the water. It's still damp, and we didn't really throw anything out.
You want to know what this kind of mold does to a society? Read The New Jim Crow and watch 13TH. Our society is sick from the mold of racial prejudice. It's in walls. Read and watch. I dare you to and not have your mind opened up just a little bit.
No matter how crappy you think your life is as a working class white person or how much more you deserve, people of color, on average, start out with less than you, have a more difficult time getting a job despite the same qualifications, get pulled over more than you, and get arrested and charged more often for lesser things. It's a stacked deck.
For example, there's no difference among drug use rates across races, but blacks get imprisoned for drugs six times more than whites.
These aren't made up facts like you or I may have heard on some cable news program. They're from real studies you can learn from reading a whole actual book--in fact, several of them.
People may spit on CNN, but perhaps not getting 100% of your information from social media and cable news would be more productive.
It's hard to attempt this conversation without going down lots of rabbit wholes and never quite feeling like you made the whole point you were trying to make. These issues are so intertwined. They touch the core of people's identity and their skewed perceptions of the way things are.
If nothing else, I feel like I'm at a place where I've examined my views and been open to changing them in the face of new information. That's what strikes me about these arguments. You see lots of examples of people with privilege opening their eyes to what they have, how they got it, and the unfairness of social systems.
You don't really see that too often on the other side--because generally the more you know, the more you realized that there aren't sides to this.
Only right and wrong.
I send out a monthly mailer of deals that I'm investing in that I'm looking for co-investors for. Because I'm investing so early, a lot of times these companies are not only pre-revenue, but they might also be pre-product. I also invest in a really wide range of opportunities, so many of them don't look like you're typical venture deals.
Tinkergarten is one such company. At the end of 2015, I backed a husband and wife team expecting their third kid to build a network of outdoor kids classes--not an Uber for kids classes, Classpass for kids classes or Airbnb for kids classes. Actual kids classes: finding teachers, vetting them, training them, creating content--all of the unscalable things you'd never want your tech startup doing. They barely had any tech and I think they had maybe three teachers at the time I backed them. I couldn't even get the round closed and had to send a second, slightly desperate note to my co-investor list:
We did eventually get the round closed and today, I'm excited to announce that they've raised a $5.4 million Series A led by Owl Ventures. This year, they'll reach 1000 leaders and they're currently in 48 US states. They have an amazing tech platform managing the whole process, from recruitment to class management to parent communications.
There are a lot of models out there that investors would think is unscalable that I'd say if you actually figured out a way to do economically, just means you've built a better moat. When you actually offer a service or product you built and own your customers directly, loyalty goes up, brand value goes up, and you can be your own platform to launch a lot of different opportunities--if you can do it well.
These days, while you'd maybe rather be Classpass than you're average, run of the mill cycling studio or a faceless big box gym, I'd argue that you'd rather be Soul Cycle than Classpass. Same goes for Shake Shack, Seamless and your average deli. If you're not a special brand, you'd rather be software, and if you're software, you're always fighting to hang on to your network advantage as tech likes to disrupt networks and middlemen.
Excited to see Tinkergarten get recognized as a special brand.
No one likes it. Founders don't start companies so they can spend half their time asking people for money and VCs don't love the dance either.
However, it's a necessary animal, so the least everyone can do is act professionally, and most of all value each other's time. That's what I'm most frustrated by--the lack of respect for other people's time. Too often, both sides walk away from fundraising processes feeling like a lot of it wasn't time efficiently spend--even when it does lead to a round.
So here are a few things both sides should do to make the whole thing go a lot smoother.
- Be upfront about the possibility of you investing now versus whether this is a "get to know you" kind of thing. It's fine if you want to learn about blockchain or you never do pre-product and maybe the founder will oblige your curiosity at some point, but right now, they need cash, so don't waste their time if chances are 0%.
- Don't take multiple meetings and then pass for a reason that you should have passed on at either the e-mail state or after the first meeting. "We just can't get there on a consumer deal" is not a reason for passing after five meetings.
- Be transparent about process and timeline. If you need 8 partners and a Magic 8 Ball all to agree, let them know when you've decided to start serious due diligence.
- Never ever take a meeting with a founder when you're in the middle of fundraising your own and can't write a check within reasonable timelines for this round (usually about 30-60 days for a seed.)--unless you let them know beforehand.
- Make it clear where your money comes from and what control you have over it. Are you a fund? Is it personal money? How did you come into it? Does anyone else need to approve this deal?
- Make references to founders you've backed available upon request.
- Be transparent around where you are in the fundraising process. Does the VC need to call a special partner meeting because you already have three term sheets or is this the beginning? I know you want to move fast, but don't make a VC prioritize your timing when I'm literally the first meeting. I have other founders who literally need to know tomorrow or the round will close.
- If you're going to take a meeting with an investor and you don't think it's a good fit, just say it. Don't make them do any due diligence or make an offer only to not take it.
- If you wind up getting more interest than you anticipated in a seed round, give the investors a fair opportunity to work together. When you send terms around, get a hard number from everyone within a reasonable deadline. I favor the simple math approach. Take the amount you want to take, and divid it by the amounts offered based on everyone's average or requested size. If you're 2x oversubbed, as long as you like everyone, give them a shot to do half their allocation, and distribute evenly what isn't taken. People might gripe or bail, but the absolute worst is when you do a bunch of work, take meetings when you say you're still fundraising, and then get completely shut out of a deal.
- Don't accept introductions to other co-investors investors unless you're willing to take money from the person making the introductions. If someone shows me a deal, and then you cut that person out, that's professionally embarrassing for them and puts me and them in a weird spot. There's just no reason for that if you manage the process right. If you really don't want to work with them, just be upfront about it.
- Take a moment to think about who might expect you to pitch them--former bosses that have been successful, people who funded the last place you worked at. If your experience is due in part to the effort and resources of others, it feels like good practice and courtesy that you at least give them a look--or let them know why you might be going in a different direction.
For both sides:
- Take professional meetings in professional or public settings during business hours--busy hotel lobbies are ok, but ideally, you avoid happy hour time because that's a less professional vibe.
- Alcohol should not be consumed in a professional discussion between two people where money and uneven power dynamics exist.
In reading the NYT piece about the negative experiences of female founders raising, one quote stuck out to me:
"They put up with the comments, Ms. Renock said, because they “couldn’t imagine a world in which that $500,000 wasn’t on the table anymore.”
If you've ever had to fundraise, you can understand this. It's an extremely vulnerable time where you're getting a lot of rejection. When you finally get someone willing to fund what by now seems like a crazy idea, especially after all the criticism you've gotten during the process, you get in a mode of pushing for a close. You're willing to overlook just about anything because you really need this money. Rent is due. Credit cards are maxed. You don't want to lose this fish while it's on the hook.
That's why so many of these founders went down rabbit holes that, in hindsight, maybe they shouldn't have--and where they have gotten some pushback. That's why the agreed to meet at such and such time or place, or ignored the first set of comments.
They felt like this was the *only* opportunity for their company to survive.
The reality, and what it's important to remind founders of, is that there is *always* other money. If one investor seriously wants to put money in, there's nearly zero chance that they're the only high net worth individual or VC on the face of the earth that will get there. You convinced one person, and that means you can convince another.
It's never ever worth having your values take a back seat or not receiving the utmost respect from those who invest in you. Know that you can move on, and there will undoubtedly be a much better partner for you in someone else.
In fact, this is where you can use the ecosystem to your advantage. If you tell community leaders that you got an offer for investment from someone you don't trust or someone that you don't think respects you or your boundaries, so you want to find replacement investors, I guarantee people will be willing to help.
It's one thing to take time to just help someone raising--it's another to help someone who has had a crappy fundraising experience that no one should have to go through. Founders and investors alike will point you in the direction of well-respected and professional investors.
Plus, many of the high net worth angels who mistreat founders aren't serious investors anyway--and there would have always been a strong chance that they would have bailed on you before the finish line.
This is the worst question a VC can ask.
It presupposes that the only good deals are the ones they can't get into--which is an odd way to think about the world. I suppose the only club deal they would want to get into is the one that doesn't want them as a member.
There are lots of examples of huge deals that could have been had by anyone early on--Airbnb, Casper, Uber, etc.
And there are even more examples of oversubscribed companies that flopped.
In the seed round, there seems to be little to no correlation between the "hotness" of a deal and its eventual success--and even less so with the returns. Hot deals get bid up. Prices go up, and returns go down. The more you pay, the less you make. It's simple math.
Yet, so many investors--those who tout their networks and ability to see things early--question how they got to something first, or why it hasn't been scooped up already.
Could you imagine them pitching to their LPs?
"We see the best deals--they're so good, they're already taken and we couldn't get in."
I wonder if this is the same conversation they had with their significant others the first time they met.
"Why are you single?"
Glad they weren't trying to adopt children...
"How come no one wants this baby?"
House hunting must be difficult...
"You mean, the people who lived here before don't want it anymore?"
Happy Fundraising! :)
"In May 1940, Franklin D. Roosevelt called for the production of 185,000 aeroplanes, 120,000 tanks, 55,000 anti-aircraft guns and 18 million tons of merchant shipping in two years. Adolf Hitler was told by his advisors that this was American propaganda; in 1939, annual aircraft production for the US military was less than 3,000 planes. By the end of the war US factories had produced 300,000 planes, and by 1944 had produced two-thirds of the Allied military equipment used in the war."
Never before and not since then had any country mobilized itself, and so dramatically reshaped its economic focus, around a singular focus. The ability of the US economy to churn out the mechanisms of war at such a scale in such short order changed the tide of history.
Today, we face different kinds of threats--and while we hear of stories about bombs and guns--the real wars are being fought with ideology, the environment and technology. Our everyday lives are being threatened by lone wolves influenced by words, hackers who need nothing more than an internet connection and never have to touch a gun, and our own fragile planets inability to recover from what we've done to it over the years..
If someone has an explosive backpack, you can't stop them with a tank.
No bullet in the world can stop a hacker from breaking into our most vulnerable of systems.
And floods? Good luck with your missiles.
These threats are only stopped with raw human intelligence, ingenuity, and yes, the ability to reach across cultures and connect with people as fellow humans not separated by borders.
Smart people are our last line of defense. Kids learning to code or learning Arabic are going to do more good than kids learning how to shoot--and yet, intelligence is under attack in our society. The same politicians who champion strength and defense are making the most destructive cuts to our best weapon against our enemies: education.
At a time when we should be undergoing the most massive mobilization of human intelligence we've ever seen--we've got a government trying to build more bombs and guns at the expense of every other social program to improve ourselves as a nation.
Could you imagine if, at the onset of World War II, Roosevelt called for more shovels and barbed wire to dig trenches? Or bows and arrows?
That's what we're doing if we're not making sure that we win the race to produce the most computer scientists, the most impossible cryptography to break, or the best solutions to combat our changing environment.
Exponentially spending on education should be seen as patriotic in the way that increasing industrial output was in the 1940's. Rosie the Riveter should be Rosie the Programmer. The GI Bill shouldn't just be paying for you to go to college if you sign up to shoot a gun--it should pay for your education if you sign up to protect our cyber infrastructure or learn the language of our enemies so we can gather intelligence.
We need a serious public commitment to getting smart as a country in the same way we committed to being strong over three quarters of a century ago. Instead, we're rehashing Hillary's e-mails, fighting on Twitter, and trying to win meaningless political points instead of solving our biggest issues.
How in the world did we get to the point where being intelligent was partisan?
We're not the smartest country on earth--and we're not the country with the most PhDs, coders, scientists, language experts, etc., and that should put the fear of God into us the same as when we weren't the country with the most nuclear weapons. Whether you're a Republican or Democrat, if you can't see the writing on the wall that this country isn't well prepared at all for the threats of the next 50 years--and that those threats aren't threats of military takeover, then I don't know how to even begin to have this conversation with you.
I didn't grow up in a neighborhood where gunshots were a thing--and I know I am incredibly lucky for that. That's why when I pulled up to the corner of Atlantic and Fourth by the Barclay's Center yesterday at a couple of minutes after 2pm, the sound of gunfire was pretty startling, and it's not something I can easily shake.
Pop! Pop! Pop! Pop-pop-pop! Pop!
I knew what it was right away.
A car or motorcycle backfires once. Construction noises are mechanical and repetitive. Fireworks go off with a kind of chaotic randomness that you only get when timing is dictated by the burning of a fuse.
These pops had intent, and moreover, desperation. You hear it in the cadence. Those three quick squeezes in broad daylight on what is perhaps the busiest intersection in Brooklyn can only come from someone who has long stopped caring about the moments after their actions.
I was glad to be on my bike because I was out of there immediately. Whereas my first instinct in many instances might be to help--I was one of the first on the scene when I paddled out in a kayak to the helicopter and plane crash over the Hudson quite a few summers ago now--guns change the game. Guns are to be run from--unless you're in unfortunate enough proximity to be closer to grabbing it than you are to getting away.
I got away and called 911, and flagged down some MTA police on Hansen Place as well.
This post isn't intended to say we need gun control.
It's to say that if you have any logical thoughts in your head, a desperate person with a gun presents a relatively simple choice for society:
If you don't believe that babies are born pure evil out of the womb, then you have to concede that either the problem is the gun or the desperate person. This is a person consumed with so much fear, hate, frustration, etc., that they believe that ultimately, the risk of throwing their whole life away is worth pulling the trigger. If you pull a trigger, chances are you're going to get caught or killed.
So if you don't mind the guns, then what are you doing to address the person?
At one point, this person went down a path that conceivably could have been avoided with some help. We know that--and we know the root causes. Maybe they had an unaddressed mental illness. Maybe they grew up in a family decimated by unfair criminal justice policies and lacking in positive role models. Maybe they lacked economic opportunity, and turned to crime out of financial desperation--that they saw that the upside of theft or drugs calculated out to be higher than a life on welfare or in homelessness.
Sure, not everyone who deals with this winds up in a life of crime. That doesn't make the people who do purely to blame. Not everyone who eats spoiled food gets sick--but you don't blame the sick people for not having iron stomachs, you blame the restaurant. You don't just enact policies to penalize restaurants either--you give them little hand washing signs for the bathroom, you inspect food along the supply chain. You figure out the root causes and work on preventing them no matter how far up they go.
We know, factually, that all of these things contribute to crime--so if you want to prevent this from happening again and again, and you're not going to blame the gun, then you've got to enact policies that have way more empathy for people than the system currently does.
You have to decide, as a society, that we're not going to let anyone get to the point where they think the solution to any issue they have is to start shooting in broad daylight in a busy intersection. You'll decide that you'll teach kids anger management, communication, and give them skills that make them productive in society, not forgotten by it. You're going to fix the issues that create havoc and desperation in people's lives--like getting bankrupted by a health issue or having an unstable housing issue. You'll treat addiction for what it is--a disease--rather than a crime.
That's what I can't reconcile about most of the gun rights defenders. Their policies seem to align with not providing any services or social safety nets to people. It's like, "We know your world sucks and is full of pitfalls that other people don't run into, but still, we're not only not going to do anything to help you, but we're not going to do much to curtail the guns that exacerbate these issues."
At this point, it doesn't seem worth arguing about whether guns should be a meaningful part of people's lives--but I hope we can all agree that desperation should not be. Throwing people in jail and losing the key doesn't solve for the desperation component, but we know what does.
So if you don't have a policy of gun control, I look forward to hearing about your support to increase funding for education, housing, physical and mental healthcare, and worker protections.
One aspect of venture capital that rarely gets talked about is competition to get into a deal.
What happens when a founder has that rare wealth of riches when they're choosing who they're going to allow onto their cap table? The tables turn and the one being pitched to becomes the one pitching.
The moment when you find out that you're not guaranteed a slot is my least favorite as a VC. I've seen different investors react to it differently. Some are really competitive. They want to "win" a deal--by beating out others.
Personally, I don't like being left out of the chance to work with really great people on big problems worth solving. I love this job so much and like seeing other people succeed that I have serious FOMO not to hear those stories firsthand and be able to make those hiring intros, pitch a reporter, or ask the right question at the right time in a board meeting. When it all works out, it's amazing--and when it doesn't, it's really tough, but challenging in the best of ways.
At the end of the day, however, a VC's money is just as green as the next one--which is where your reputation comes in. There's nothing I can say or do at the moment of offering to invest that is more convincing than the sum total of what not only the fifty plus founders I've worked with beforehand have to say about me, but the countless others I've run into as an investor. I take 150+ pitch meetings a year, and probably do a speaking thing every other week if not more.
That's why it blows my mind when VCs are standoffish or disrespectful, or even worse, dishonest. The reputation you create off of each 1:1 interaction with a founder is like a rainy day fund. Every time you truly help someone, even if you don't back them, is a small deposit. It's a founder being willing to say something nice about their dealings with you or to recommend you to a friend.
Helping every founder is an impossibility. Sometimes, you just can't stick around one more minute at an event. You've got friends or family waiting--and sometimes, you just need to put the e-mail down. You can't get to that one founder that keeps pushing themselves back up to the top of your inbox, because you have four term sheets out and you're trying to help someone close a round, and someone else hire a COO. You can't get to everyone, but you can respect everyone you did get to--and act like you know that as hard as you're working, they're working even harder.
Every time you slip an obnoxious term into a cap table, or take six positive meetings before ultimately passing for a reason that should have come out in meaning one, you're debiting your rep. That's going to come back. Maybe someone might actually ding you, but you're not going to have a founder go out of their way to recommend you either.
Founders are making incredibly important decisions when they decide what investors to take. They're literally stuck with this group for the duration of their company--and there is going to be no one they'll trust more for a recommendation than another founder.
So, as you're building your career, treat every founder as if they're going to talk to that one founder whose company is 3x oversubscribed--the one you think could make your career if only you got a shot to participate.
For the last couple of months, I've been recording interviews with founders and recruiting professionals for the Startup Recruiting Podcast. Despite my best efforts to make it tactical--full of hacks, tips, tricks, etc., the common themes that keep coming up are much more about meaning, mission and values. At first, I'll admit it felt a little fluffy, but more and more I realize that without answering questions about the "why" of what it's like to work for your company, you're never going to be able to write that pitch e-mail, LinkedIn message, or have anything convincing to say in an interview.
Here's what every founder should put in some time to not only have an answer, but to make sure that answer is backed up by actions, incentives, and real effort at your company:
1) What's the reputation for greatness that will attach itself to your employees long after they leave?
Will your company be known for being a great place to learn to sell? To scale lots of data? To build brand? To push the envelope around computer vision like at Clarifai? What kind of a challenge will a VC know that they can back a former employee of yours to tackle?
2) Why are employees at your company great teammates to each other?
If 1+1 is going to equal something more than 2, your team will have to be better together than as individual contributors--so while you might think the most important question is how they're going to do that, you'll realize that if you can handle the "why", they'll figure out the how. Check out the x.ai employee pledge for a great framework on this.
3) What is it that you sell?
You don't sell a product. You sell something else. Is it time? Is it piece of mind? Is it a lifestyle? Reliability? Clarity around what your customer cares about and why they buy your product usually means your employees are focused on what matters most--and helps you figure out which potential new hires are best suited to deliver.
4) Why would an employee recruit their friend?
You know why you started the company--but that doesn't mean it's the same reason why a front end developer would tell their friend the growth marketer to join. Thinking about the incentives for your individual contributors to recruit others keeps you focused on the day to day of each employee up and down the org chart. Can you create an environment as clearly articulated as Do Something? Is it because you're hiring people others would like to work with like at Zola?
5) What will this company look like in five years?
It's highly unlikely that you'll survive five years if you can't imagine it--and a strong founder vision not only provides direction around day to day tasks, but also inspires people. It's really easy to get stuck on the metrics you need to get to the next round and to forget to play the long game of people development and skating to where the puck is going.
Bonus: What are others likely to hear about your organization?
Your recruiting brand is different than the brand around your product--and should be attended to just as intentionally. Etsy spent a lot of effort making sure the Etsy culture permeated outside its walls. What are you doing to spread your company's culture?
I don't know whether or not Donald Trump colluded with the Russians around the election--or whether any of his associates did either.
I certainly don't think much of him--and it certainly doesn't seem beyond him, but obviously I don't have all the materials and information I need.
But what I do know is that anyone who is sure of their innocence wouldn't fire the very person investigating them IN THE MIDDLE OF THE INVESTIGATION. Can anyone logically imagine an innocent person thinking, "I know I didn't do anything, but instead of waiting until I'm cleared, I'm going to get rid of the main person I need to vouch for my innocence and that of my staff."
It's completely unconscionable--and any other politician who doesn't denounce it isn't representing their constituency well. It wreaks of the kind of abuse of power that ultimately sent Nixon packing--and the fact that Trump and his staff either don't see that or don't care is deeply deeply troubling.
There have been many days this year where I sit here and say, "Should I be doing my job or raising hell today?"
Today, it is clear what we all should be doing. This is a fork in the road we cannot afford to go down.
I can't tell you how many pitches I've taken where a founder told me they needed revenues, or a fully functioning product to raise capital--and they were told that by X number of investors, so they took it as gospel.
Plenty of companies have raised money pre-revenue and pre-product, so why the discrepancy?
What you're most likely hearing from an investor who says this is that what it takes to raise from *them* and they're not speaking for the whole market. I always qualify these kinds of statements by saying, "I can't speak for other investors" when I suggest how likely someone is to raise in their current state.
When you sit down with an investor, just like when you sit down with a customer, you need to qualify them--to ask whether or not they have invested in a startup at this stage. This way, if they've done pre-revenue or 10k MRR a month or pre-FDA approval before, you know that if you get turned down, it's not because it was too early for them.
Otherwise, you really don't know if they're suggesting the bar is higher then where you are because they just don't take risk at this stage.
Some of my best investments, like Canary, Orchard and goTenna, were pre-product, but not every VC wants to take that type of risk. Make sure you know you're pitching to the right stage VC when you go out.
It's hard to answer that question, because even if you look at fundraising data, you don't always know a) when the round was actually closed vs. just announced or filed and b) you don't know when fundraising actually started. Maybe it was wrapped up in a week or maybe it took six months.
That being said, I was super curious what my own track record had to say about it. As it turns out, from 2010-2016 inclusive, 75% of my deals are done in the second half of the year.
What's the reason for that?
I have a few theories.
First, you probably don't want to have the holidays cut into your fundraising process--so most people time their raise to wrap up before the end of the year. There's a noticeable push to start raising in September to wrap things up right away. That would explain why you don't see much in January and February--because those deals were done in the 4th quarter.
What it doesn't explain is the slow second quarter. What's going on in April or May?
Well, perhaps a lot of people start new companies after the holidays--maybe after they wrap up a previous job. If that's the case, and if it takes a few months to fundraise, then you probably wouldn't see much in April. That would mean that you start fundraising almost as soon as you leave your last job--which is probably rare. You probably want to put a few months into testing the idea, recruiting an early team, etc.
This points to the idea that deals are happening because of the founder's time table--not the VC's. That I largely agree with. In fact, I think the perception of the VC timetable is largely overblown. Supposedly, all VCs go on vacation in August, but I've done as many deals in August as March, April, and May combined. A few years ago, when I was at First Round Capital, we had our largest month of the year in August. Obviously, those weren't new pitches, but it shows we were still working.
Similarly, I've found it super easy to get meetings with VCs before the holidays. While you might not get your deal closed right then and there, they're still in the office, and their calendar is probably more open than you think.
Rather than try to game the system too much for your seed round, it's best to get to know investors as early as possible, and raise whenever you need to raise.
I know a guy.
In fact, I know a lot of guys. That’s good because guys are all anyone is looking for these days—or even speaking to.
"Tech guys" in general.
Guys who might want to fund our round.
How tired are women of being either excluded in the language of who people are looking for, or being lumped in with men and being described as "Guys"?
It’s bothering me, too, actually. And it’s not just guys that do it.
Women do it all the time, which kind of blows my mind.
How hard is it to refer to people like this?
People use “guys” as a catch all term for addressing and referring to a group of people—and it’s just wrong. I know it doesn’t seem so bad, but it’s just a lazy habit that makes me think people are being lazy about lots of other language things—the way job posts are written, the way HR manuals are still unwritten, what profiles of people are recruited, etc.
Do you think Uber set out from the beginning to be an environment unfriendly to women?
I don’t—but unintentional and lazy lapses breed a kind of broken windows environment that just compounds on itself. Boundary lines get pushed everyday, millimeters at a time, until all of the sudden you’re actually surprised to find out you have a toxic culture.
Be intentional about your language and your culture. How you speak, and what you say, signals all sorts of things about you.
People ask why I don’t have much of a Brooklyn accent—and the answer was that I spent a lot of time to think about how I wanted to sound and what I wanted to say. If I can avoid sounding like someone who might shake your bakery down for money, then anyone can speak like they care about how women get addressed.