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Charlie O' Donnell
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While we don’t have kids yet, we’re of the age where a lot of our friends do—and the back to school situation is on everyone’s mind. Is your school open? Are you sending them? How did your kids do with distance learning?
What struck me is the stories of how different personalities of kids have done in quarantine—and adults are no different.
Some are absolutely thriving—super focused, avoiding distraction.
Others are kind of lost. They work off competition and/or inspiration from others and not being in person with a group is sapping their creative energy.
Loneliness is a serious problem for many people right now.
Where am I on this?
I feel like I’m kind of in the middle.
I’m a pretty steady person in general—I don’t get too high or too low emotionally. So, I can’t say I’ve fallen off the deep end of despair or anything, but I can’t say I’m thriving either. One of the things I like best about being in New York City is the diversity of people I encounter on a day to day bases—at least in the Before Times, anyway.
Now, I’m stuck getting my exposure to people online.
Clubhouse is basically the opposite of what I’m looking for. It’s tech people talking about tech things at best, and VCs talking about Clubhouse at its worst.
I miss the randomness of in-person people for sure.
What about you?
How are you sparking your creativity (or not) in quarantine and what have been your best sources of human inspiration?
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1) Legalize all the vices. Quarantine brought us some relief on alcohol takeout in order to give local restaurants something else to sell—but that doesn’t nearly go far enough. Not every attempt to fill the city’s budget needs to come from increasing the taxes on things we already tax. The easiest new source of revenue for the city would be areas where there’s already lots of illegal economic activity that doesn’t get taxed at all, but where legalization would actually bring regulation and improvements—namely, vices.
Marijuana is an easy one. It’s already being mass-consumed tax-free. It’s been decriminalized in several ways. Now it’s time to run this thing into the end zone—and while we’re at it, throw away all of the previous convictions and records that go with it. That would save us money on incarceration on top of a windfall tax on sales.
Sports gambling is another easy one. New Jersey already allows it. Let’s stop PATH train riders hopping over to Jersey City to place their bets and let them keep their money and their taxes on our side of the river.
Sex work is one that fewer people might support—but over and above the tax potential, there’s a moral argument to be made here as well. Regardless of your opinion of it, sex work is a source of income for many people in NYC, especially immigrant populations. By keeping it illegal, it prevents those in the industry from coming forward when they are victims of abuse. Regulating it and giving these people proper worker protections would improve their working conditions and make it easier for those who desire to leave the industry to escape cycles of abuse.
Outside of that, if two consenting adults free of any coercion want to engage in a financial transaction, and taking a cut means less of a tax increase for you personally—how hard do you really want to argue against it?
I mean, if two boxers can make a living beating each other to a bloody pulp in front of an audience and we don’t mind collecting those tax revenues, we’re being a bit hypocritical to be so high horse about this being a sanctioned part of the economic system.
2) Cut the police budget. The NYC Council is calling for a $1 billion budget cut—asking the force not to respond to every last cat up a tree with two armed officers making, on average, $90,000 each. We all have to make due with less—and this is basically the increase in budget during the Mayor’s administration. Let’s not replace the retiring cops leaving via attrition and instead take that money to invest in social services and housing stability that have been shown to prevent crime.
3) End the stock transfer tax rebate. You may not realize this, but Wall St. firms are on the hook a sales tax when they sell you a stock—only it gets 100% refunded to them. Due to some archaic bond offering rules, the tax actually gets collected, but then it gets sent right back to brokers. The state began rebating the tax in 1979 (at 30%), 1980 (at 60%) and in 1981 (at 100%). It is estimated that eliminating this tax would erase the entire budget deficit, and also cut down on high frequency trading, which can impact volatility in the market.
4) We need to push the Federal Government to close the carried-interest tax loophole—but we should do it in such a way where the localities where it gets collected get a share of the income from it. There’s no reason for private equity managers, hedge fund investors or VCs to pay less taxes as a percentage than teachers. Fred Wilson agrees. Closing the carried interest tax loophole is something Trump said he was going to do when he campaigned. It will mostly piss off people in states he doesn’t win anyway—NY, CA, and MA. Plus, he could say that he went after the rich in other ways as a defense of his tax plan and general bent towards grifting for his friends.
If New York politicians push for it, perhaps we could see some of the benefit disproportionally accrue back to us.
5) Tax the empty luxury residences that are just used as stores of money and high-end pied-a-tierres. If you’re not paying NYC taxes b/c you’re a resident less than half the year, but you own property here that you’re not renting, then you should have to pay at least something extra rather than able to fully avoid taxes by being domiciled in another state. There should be an extra penalty for taking up a lot of extra space and not being here those days to economically and socially contribute.
6) Charge for parking—everywhere. Cars get a ton of NYC real estate for free—why? Give hospital workers free parking passes and people below a certain income who can show they need a car for work, but if you’ve got a weekend car for Vermont skiing, then you can chip in for a permit. It could still be less than a garage and it would help monetize all that space.
7) Promote the filling of empty storefronts. When local stores close, and people shop online, money drains out of the city into the hands of non-local companies. We should find more ways to allow small local businesses get started and thrive. For example, anyone should be able to get a lease on a storefront that has been vacant for more than a year for a set percentage of sales without a costly down payment—with a right of first refusal if the landlord can find a higher paying tenant after that. If you’re holding on to empty space and someone makes a qualified offer to start a local business in the space, cutting you in for a reasonable percent of the revenue, you shouldn’t be allowed to turn them down.
It would be incremental earnings for the landlord, more sales tax and payroll tax for a new business—and less people out of work.
8) Bank the underbanked. There shouldn’t be any Checks Cashed places in NYC. They’re one of many ways that it’s expensive to be poor. You should be able to cash a check at any ATM in the city and deposit it in a no fee, no minimum account. If banks don’t want to offer it, the city could get into that business. The city doesn’t have to deal with customer acquisition costs in the same way—all of its press conferences come free. Why not have a City Government run bank or financial institution that could bring financial services to everyone?
The city might be in a position to do this profitably—no marketing costs and no additional real estate overhead given how many local city offices there are. It’s a dream advantage for a startup.
9) Open the streets and vacant lots to business. We’re letting restaurants create outdoor cafes. Let’s go a step further and start closing off streets, replacing them with more open air businesses that generate sales tax—especially in the summertime.
10) Tax the noise. Unnecessary honking, and cars and motorcycles tuned to purposely create loud exhaust are a blight on the city. Cops never ticket for them, so why not let acoustic cameras do the work the same way speed cameras do? Getting a speeding ticket with a camera is super annoying—the first time. After that, when you know where the camera is, you slow down. It works and the tech is out there to do the same with unnecessary noise.
One of the most difficult conversations I have with founders is when they haven’t quite given me enough of a story for me to make a proper evaluation. A VC’s default is “no”, so without enough information to be convincing, it’s going to wind up being a pass. If I wind up asking for more info, it might result in a founder feeling like they’re getting the runaround, given what the founder believes to be an obviously good idea.
One important thing to note is the difference between the following:
1) A great idea.
2) A big idea.
3) A big enough idea for venture dollars to be the best way to fund something.
For example, I ride a hornless bike seat. I’m on my 8th one of this same brand and I can’t see riding with anything else. I think it’s great. That being said, it’s specifically a product for men, and I think at most only one out of four men would ever feel comfortable on it, tops, because you wind up leaning hard on your arms instead, and you do sacrifice a little stability. You only need to buy it once and it lasts at least a few years. There are maybe 20-25 million male bicyclists who bike enough for this to be useful. So, really you’re taking about a total addressable market of $450mm, but that’s not even annually—that’s total market size. If this thing lasts 2-3 years, then you’re dividing it in half to a third. So, basically, even if they sold every potential customer (which they won’t, b/c it has competitors), it won’t generate enough capital to be a standalone, VC backed idea.
It’s still a great idea, and I’ll bet a great team could drive it to a few million dollars in revenues—and that’s still a big idea.
Just not big enough for what venture needs to make its money back.
Figuring out how much to show a potential investor, and how realistic it is to show predictions about the future, is difficult for a founder. Pitch deck outlines are ok, but they don’t say much about what you’re trying to convey besides particular categories that may or may not be relevant.
First, you should tell me who you are—but not simply in a bio form. A bio just gives me the resume—it doesn’t tell me what about your story is relevant to this. Am I to believe that having an MBA automatically means I should believe everything you told me about this problem?
How did you convince yourself that this was worth investing all your time in? That’s the key.
Then, an investor needs to understand what it is that you would like to build at its most interesting near term point. Why do I say it like this? Well, sometimes you’ve built a little MVP which doesn’t tell the whole story of what you want to be when you grow up. Other times, you build something that doesn’t really get interesting until eight years down the road after a billion people are on it—this is too far out.
You need to pick that sweet spot in the middle to talk about.
For most people, just sharing what you’ll believe you’ll have before the next round will suffice. Too often people only pitch what they have, not where they’re going—and they forget that fundraising is selling tickets to the future, not asking for rewards for the past. This is often the case for founders who assume they won’t be taken seriously—they believe that somehow what they’ve done previously “earns” them the right to a meeting or a pitch, when really most VCs are happy to just discuss interesting ideas no matter how far along you are.
I get that some things are very technical and complex and require many steps to get to the end goal, so if that’s your plan, walk me through it milestone by milestone, telling me how each milestone is going to be interesting enough to get a next round of funding.
If you’re going to try to pitch metrics and momentum as the main feature of your pitch—make sure they’re as great relative to other startups as you think they are. For example, a pre-sale of $50,000 might be very exciting for you, but there are lots of pre-sales that garner a million or more in sales, and not all of those companies wind up being successful. To a VC, $50,000 a pre-sale isn’t really that much.
One item founders often miss is explaining the “flywheel”—or the idea of how to make this thing take off and not stop. VCs are less interested that you sold 10 customers, 20, or 100—they want to understand how many you’re selling per week and whether or not that kind of pace would be profitable for your sales & marketing efforts. If you’re pulling in $5k/week in sales just dialing for dollars in a third of your time, that’s pretty great. It shows that if you hired a salesperson and optimized the process, it makes sense to raise money to hire salespeople.
This also relates to unit economics—is it profitable on a unit basis (for each thing you sell) to be in this business? High level will do here.
Size of the opportunity and your plan is often a tricky area for founders. Many founders are hesitant to try to predict the future and others are much more likely to pick a plan they know they can hit, versus something where everything needs to go just right.
The key is understanding that VCs want to see what could happen, and how not what will most likely happen. We realize that half the startups we fund in the early stage won’t make it. That’s why we invest in a portfolio.
A financial plan isn’t a promise—it’s a starting place for conversation. First off, it’s a test to make sure venture capital is even right for this model. If no amount of funding could push this past being a $10mm per year revenue company, then you shouldn’t raise venture—because we’ll never see a big enough return off that. So, if nothing else, we all want to be on the same page that this thing can make it to a certain size.
Most VCs want to see a path to at least $100mm in annual revenue, if not more. Can you show a plan that gets there?
Second, we want to make sure the founder has done the work to figure out how that might happen—and that there are no glaring assumptions we don’t believe. If you want to build the next Facebook, but your assumption is that 3/4 of the users are paying customers, that might not be so believable. We’d want to understand how you’re getting to that number.
We don’t take these numbers at face value. Sometimes, we’ll push you in certain areas where we think you could be more aggressive. Other times, we’ll ask you to tone down some assumptions, and the plan still works quite well. Either way, it’s all about showing your work and making sure you did all the customer calling, peer comparisons and firsthand research necessary to be eyes wide open on this idea. Otherwise, it’s going to be hard to trust that everything you’re telling us is likely to happen.
The last thing I’d like to see is an understanding of why each customer signs up. Why will they be convinced? What are they doing otherwise? Why are they going to take time out of their day or carve out a portion of their budget? There are lots of ideas out there that don’t focus enough on the consumer problem—or the problem simply isn’t really enough of a problem to motivate people.
Let’s say you haven’t done all this work yet. It’s fine to ask an investor a specific question about direction, or how they’ve seen companies solve something. I’m not saying you have to be 100% done with all your work to talk to an investor—but if you really do want to be prepared, being complete about the story is the only way to make sure you’re properly evaluated.
If you’re not sure where all the plot holes are or what investors might believe, you may want to check out Feedback.vc.
Feedback.vc is a double-blind panel where investors rate your company and the details you choose to share anonymously, meaning that you don’t need to give away who you are exactly in order to get a full 8 page report on the strengths and weaknesses of your idea. They’ll provide specific commentary as well.
For a limited time, use the FOUNDER50 discount code for 50% off to find out what’s missing and where you need to step up the plan to be successful on your raise.
There have been a lot of calls for VC firms to make more hires from the Black and Brown community, as well as to hire more women. Not all hires, however, are made equally.
In venture, it’s all about getting an opportunity to make partner and being included in the carry—the economic upside of a fund. Not only is carry a means of economic mobility, but it’s also a reflection of where decision-making authority is within a fund.
Hiring analysts and associates from underrepresented backgrounds are great, but if there’s no path to ever moving up in the fund, then they’re just doing the heavy lifting for white men to make multiples more money.
As a former institutional investor, one of the stats we focused on was carry distribution. We wanted to know who controls the lion’s share of the cashflows when success happened, because it was often a predictor of firm stability. If up and comers who were doing the hustling had the right incentives, firms could successfully last for multiple generations. If firms held back the economics, keeping things only for partners who were growing long in the tooth, some of the best new investors they had would bolt for other firms or start their own.
What if institutional LPs—often representing the public pension money of diverse communities, or philanthropic foundations focused on improving the world, set targets for these economics. It would be much more than just a hiring quota, which is meaningless if these new employees just churn out after they hit a ceiling. It would be a directive to literally invest in the talent base—to create a path for influence and economic mobility within a firm.
It also broadens the pool of who can attempt to raise a fund. Right now, there are some underrepresented managers out there, but if you can only raise a fund after being funded, or if you start out with wealth, structural inequality is going to hold that pool back. Mentorship and the building of track records within other people’s firms is an important pathway to partner, even in your own fund.
Moreover, what if firms were required to publicly disclose those numbers—not to a person, but to a category? This way, you could see if a three-partner firm had hired a new female partner, but women only controlled 10% of the carry—or whether that new Black principal is getting any carry at all.
If investors from underrepresented groups are ever to go out and create their own funds one day, they need real paths to influence and wealth creation within the firms that hire them. That one only Black female associate hired by a fund otherwise full of white investors throughout its history isn’t going to be able to raise her own fund if she just spins out after a year or two with no deals and carry to call her own.
There are so many different ways to interpret the data on who gets venture and why. Lots of the data is skewed toward later stage rounds and I’ve never ever seen stats on who is pitching. There are lots of problems with access to venture connections that account for some of this, but how you invest and pay your own team is the one indisputable thing that is in a VC firm’s control.
Morever, LPs should be influencing these policies. Very few institutional Limited Partners have reached out to their investors to even ask about VC policy, let along try to influence it. Most of the visible institutional investors have been remarkably absent from these conversations on Twitter, or simply offering the bare minimum.
Because they’re afraid to lose their access.
They’re afraid to tell the Sequoias and Benchmarks of the world that they want to see commitments to change, for fear of getting kicked out of their next fund.
Well, the tide has changed. If any of these LPs spoke up and then lost their allocations, their stories would become incredibly damaging to those funds.
I’d like to see more efforts here. As someone who spent a long time in the industry before I ever became a partner, I can tell you that the industry’s lack of mentoring and paths to partnership isn’t just laziness or inertia—it’s a serious systematic problem that keeps unequal power structures in place. It’s time for the money to show the industry that it is serious about equality.
One thing I’ve seen from both VCs and LPs over the past week is a hesitation to engage around race discussions. There are some who don’t believe they’ve done anything “wrong” and therefore see the whole thing as a distraction. Others are so uncomfortable with the idea of getting flamed or canceled despite good intentions that they’d rather do the absolute minimum.
If you’re a white professional in venture, you might feel uncomfortable tweeting or blogging about race. The way I think of it, I’ll never feel nearly as uncomfortable in my life as much as what I imagine a person of color might feel at a traffic stop.
Until that changes, I need to be taking these really tiny risks at a bare minimum.
Besides, if you’re not comfortable with making mistakes and learning from them—what are you even doing in venture?
While I got some very kind words on my recent writings, I heard from some founders that didn't feel like they got treated fairly—specifically around feeling patronized or dismissed—and that I wasn't showing enough action to improve on that.
My first reaction was to debate (if you know my personality, that's hardly surprising), but then I gave it some more thought and realized that I had a blindspot:
My dedication to honest and direct feedback to as many founders as possible has different consequences for different founders.
I try to get back to everyone—which is something not all VCs do. Sometimes, that just means I send off something quick, because of the inbound volume, like this:
“I’ll pass, because I just don’t think there’s enough money to be made here given how hard it will be to make each sale and what little you make per customer."
I figured better to get a quick something than nothing at all—or, just an “Interesting!” which is useless.
If you're in a more privileged position with lots of VC connections to pitch, you’ll either do one of the following things:
You'll come right back at me, tell me why and how I'm wrong—because at this point you have nothing to lose.
You’ll just think I’m dumb and will move on to try and find a smarter VC, showing just as much confidence in the next pitch.
One thing that I hadn’t considered before is that if you've had an extraordinarily difficult time getting people to hear your pitch because you’re not in certain networks and your lived experience has been being discounted and not taken seriously, my words are going to be taken differently.
It’s easy in my position to forget how much courage it takes to pitch something for any founder—but especially founders for whom stepping out and taking this kind of risk feels like it comes with a bigger downside. Founders from communities of color are less likely to have personal wealth to fall back on. They’re less likely to have those same insider connections to help get them that next job if it doesn’t work out. It doesn’t just feel like a bigger risk—it is a bigger risk and they have more on the line.
If you’re constantly reading that this system isn’t built to help you—and you aren’t finding any experiences to the contrary, your likelihood of just throwing your hands up and bailing from startups is higher. When I decide not to meet with someone or to pass on an opportunity, which I’ll unfortunately have to do for most pitches, I need to do a better job of keeping that in mind. I can try hard to be objective about the business opportunity without saying something that doesn’t make them more likely to drop out of the process of finding their next big thing entirely.
Sometimes, it’s not even a matter of being short with someone. It could be asking the same questions I would ask any other founder without thinking much about how it would be interpreted.
If someone doesn’t send over a financial model and I say something like "I don't see how this gets to $100mm in revenue", it's not a short jump for someone to hear that as "Your idea is small, and not important."
Straight white guys never hear it that way.
Similarly, when I say, "Can you show me a model of how you think this round helps you hit your goals?" that is often going to sound like a lack of interest and an unwillingness to just say no.
Fundraising can feel like a series of endless hoop-jumping--that investors who don't intend to back you will keep asking you questions until you give up instead of just saying no. What I have heard multiple times from founders of color and female founders is that it is exhausting and discouraging.
One thing I need to do better is to share context to my feedback for those founders I think might be feeling exhausted by this process, particularly underrepresented founders, and present more helpful solutions. Instead of saying "I don't see how this gets big" perhaps it would be better to say:
“A lot of founders pitch with a conservative estimate of what they believe they can 100% commit to, which I appreciate *after I've invested*--but investors aren't investing in the certain, we're hoping for the *possible*. I’m not sure if that’s how you’re positioning this or not.
Do you see any pathway to getting this business to a $100mm a year annual business? Can you show me a version of this plan with how it might be possible?
If that's not in the cards for your business, that still could make it a great business, but then the kind of capital I'm offering probably isn't a match for what you're looking for from a risk/return standpoint."
That's not perfect, but I'm certainly going to commit to working on better ways to share feedback—to make it feel like when I am interested, I’m actually going through a real process of serious due diligence, and when I’m not, to at least acknowledge the try a little better.
Don’t get me wrong—I’m still going to be super direct and honest, but it doesn’t have to feel brutal.
I wrote this in my newsletter this morning:
If you're not willing to ask yourself difficult questions, to be asked them, or to ask them of your teams, then this e-mail and, frankly, this "innovation" industry isn't for you.
What have tech leaders been telling people they needed to do in order to be great founders and to build great things?
Move fast and break things.
Don't ask for permission.
Run through walls.
In fact, Marc Andreessen once tweeted:
"To be AGAINST disruption is to be AGAINST consumer choice, AGAINST more people bring served, and AGAINST shrinking inequality."
So, innovation supporter...
Are you against shrinking inequality or not?
Ask yourself how come you're so concerned with people taking things from a Target when you cheered from the sidelines as Amazon burned Barnes & Noble to the ground and caused a million small retailers to go up in flames on their way to the top.
Have you owned shares and profited from all the broken Main Street windows Amazon created?
Last night, SoHo stores were looted, and nowhere in the coverage will it mention that the whole neighborhood has been one giant flaunt of real estate zoning law for years--illegal occupiers of their space.
There aren't supposed to be any stores in SoHo over 10,000 square feet, which Hollister, Topshop, Uniqlo and Zara all violate, while residential zoning in the neighborhood requires every SoHo household to include at least one certified artist.
The area has over 25,000 residents but has barely generated two dozen artist applications per year in recent years, with most being turned down on their face.
I'm not pro-looting, but I am pro having an honest conversation about who gets to break the law, especially when mostly white investors people get to profit from it.
"Uber’s ascent to the largest rideshare company in the world was fueled by a recurring cycle in which it blatantly ignored state and local laws, became entrenched and widely used in a community, and then tried to use its largesse to change the laws it was breaking..."
Could you not use this *exact* description for those who have been protesting?
Who benefitted equity-wise from Uber's success?
Black drivers make up over 20% of who is actually behind the wheel but have no equity in the company as they are not technically employees. Even if they were, startup employees usually don't hold more than 10% of the company's overall stock and less than 10% of the company's employees were black at the time of the IPO... so they make up less than 10% of 10%...
Well, you would have needed to be a wealthy, accredited investor to get in on the upside, and only 3% of Americans meet the criteria to do that.
I don't have to tell you what the racial distribution of the group benefitting looks like relative to those doing the work.
Systematic and institutionalized racism and bias have prevented black people, and people of color from gaining wealth that leads to access. It's too easy to disassociate yourself from it if you don't think of yourself as harboring racist sentiment--not racist and therefore, not part of racism.
I'm not talking about using certain words or intentionally denying someone a job or apartment.
What I'm talking about is a feature, not a bug.
It's a system where you can profit by owning equity in the booming cannabis industry, for example, without having to pay back any of the multi-generational economic harm done to those who were incarcerated because of it.
Or one in which to get a government license to build a crypto trading platform, you need to pass background checks to make sure you haven’t been too disruptive on your way to building financial disruption.
Or more simply put, one in which to make money, you have to already have it.
A little over seven years ago, I set out to start a fund that looks to be an early and vocal supporter of those who are outside the innermost circles of the most powerful people in tech--since, by definition, New York City was beyond that circle.
I did so from a position of privilege.
I didn't always fully acknowledge or understand it. I thought privilege meant certain levels of wealth--not realizing the privilege of my skin color in our society. I thought that because my dad was a NYC fireman and my mom was a teacher's aide and because we lived in a small house that didn't have privilege.
That's before the killing of Tamir Rice made me look up the toy guns I used to play with without any fear that something would ever happen to me:
It is impossible to look at these photos and deny that I am alive today purely as a function of my skin color.
But I digress...
The investors who backed me asked me to seek out and support those who would push boundaries and question the system. That's a contradiction if the only people who I make myself accessible to are those in positions of privilege and who have benefitted from unfair systems.
If I am to really seek out the disruptors, I need to find more people who will actually see upside from disruption, not from status quo.
Venture capital is supposed to make a high multiple of return for the risk. If you want to make a lot of money with a small amount of money, what you're asking for is wealth transfer--and if you want wealth transfer, the architects of real change need to be outside of the system, not intrinsically part of it.
The latter is financial engineering masking itself as disruption.
That is why Brooklyn Bridge Ventures from the very beginning was built around the idea of accessibility--that the idea that the vast majority of the next great companies built in NYC will be built by people who aren't on current investor radars.
To me, that doesn't mean "donating" my time to meet with underrepresented founders as a charity.
That means making sure that there are no artificial barriers for accessing me and the capital I represent that would skew my time only towards founders of privilege. It means flipping over every single rock looking to be first to the opportunity that no one else has figured out yet--because anything else is just laziness.
First and foremost that means eliminating the requirement for warm intros which makes those people already in my network, who statistically tend to look like me, the gatekeepers.
Sure, that means exponentially opening up the flow of deals and going through a ton of deal flow.
That. Is. The. Job.
It's not enough just to be open--because it doesn't address other systematic barriers, like fear.
You can't just post to social media circles of people with the same skin color as you that you want to meet diverse founders in June. You need to commit to following and promoting voices of people that aren't like you--that say things that aren't exactly comfortable to hear to earn the right to have them follow you back.
And only then can you put asks out every single day to get the pitches from the smartest people in their network and expect it to look different.
You need to show up and take people seriously--because founders will sniff you out in a heartbeat if they get the sense that you've already decided you're not writing a check but that you're here for the meeting quota.
Sure and you need to write checks.
I've written the checks--to three black founders, dozens of other founders of underrepresented ethnicities, genders, sexualities, etc, but that's not enough.
The ecosystem of check writers needs to change, too.
I've been running a group of people who are new to the VC ecosystem or who aspire to join it. That group intentionally welcomes and seeks out those who are underrepresented.
The other day, I solicited invites to an educational session about VC with this tweet:
You: a) newly a non-partner in VC, b) from an underrepresented group, in startup/financial job and would like to get into VC, or c) HNW/Angel getting started. DM me. Running something educational tom (Fri) from 10-11:30AM ET I'd like to invite you to. No current founders, pls.— Charlie O'Donnell (@ceonyc) May 28, 2020
I specifically asked for underrepresented attendees and got 75 requests.
We had an amazing meeting that got 100 diverse RSVPs for a learning session in which aspiring VCs and angels from multiple backgrounds got to watch a real pitch meeting and have a 90 minute discussion after as to why certain questions were asked, how the team and pitch got evaluated, and what could have been done to improve.
Here's a smattering of the requests I got:
"I’m a current nonbinary college student working at various startups but interested in working in VC someday and would love to take part in your educational session tomorrow if there’s room for me..." - Carnegie Mellon design student
"I currently scale urbantech solutions in cities and am a Venture Partner with [x]. I have been working to start my own fund combining public-private funding to invest in companies" - African American Female
"I am Mexican-American first generation college graduate, parents were both Mexican immigrants (mom still cleans houses for the rich from Chicago here in Michigan). I currently work in a corporate finance setting but would be interested in VC if the opportunity ever presented itself."
My network is better for having intentionally sought out those who might not happen upon me during the normal course of how business works today. Because of that, my deal flow is better, and the investments I can make on behalf of those who funded me will be better.
Make no mistake--while some of you may think that these kinds of "politicized" messages coming from a professional investor might hurt my career, the only careers that are going to get derailed are those that don't show up as allies.
Today's startup founders and leaders are more empathetic than ever before and to be successful in managing more diverse workforces they will have to be. They will expect nothing less of their investors.
Notes are being taken, my VC friends.
Tearing down barriers to equality and access to wealth is a feature of Brooklyn Bridge Ventures--so when I am confronted with those who would do the same in their own lives in disruptive ways, my *first* instinct isn't to question their methods.
It's to understand their why and to seek to relate to the way they see the world in whatever small way I can.
That's literally the job of a VC--understand the why and understand how disruptive people see things. I'm not going to stop now because they're protesting injustice and not pitching me a startup (not today anyway).
Complaining about the broken windows of well insured multi-billion dollar corporations?
That's the equivalent of a VC asking whether the next disruptive hack project violates the terms of service of some big dumb Fortune 500 company we hope our startups to knock right out of the water as we crush them for profit.
Push yourself to ask why.
By now, you've probably watched all the videos... the George Floyd murder, the Ahmaud Arbery murder, the Amy Cooper threats... I don't need to post links to them here and re-inflict their trauma.
They're horrifying... if you're white.
If you're black, they're part of an unfortunate routine.
I can't speak for how black people are feeling right now--but I'll use whatever platform I have to promote those who can speak to it better.
You really need to watch the entirety of Trevor Noah's take on this.
If you've ever felt angry when someone breaks a contract with you--maybe not delivering something on top, or not paying you what you were owed, you haven't even scraped the surface of the pain caused by the social contract that America has broken with the black community.
"What do you see when you see angry black protesters amassing outside police stations with raised fists? If you’re white, you may be thinking, “They certainly aren’t social distancing.” Then you notice the black faces looting Target and you think, “Well, that just hurts their cause.” Then you see the police station on fire and you wag a finger saying, “That’s putting the cause backward.”
You’re not wrong — but you’re not right, either. The black community is used to the institutional racism inherent in education, the justice system and jobs. And even though we do all the conventional things to raise public and political awareness — write articulate and insightful pieces in the Atlantic, explain the continued devastation on CNN, support candidates who promise change — the needle hardly budges.
But COVID-19 has been slamming the consequences of all that home as we die at a significantly higher rate than whites, are the first to lose our jobs, and watch helplessly as Republicans try to keep us from voting. Just as the slimy underbelly of institutional racism is being exposed, it feels like hunting season is open on blacks. If there was any doubt, President Trump’s recent tweets confirm the national zeitgeist as he calls protesters “thugs” and looters fair game to be shot.
Yes, protests often are used as an excuse for some to take advantage, just as when fans celebrating a hometown sports team championship burn cars and destroy storefronts. I don’t want to see stores looted or even buildings burn. But African Americans have been living in a burning building for many years, choking on the smoke as the flames burn closer and closer. Racism in America is like dust in the air. It seems invisible — even if you’re choking on it — until you let the sun in. Then you see it’s everywhere. As long as we keep shining that light, we have a chance of cleaning it wherever it lands.
So, maybe the black community’s main concern right now isn’t whether protesters are standing three or six feet apart or whether a few desperate souls steal some T-shirts or even set a police station on fire, but whether their sons, husbands, brothers and fathers will be murdered by cops or wannabe cops just for going on a walk, a jog, a drive."
I also want to make a special mention for my support of cops--those who actually understand what the badge stands for and who they're protecting and serving. Those who have lost that need to go--and I don't want to pay their pensions either.
I was struck by how many scenes of peaceful protest this weekend were interrupted by overzealous law enforcement officers who were acting like they were storming the beach at Normandy. Near my house, cops literally drove into protestors, using their vehicles as weapons.
I couldn't help but notice that riots seem to break out in direct proportion to the amount of riot gear on the scene.
But several phenomenal examples of true compassionate leadership on behalf of the police gave me hope for change, like Michigan Sheriff Chris Swanson, who instructed his officers to put down their batons and marched with the crowds.
Is it any surprise that you can diffuse an angry crowd by kneeling with them, not on them?
The least safe I felt this weekend wasn't when protesters marched by me--it was when NYPD vehicles sped up and down Park Slope streets and helicopters lingered overhead.
Think of similar situations you've faced in the past. Do you feel more or less safe when you see police with machine guns in Grand Central Station?
It's not an accident that the sounds of keeping the peace sounded more like a war--and the only thing we probably won't cut in our economic downturn is defense and law enforcement, while our education and healthcare systems fall further and further behind the rest of the world.
We need more empathetic leaders willing to listen, learn and have difficult conversations as opposed to cowering in fear down in a bunker from the difficult and complex realities of their job.
So if you are a NYC founder, aspiring founder, startup employee, wanna be startup employee, join in on our events, invite me to show up for yours (I generally show up anytime I'm asked if I'm free), ask me to promote your work in this newsletter, come to our neighborhood dinners (FiDi on Weds night, virtually), and if you want to join the investor side of things, especially if you do not look like me, reply here for invites to our educational events.
I'm not going to take a meeting with you to check a box this month or any month--but I'll always be damn sure to help you get to that meeting one day via honest feedback if you don't score it the first time.
Thank you for reading and for all those who answered my question of what you wanted to hear from me during this time.
The world needs you lighting a fire every now and then to keep us honest.
Meanwhile, thank you to my friend Nisha from BBG for posting this link on what white people can do for racial justice:
Also, this came in from Ella Crivello as a resource list on anti-racism:
VCs are notorious for kicking tires.
VCs take a meeting just to learn about an area. If deal flow is slow, a VC will take a meeting if you and your team seem mildly interesting even if your product isn’t. Sometimes, if you seem well connected to other founders or VCs, that will get you a meeting—because you don’t want to miss something everyone else has seen.
Some later stage funds will take a meeting long before they ever plan on writing a check with the promise of “opportunistic” seed investments (to the guy or girl they went to grad school with). Some VCs have no money left in their funds, but they still like playing VC.
You could complain about this as bad VC behavior, because wasting a founder’s time is a mortal sin in Startupland, but I wonder why we’re letting founders completely off the hook in this process.
If you had a salesperson and they spent all of their time with inbound leads that didn’t pay off, you’d have to let them go. The ability to qualify a lead and spend time in your pipeline commensurate with the likelihood of payoff is a critical skill.
Or, you could blame the leads.
Fundraising is a sales process for shares in the company.
Is it the lead’s problem that they aren’t serious buyers? A great salesperson would figure that out right away—and qualifying your fundraising pipeline is a critical skill for a good fundraiser.
So how do you qualify a VC in your fundraising pipeline?
Ask Pointed, Specific Questions
Do you lead?
Do you have dry powder for this? How much?
Do you have the bandwidth to work on this?
Do you see a reason to turn this down right now?
What do you feel you need to be convinced?
What do you feel you need to convince others in your firm?
I believe X, Y and Z key things that cause me to believe in a big outcome. Do you agree with all three? Do you think the outcome could be as specifically big as I do?
What work will you do next to either convince yourself to do this or not to do this?
When can I expect this will happen?
If you walk out of a meeting and you don’t know anything more than “They thought it was interesting…” then you didn’t ask enough about where they were at on this.
Manage Your Time
Control the time and structure of the meeting.
Have a plan for what you want them to know—have questions to make sure they understood it and come to next steps that either move them forward in a process or off the potentials list. Use some old school sales tactics like, “I’m going to use this first ten minutes to determine whether this is a fit—would you be willing to give me back my time if you determine right away that it isn’t? I have plenty of calls and e-mails to make and would appreciate a quick wrap up if you’re not interested to hear more after that time.”
Seniority Within the Firm
Some non-partners at a firm can lead a deal—but the reality is that if you’re scoring your VC leads on likelihood fo close, you have to take points off for junior VCs or partners who probably have less pull. The partner who just got promoted from principal undoubtedly will have a lower close rate than the partner whose name is in the door or who founded the firm.
That’s not to say you shouldn’t pitch people besides the most powerful partner that everyone else is probably pitching—you just have to be careful you’re not leaving yourself open to being disappointed at the finish line because they didn’t have the internal pull to get it through the partner meeting.
Circumstances of the Meeting
Did they feel obligated to take the meeting because of an intro or do they have a stated interest in the space—or even better, did they tell you specifically why they’re interested in your company?
Scheduling and Cadence
An interested VC won’t wait a week or two when a round is in process to meet. They’ll get back to you right away without you prompting it. They’ll even introduce you to others in the firm before you walk out the door. If you feel like you’re pushing the deal forward, your chance of closing are defiantly lower.
Researching the Space
Ideally, the investor either already knows what they’re looking for or you’ve so clearly articulated the opportunity that they don’t need to take time to get up to speed on the space—or, you’re so clearly the expert team that they trust you know what you’re doing. Anyone who has to start from scratch on a space isn’t your most likely next close.
Lack of Vigorous Agreement or Disagreement
If a VC has strong opinions, you can have a back and forth. If they’re just not engaging at all, there’s a good chance you’re looking at a pocket veto.
A pipeline should feel active—a living, breathing organism with flow and movement, not a sack you’re dragging up a hill. Remember, there is way more money out there than good ideas—so if they’re not chasing you, you probably haven’t done the job of being convincing.
If you can’t get a read on VCs at all, you may want to check out Feedback.vc, where you can get aggregated and consistent feedback from an anonymous panel of venture investors.
Do you have your own suggestion?
Retweet this post here and add your own!
Obviously, the fight against Coronavirus has not stopped, but it’s hard not to look ahead to what’s next. How will having the world on lockdown affect our society in the long run?
Here are a few trends I think we’ll see going forward:
1) Work from home is here to stay—at least partially.
Absent the additional, albeit temporary, task of having to educate your own kids while at home, many people have reported being a lot more focused and productive while out of the office—not to mention the two hours a day they’re getting back. While some people report actually missing their commute—and the act of seeing new strangers every day—it wouldn’t be surprising to me if everyone who formally worked in an office does at least a day or two out of the house going forward. That’s going to significantly alter the way offices will be set up, making them less about personal space, featuring more flexible storage, and more adaptable to different groups of people coming in every day.
2) Video connections are here to stay.
Video chat isn’t new—but the concept has now been “microwaved”**—heated up for just long enough to reach that optimal temperature for mass consumption. Whereas it previously felt like a bit of a fringe use or even a bit of awkward overkill, I think now we’re once again seeing the value of faces and live human expression in our digital communication.
Expect video calls to replace audio conference calls permanently and for use cases like video dating and doctors visits to become more of the norm, especially as people grapple with the lingering societal effects of coronavirus pre-vaccine. People need more data on the quality of a connection to decide whether going outside for a stranger is worth it.
3) American voters move left on domestic issues.
Healthcare for all. Worker protections. Teacher pay.
So many policy shortcomings that left far to many people who are keeping our country running vulnerable or unappreciated are sure to be addressed in the next few years. Joe Biden may not have been as left as many were hoping—but he’s sure to be forced left by masses of people left very exposed and in need of government assistance during this pandemic.
4) American foreign policy to shift towards nationalism.
I forget who is supposed to be on what side of globalism these days—whether or not free trade is a Republican thing or a Democrat thing, but it doesn’t matter now. Expect borders to get tighter and critical manufacturing to get domesticated—because what definitely didn’t happen was the world as a whole coming together to solve this crisis. Every country seemed to retrench into fending for itself, with very little cooperation, undoubtedly costing lives. Many politicians seized upon globalization and “foreign invaders” as a scapegoat for their own shortcomings in responsiveness—but the crisis did lay bare a lot of issues with a just in time global supply chain.
5) Privacy and security under siege.
Google and Apple are going to help the authorities figure out where you’ve been and who you’ve come into contact with for the “greater good” of society.
We used to think of certain aspects of our data, like our health status, as private information. Just wait until you need to get your temperature taken to walk into an office building.
I’m not saying that’s a bad idea—but it’s a very scary slippery slope.
6) Universities are effed.
Scott Galloway wrote the take on this here but sufficed to say that if you’re not a top tier university, your days were probably numbered anyway. Going into a recession, a lot more students are going to reconsider whether mortgaging their life really makes sense economically in a world where online education has become the norm.
7) Working out from home—will be temporary for most people.
Home workouts, this may surprise you, aren’t new. Jane Fonda’s home workout VHS sold 17 million copies in the 1980’s—compare that to less than a million Pelotons currently in circulation. Sure, this quarantine is going to be a huge sales boost to connected fitness products and Peloton seems like the clear winner, but most urban dwellers will find that the gym experience is superior to turning their tiny studio apartment into a home gym. Not only that, but home workouts aren’t particularly social and classes are too much of a water cooler experience to completely go away. The quarantine may get more people working out who didn’t before, but don’t expect the boutique fitness gym trend to end anytime soon. Think of this as just a delayed defeat of New Year’s Resolutions.
8) Peak City.
New York City quickly turned into a ghost town during the quarantine. Those who could escape to family or second homes did—and quickly found that the suburbs weren’t actually that bad of a place to live. With the rising cost of urban housing and the limited space for kids, I think you’re going to see a serious migration of families, especially those with jobs that could work from home at least partially, into the burbs. Part of this will be driven by space issues, but also I think in times of crisis, families come together. Anyone who grew up in the burbs that could work from home is seriously considering going back right now—especially when it comes to issues like childcare and eldercare. With the rising costs of both and the aging of the Boomer population, a lot of people are realizing that life is more manageable when extended families are closer together.
This will also continue the trend of turning purple suburbs blue. As Democratic urban dwellers head home, the shift of the suburbs left because of healthcare and gun control will only continue.
9) The Loosening Grip on Real Estate
Imagine this thought experiment. What if we decided that the Native Americans had it right—and that “ownership” of land didn’t make any sense any more than ownership of air and water. Imagine all of the land was essentially put in a public trust, and if you wanted to use it, you could, but you paid rent into it.
If we were all renters now, essentially renting from each other, we could all put our rent and overall housing costs on hold, instead of worrying about crashing the whole economic system. Pausing evictions are only going to be the tip of the sword in a world where everyone at the same time asks for a break. How long before WeWork tenants unionize, forcing a landlord already teetering on the verge of bankruptcy to come to the table for relief? Tenant associations are going to get a major leg up post-coronavirus and into this recession and landlords will have to contend with a new economic normal.
10) New and improved kids.
Kids kind of like doing the opposite—so when you force them in front of a screen all day for school and tell them they can’t go out and play with their friends, all they’re going to want to do is go outside and play with their friends instead of more screen time.
Even if your kid does have an increase in overall screen time, there are still large swaths of the day that need filling—and kids are going to have to become a bit more creative to entertain themselves. Passive consumption of media is going to get replaced by large scale in person organization and coordination of family TikToks—where the creation is just as fun as the viewing. Kids are getting much closer to their families as their main source of connection and entertainment during this time—and more parents are appreciating what it means to be home for dinner. Some of those meals, in fact, are under kid supervision. I’ve now been on several virtual networking lunches where parents were eating lunches made by their kids who probably learned their way around the kitchen on Youtube or TikTok.
Expect to see a lot of positive trends coming out of this for kids—an appreciation for being outside, more connections to extended family, and increased creativity. Couch fort construction is definitely on the rise.
What are your predictions for #postcoronatrends? Post this article and hashtag on social media with any additions you’d like to share.
Let’s establish two things right off the bat:
One, the Coronavirus Pandemic is a global tragedy that has already cost us far too many lives and create economic devastation.
Two, if you are lucky, you are still being paid to do a job—a job that, for founders, marketers and sales teams, means connecting with customers during a terrible health crisis and a recession.
What’s a company to do with their marketing?
I think you have to make the assumption that, at some point, we get back to a more normal work routine in a matter of months, not years. If you can’t assume that and you don’t work for Zoom, you should be liquidating all your assets, finding a piece of land in the middle of nowhere with an internet connection, and learning how to live off the land.
So what are you supposed to do in the meantime? Does it look tone deaf to be out marketing your business right now?
There’s certainly a right way and a wrong way to do this—and I would say that, actually, companies have three important factors in their favor right now:
1) Many of your customers have more hours in their day now. Business has maybe slowed and they no longer have two hours of commuting. Plus, there are many examples of people actually working more hours because there’s not much else to do. (This is, of course, if you do not have kids to suddenly homeschool—but only 40% of American households have children under 18, and the teens are off somewhere around the house on TikTok anyway.)
2) The dramatic shift in our day to day life has forced everyone into unfamiliar territory. Everyone is looking for answers.
3) Screen time is off the charts right now.
The combination of all of these factors creates an opportunity for companies to provide information and thought leadership during a difficult time—or even simply entertainment. If you can do that, you’re going to generate a lot of goodwill—and leads—that will benefit you as budgets start to open up again and things get back to normal.
If you aren’t selling right now, generating leads and cultivating trust through content, especially video content, is really your only option. Channels meant for conversion, while cheaper right now, might not work for weeks or even a couple of months.
But how do you do that if you weren’t setup for that to start with?
Here are some tips:
1. Start with the customer in mind first—ask what content you would want to consume if you were them. What do they need?
If you’re selling to small businesses, creating channels of content that explain various grant and loan programs would be super helpful—I don’t care if you sell point of sale software for restaurants. You’re now in the financial education business for the next few months. Start bringing that content that provides recommendations on how to do right by your employees and to be honest about difficult communications.
If you’re selling food online, don’t just sell food—teach people how to cook who may have never done it before. Your streams should look like a cooking channel right now—and I’d argue that’s probably what you should have been doing beforehand anyway.
If you’re a Presidential Campaign, make all of your channels a 24/7 science and fact-based news org right now that also salutes heroes and tells the stories of people on the front lines—in direct opposition to the self-aggrandizing cloud of spin we’re seeing from your eventual opponent.
Are you a travel company? Ask your customers to send you videos of their favorite places and some audio for you to string together in a sit back travel show so you can take advantage of the likey post-quarantine spike in trips because people can’t wait to get out of their houses.
Moreover, go meta and create online content that helps your customers create online content! Like you, they’re also struggling with how to sell their customers, so just leveling with them as a peer on what you’ve learned can be super valuable to them.
2. Accept different levels of production quality—sometimes, but not always.
You may not have access to a whole video editing team and you’re undoubtedly going to start off your webinar with “Can everyone hear me?” while your kids go running across the back of the room.
That’s totally fine.
That being said, please stop using Google Hangouts to do anything professional. It doesn’t work nearly as well as Zoom. Pay for a Zoom account. It’s worth it—but also take the time to understand the controls. Learn the difference between a meeting and a webinar, and make sure your settings don’t open yourself up Zoombombing (look it up).
Also, if you’re going to shoot a video remotely for content purposes, you don’t need to get stuck with conference call chat level video quality. You can use tools like Openreel (BBV portfolio co) to remotely operate the other person’s phone and upload HD back to you to take advantage of the HD level camera they paid up for when they got their iPhone in the first place. (Check these examples out.)
3. Be ambitious.
A lot of top people you might not have access to otherwise might have some time on their hands. Recently, I tried to think of the two very best people I could imagine would have great advice for startups facing a potential venture downturn. While a lot of other people have been doing “Ask a VC” sessions about how to dal with this, the reality is that there are only a handful of VCs who were still active during the Dot Com bust and know firsthand what that was like. Asking someone who has five years of experience in venture what companies should do is a bit ridiculous.
I was able to get Brad Feld and Todd Dagres to sit for an interview—two VCs with about twenty five years of experience in venture each. Neither is in NYC and so actually, doing something virtual worked out great—and we had over 330 live viewers for a whole hour, plus at least that many who watched after.
Go out and get the “big ask” for your audience—because they might not have a lot of other things to do with their time. Also, if you’re doing content meant to help your audience through a difficult period, they’re probably glad to do it.
4. Plan for recurrence.
Sometimes, it’s easier to plan to do a dozen of something and commit to it than it is to do one. It changes the level of tolerance you have around perfection, and it commits you to learning and improving as you go along. Instead of just trying one episode of a 90 second stress reduction tips clip for your meditation company, plan for a dozen. Plan daily clips. Maybe it winds up being the 6th one that goes viral for whatever reason.
5. Break the content free.
Every professional in the country right now has Zoom on their computer. You cannot avoid it.
So, if you’re producing content as part of your business that lives in an app, it needs to come out onto Zoom or the web in some way. People aren’t “on the go” the way they normally are with phones—they’re sitting in front of web connected TVs and on couches with laptops. Getting someone to convert to an app is probably even harder now when so much is a click away on their laptop.
So what’s your Zoom content strategy?
Zoom can be a great lead generator. Collect all the e-mails and mobile numbers you can for reminders, follow-ups and invites to future events—even if you have to cludge it all together pretty manually because Zoom isn’t a real marketing platform.
Every single company that needs leads should be offering webinars and other content on Zoom or other web based platforms right now, period. Why? Because it’s something people are used to, it’s on their desktop, and the aspect of making time for something and being allowed to ask questions on the platform creates a higher order of engagement. If I have to download your app to get your content, you’ve failed. Make it easy to get the content, then send me the link to your app.
If your customers need video advice right now, even if you normally sell printers, setting up a daily video production Q&A may make you a #quarantinehero during these difficult times, and I believe that will pay off when people need to go back to the office and buy a printer.
Or, just find the heroes already in your network. Who uses your product? Parents, teachers, doctors, nurses. Tell their stories using remote recording platforms like Openreel.
Just make sure that everything you do starts with the genuine interests and needs of customers. It’s ok and appropriate to acknowledge what’s going on around us, but also don’t make it the central aspect of your marketing pitches. I have a whole inbox full of people who are professional contacts of mine, who are probably on my newsletter and social feeds hoping that my family is ok, yet when my mom died a few months ago, I never heard from any of these people—so, sometimes the family concern repetition kinda rings a bit hollow.
Helping someone tackle their real professional responsibilities and acknowledging that it’s a difficult time to do so will never ring hollow.
I remember looking at other people on the street the day after 9/11. Everyone was just so sad. It was a shared moment in time where nothing needed to be said, and all we could muster was a slight nod to acknowledge that what you were feeling, everyone else was feeling, too.
It felt like things would never be the same.
Yet, it wasn’t very long after before I was on a plane. Sure, I was a bit apprehensive, but slowly it faded away. I don’t know when we stopped thinking that every loud noise was a terrorist bomb, but we did. We said we’d never forget, but, in all honesty, we kind of did.
Absent of the security theater we now have at airports and office buildings, not much about the lives of most people in this country permanently changed. We tragically lost thousands of troops and needlessly spent trillions on endless war, and I’m sure those who were at Ground Zero or who lost colleagues wouldn’t forget, but Joe and Jane America moved on.
The Financial Crisis of 2008 sure seemed bad in the moment as well. People lost homes and businesses—banks blew up—but then we went on an 11-year bull market run that sent unemployment down to historic lows.
There we were at the casino table again after that, pouring billions of dollars into unprofitable startups while cutting taxes when we didn’t need to, for people and companies who didn’t need it, with little regard to the future.
Some sovereign wealth funds lost their shirts and some startup employees had their options fall underwater when the likes of WeWork blew up, but somehow we collectively dodged serious pain again.
I don’t think it’s going to be so easy to move on this time. I think the impact is going to be greater than we imagine—to the point where we will look back at our generation and we will be defined by this moment, much the same way we had a “Depression-Era” generation.
I don’t necessarily mean that this is my prediction as to what the stock market will do or what this might mean for startup returns.
We’ve already been in an economy where the stock market doesn’t reflect how the average person is doing. Similarly, startup returns haven’t necessarily reflected our ability to create meaningful and lasting new businesses either. Investors have been making a bunch of money cashing out of companies that might not have lasted another year even before Coronavirus hit.
I think we’re going to see such far-reaching ripple effects not only in the economy but in our own psychology that we’re going to approach everything differently.
Take Uber, for example—one of the largest wealth creation events of our time. It’s a status symbol and a calling card to say you were an early investor, despite the fact that the company that still loses a ton of money. It was built on a network of drivers woefully unprotected by labor laws, without healthcare, wage production or unemployment benefits—the consequences of which are now painfully all too obvious and should seem a little less like a source of pride.
I don’t think building companies like this are going to be seen the same way going forward. The US taxpayer will have to backstop the company’s lack of basic support for its workers, much the same way it’s been doing for Walmart for years.
Scrutiny is coming in a big way.
As I write this, Congress is working hard to undo the mistakes of the 2008 bailout and the sense that corporations got off easy and the little guy was never made whole. They’re debating restrictions on stock buybacks, direct payouts to individuals—and confronting the hard choices of choosing whether or not we have enough money to bail out both small business and the cruise lines.
If I was in the cruise line industry—I’d be polishing off my resume right now, because I think that ship has sailed.
We aren’t going to be able to fix everything.
Faced with a health threat and choosing between taking sick leave and paying your rent, I think the country is going to take a dramatic turn left—realizing that no one should have to make those decisions.
Some people have been riding high on the horse for too long.
The window on gutting ACA will be closed. Anyone who threatened it will be voted out along with the congresspeople who dumped stock while telling the public the Coronavirus was going to blow over.
The era of the little guy getting the short end of the stick is over.
Because so many people are going to directly feel the pain. Few people are feeling secure in their job right now, and save for a few morons on Florida beaches, most rational people are concerned about their health and the health of their loved ones.
They’re feeling the direct effects of a fragile economic system and an underprepared health system, run by an incompetent administration. I’m not making this political—no objective person could possibly give the White House passing grades on its Coronavirus response. Start from the firing of the National Security team’s epidemic response experts to the continued misinformation that has to be corrected and backtracked after every press conference and I think the story of our national nightmare comes to a close soon.
You have to go back to the Depression and World War II to find a disruption of this magnitude—and that shaped an entire generation.
This will definitely be a generation shaping event—one in which we’re going to undergo a lot of pain and difficulty, but ultimately, for the better.
I don’t see us building new companies that exploit workers in the same way as the past.
I think we’re going to shore up our economic system—making it a safer place to be for individuals and small businesses. Perhaps this comes at the expense of those at the top, but ultimately I think it will be a system that can drive growth from the bottom up through greater access to education and a more competitive playing field.
I think we’ll be more likely to see through hollow promises of demagogue leaders unfit for the moment in the future—because we’re seeing firsthand the destruction that incompetence breeds.
How we run businesses will be different, too. I’ve written before about the profiles of leaders we’ll be looking for. This feels like a turning point moment for the leadership style of female founders who focus as much on making sure things don’t fall apart as they do on how big they can get something to grow. The remote chance that things can fall apart won’t feel so remote.
There are some lessons on how this all plays out that we can learn from the past. I know it’s going to be very difficult for a lot of people who will undoubtedly have to rely on government and other kinds of assistance—just as it was for my great grandfather who lost his grocery store on Monroe Street on the Lower East Side. He never really recovered emotionally from that loss of pride.
A lot of kids are going to grow up sharing rooms and families are going to move in together, just as they did when my grandparents took in other families into their house. I’m not totally sure that’s going to be so bad. I think we’re realizing now as families return home during this crisis that we may have gotten a little too far away from each other.
This is going to be a more difficult economy, but I believe it will be a more collaborative one. We’re going to have to do more with less. We’re going to need the government’s help along the way, and it’s going to need our help in steering it where it can help the most.
Our Green New Deal will come—if for no other reason than doing more with less is going to mean less material, more reusability, and less footprint, for economic reasons and supply chain shortages. Hopefully, we can be a little more innovative with material reuse than my mom cutting up her parent’s basement carpet to cover the holes in her shoes as a kid.
Harder for many, but better for all of us will be the new economy that Il look forward to being a first check investor in.
As a seed stage investor, I know the math. Half the companies I invest in won’t provide a financial return. Another forty percent or so will go sideways a bit, and the last ten percent will drive most of the gains for my investors.
Leveraging up a company with venture dollars in an attempt to grow to a national or world class brand can be a risky proposition. You wind up taking on added complexity, and you’ll be asked to do a bunch of things right that you’ve never done before, all at the same time.
Some losses sting more than others, even if each of them individually don’t represent a significant chunk of a larger portfolio that is doing well. Everyone who follows me knows the love I have for Ample Hills, their product and their wonderful and hardworking amployees.
Five years ago, I met and backed Brian and Jackie from Ample Hills as they were building one of the most beloved young food brands ever seen. Everything was going right for them—they had a burgeoning deal with Disney to not only get a space at Disney World, but also to license Mickey and Marvel for new ice cream flavors. Prime locations were beating down their door for expansion.
They were capacity constrained from a production standpoint, but it seemed like a good problem to have. They decided to raise venture capital money in order to build a factory, open new stores, and take advantage of their newfound fame to go into wholesale.
Along the way, each undertaking proved more complex than expected. Shop openings were delayed for reasons ranging from unexpected asbestos that needed to be removed to delays in the opening of buildings we were located in. We tried selling fun new square pints—memorable and meant for sharing, with two scoops under the lid—but the square pint filling machine never quite worked as intended, despite promises from the manufacturer.
Eventually, we got past these bumps—getting smarter about leases, more streamlined from a labor perspective in our shops, and more focused after spending lots of time on our Disney relationship and other new initiatives, the factory itself turned out to be a lot more overhead than the business was ready to handle. It was too big and too expensive to run given the size of our business and speed of our new shop openings.
The factory was eating cash faster than our customers were eating our ice cream—and they were eating a lot. Some investors bailed at the last minute because (we believe) they had experienced real estate losses elsewhere.
We couldn’t fix the factory situation in time and before we ran out of cash. Part of it was that we had gotten over our skis on valuation, making further investment unattractive to both new and existing investors. Some key existings who didn’t want to see their prior money get lost wouldn’t budge on a dilutive financing, despite the fact that they knew where we were headed. This is what happens when you deal with investors that aren’t professionals.
The answer, unfortunately, was to declare bankruptcy. It was a last resort that means that existing investors will get wiped out and some partners the company owes money to will not get paid, which is a devastating thing for the founders who have always been generous partners to the larger community around them.
That doesn’t mean Ample Hills is going away—we hope. It just means that it has begun the process of looking for a new owner and without the burden of an expensive factory. The business will be much simpler, focused on our strength—the growing revenues and customer loyalty at our shops, which are profitable when you subtract the costly overhead of a big factory.
Over the past year, I watched Brian, Jackie and their team put in the maximum effort through an incredibly difficult situation. One day, there will be a book on everything they went through—but for now, they’re focused on keeping the brand and product, still one of the most beloved in the food world, alive.
They’re in the process of talking to some buyers and open to speaking with others who share their vision of a national brand with local familiarity, friendliness, and a ton of human joy per square foot.
If you are a turnaround, bankruptcy or private equity investor and have questions about the sale process, you can e-mail me at firstname.lastname@example.org.
I hope one day in the future when we get out of our homes to meet you all at a nearby Ample Hills, having put this difficult chapter a long way back in the rear view mirror.
The answer is easier than you thought: Anything you want.
No, seriously—that’s the perk of running your own business. You select your salary.
Now, if you want to have investors and potentially maximize growth for the company, that’s a different story. Investors are going to want their investment dollars to be going towards growth than going directly into your pocket—but what does that mean for how much you can actually pay yourself.
If founder salaries are supposed to be no more than some set number, how does that work if a founder is a single mom with three kids and a mortgage. Clearly, they need more to live on than a 22 year old that is still living at home.
This is a great example of how what you’ve heard out there in the ecosystem probably isn’t true—and it’s most likely based on someone’s idea or company not being interesting enough for investors.
For example, if Katrina Lake, the founder of Stitch Fix, went off to start a new company, pretty much any investor would give her a blank check to do it.
What if she built a cashflow model that said her seed round gave her more than enough capital to blow through what most people would agree were Series A goals—but that included paying herself $250k a year.
Would you walk as an investor? Honestly, you’d be an idiot to—and she wouldn’t have any trouble raising even with this high salary.
Katrina is a rich woman. The idea that somehow squeezing her on salary as an “incentive” would be moronic. Frankly, I don’t really believe in most “skin in the game” arguments. The vast majority of startups are started by people who would have absolutely no problem getting a job elsewhere. Do you think the average straight white male Harvard MBA who can code or whatever is only working hard on this startup because of his equity to salary ratio?
On the other hand, do you think that same number is the primary motivating factor for the black female founder, weather she, too, went to Harvard and can code or not. I tend to think she’s going to have plenty of added motivation regardless of her comp.
What this should really come down to is a financial model. In most angel or seed funded companies, increased founder comp adds risk—because the company really doesn’t have a lot of “extra” capital to go around. The company probably has just enough runway to make it to a potential next round, not leaving a lot of room for any mistakes or mishaps, of which you know there are going to be some.
That’s why most investors balk at high founder salaries—because it feels like until the company starts making some real money or is seriously de-risked in some way, you’re adding additional risk that they don’t need to take. There’s some other deal they could invest in that has a much better chance of hitting its goals.
Now, if you want to make the argument that your company is de-risked because you’re a better founder than that 22 year old, so you should be paid more, I understand, but there are plenty of very smart senior people who have started companies that have failed. Your experience is probably the reason why you’re being backed in the first place—but once you get backed, in my experience, everyone’s pretty much starting out with a similar risk profile.
In other words, starting from scratch is very hard—for everyone.
Still, you’re looking for a number and I haven’t given you one yet. What I can tell you is that most founders in a seed round tend to max out around $120k in NYC. I haven’t seen more than that too often—and if that’s what it was, I wouldn’t ask any questions around why.
If that’s not a number that works for you, I would be more than happy to hear why.
Let’s say your situation of having kids in good private schools, an elderly parent at home and being the sole breadwinner as well as the payer down of medical school debt means your number needs to be $170k, or even $200k. You walk through your numbers and yup, you just happen to have a really high overhead.
Does that mean you can’t be a founder?
It shouldn’t at all—but, what I think investors would want to see is that your plan gives the company more than enough runway to hit its goals.
Few companies really ever failed or succeeded because of an extra $50-100k over the course of a year or two—but if you want to change the perception of the risk vs. return, here are a few things you can do:
Raise a bit more money at a slightly lower valuation. If your 18 month plan calls for raising $1mm, raise $1.5mm at the same valuation. This way, you’re eating the cost of your own additional budget by selling more of the company—and the investor doesn’t have to feel like they’re paying you more directly.
Focus on ideas that have near term revenue opportunities. Once you’re making money, all bets are off. The company has been de-risked significantly versus something that’s just a Powerpoint, and if you’re bringing in cash, you’re burning less. It’s easier to justify a higher salary when you’re making money.
Don’t quit your job until you’ve raised. Sometimes, it’s not about having a high salary, but just having any salary that makes the difference for a founder. I can’t tell you how many times people quit their jobs first and then try to go fundraise, assuming you need to be full time on your company to raise. This is simply not true. You need to be full time on your company after the raise, that’s for sure, but there are plenty of teams that go nights and weekends to make some progress and get a term sheet based on that. I would never fault a team for needing to keep working until they get a paycheck post a raise.
Set milestones. If you’re really confident in yourself, build in a step function of salary increases once you hit certain goals—a product launch, first revenue, etc. This way, you can address the motivation question and no one feels like the company is spending too much relative to the risk left on the table.
At the end of the day—you know the deal. The more money you spend on yourself, the less money you have for other things—and I would only back a founder that I thought understood this and could make wise choices given those constraints. I would only back a founder that was thoughtful about setting budget to begin with.
As a founder, your most valuable asset is your time—and there is probably no group of founders who are more efficient about getting the most out of their time than moms. Moms also have a unique and personal insight into what’s important to other moms when they buy things for their kids. They’re looking for products that save time, provide good value, are good for their kids and have values they believe in.
Fatma Collins and Julie Rogers, former Jet.com colleagues and both new moms, have just announced the launch of Ten Little—a children’s shoe company focused on fit and healthy foot development, as well as convenience. A child’s foot isn’t the same shape as adult feet—they’re a bit boxier—so their shoes need to be shaped differently, not just sized down versions of what their parents are wearing. They also need flexibility, to allow for kids to build balance and dexterity in their feet.
Parents can find their child’s size easily using Ten Little’s free Fit Finder by having their child stand on the insole prints or take a simple quiz on the site which prompts parents to share their child’s foot length or their current shoe brand and size. They also have a predictive data platform that tracks your child’s growth and sends you a reminder when it is time to size up.
In other words, no more dragging kids to a shoe store to find a fit.
This is also a brand that parents can feel good about associating with. Ten Little has partnered with Soles4Souls to put your child’s gently-worn shoes to good use. When you size up with Ten Little, they will automatically include a prepaid shipping label in your reorder so you can donate your child’s outgrown shoes for free.
What struck me most about Fatma during her pitch, which was made possible by an introduction from Anchor founder Michael Mignano, was her confidence in what she was doing. It wasn’t the confidence of a natural-born personality trait—it was the confidence that came from not only her experience as a potential customer, but a career in the e-commerce space.
Founders can be divided into three groups. First, there are smart, capable people—obviously, those are the ones you want to back over everyone you can’t fit into that group.
Within that, however, you can divide all the smart people into those that have done their homework and those who haven’t—and the right homework is where years of personal and professional experience has led to this very idea. The best founders aren’t months in the making—their company’s launch is the end of a years-long journey and the beginning of another. Everything they’ve been doing preps them in a unique way for what they’re about to do.
When they pitch, they’re not asking you whether you think something is a good idea—they’re there to tell you what they’re going to do. That’s what Fatma did. Her pitch mostly involved me listening and not a lot of debate on anything she said—because she knows her stuff.
I’m excited to have backed Fatma and Julie through Brooklyn Bridge Ventures—one of many pre-launch companies I’ve written a check for. They’re the 8th company I’ve backed that is founded by moms, and the 28th company I’ve backed with a female founder.
We’ve all heard the anecdotes—the famous founder who pitched 1000 investors before any of them said yes.
That kind of story drives founders to take a “VC’s don’t know anything” approach to their business and trudge on despite legitimate criticisms of the business, often costing themselves tens of thousands of dollars or more of personal savings.
So how do you know whether or not something is worth working on?
Most founders I know who are in this mode simply haven’t done enough homework and planning on the idea. They’re waiting and hoping something will “pop” without a real sense of what kind of execution would make that happen. They often harken back to apocryphal stories of how some conference drove some consumer app “out of the blue”, without acknowledging the network that was already using that app or how much more connected to influencers that founder was to begin with.
They think that if they just had enough money to market something, it would take off, yet whenever they pitch the app in front of a crowd of 100 people, the conversion and virality rate isn’t proven out at all.
Here’s a checklist that might be helpful in determining whether or not this is something worth working on.
Give yourself a point for every one of these you can say “yes” to:
1) Are you an expert in this space because of your own firsthand knowledge—enough to be asked to speak at a conference on the topic?
2) Are you the same kind of user of this service as the person who would be the buyer of its services, spending actual dollars?
3) Have you pitched a critical mass of investors of the right stage and sector? Is the feedback still inconsistent?
4) Have you given users a real shot at signing up and using the product—and a growing number of them use it and use it more often/consistently month over month?
5) Can you make whatever product fixes you need without raising capital to do so? (Because no one is going to fund a fix.)
6) Have you built yourself a financial model that includes both the profitability of an individual user, including the cost to acquire or sell them, as well as an overall growth number with a marketing budget over the longer term?
7) Does such a model get you to a long term size that makes sense for venture capital investors (north of $100mm in revenues)?
8) Have you made significant changes to the product or business model that improved key metrics over time?
9) Have you spoken directly to customers and gotten specific numbers on how much they would pay for this?
10) Is the service built in such a way that it still provides value for just a handful of users?
How many points mean you should still be working on this?
I don’t know the answer to that—but I know a lot of people have been spending a ton of time on things that I think at best would only net them 2-3 points. That seems way off, especially when they’ve quit their jobs or they’re spending lots of either their own money or friends and family money on this.
One of the reasons we build Feedback.vc is for those founders that are spending real money on their startups—theirs or someone else’s. We put a price on it because we wanted to make sure we were sourcing founders right at the stage where improving the service, the pitch, and the chances of getting funded was a worthwhile investment. It’s not a crowdsourcing tool for feedback on ideas you came up with today—that you can do on Twitter.
It’s a way to get specific and consistent feedback from real investors at that point when you’re ok investing real resources into moving this forward. It’s less than the cost of a flight to an investor and less than the cost of a ticket to most conferences that are promising you connections to investors.
I get that budgets for a startup are tight—but if you’re about to fundraise or currently doing so and you don’t think spending less than $200 to find out what ten real investors are willing to share off the record about your pitch and plan, then I have to wonder what is worth spending money on.
We’re confident that the spend is going to be worthwhile—so if you get your report and you don’t think the feedback was useful, we will give you a full refund.
What do you have to lose?
The chances of the very first startup idea you have being the one is very low—and the best companies often go through several iterations. Learning and getting feedback is an integral part of the process—so if you’re not getting more than a handful of points on this checklist, maybe it’s time to start asking the question as to whether or not this is the idea that gives you the best chance of success.
I see this time and time again—a founder pitches a VC or an angel and they say to come back when there’s more traction. The founder then goes off and raises from friends and family or invests their own savings in the idea in an attempt to come back with a handful of customer or users.
In other words, the people with the least amount of money in this game wind up doubling down on what is probably an unfundable, problematic idea to begin with—because an investor said the only thing missing was traction.
Nearly all of these investors have funded someone they know on a Powerpoint or on a pre-revenue prototype. It’s not because they’re all part of some secret Illuminati group that you’re not in—it’s because they’re convinced that a repeat founder can execute, and they’re not convinced that you can. They might also be convinced of a repeat founder’s ability to identify what a big opportunity is and what isn’t.
At the end of the day, if they had 100% certainty that you could do what you say you were going to do and that the economic opportunity was there, they would jump at the chance to buy stock in your company today on the cheap.
They’ve done it before. Sure, they say they do it by exception, but every single time they fund someone, it’s by exception. Being exceptional is literally the requirement to get funded.
So whenever someone says “too early”, you should respond with the following:
“What is the thing that I have not done yet that you do not believe I can do?”
Unless you get that answer, you wasted the whole meeting. Make them tell you exactly what’s holding them back. People don’t pass because you don’t have customers—they pass because they don’t believe you can get customers, and there’s a reason why they think that.
Too many times, I wind up telling founders that it isn’t, in fact, too early, but that something just doesn’t provide enough value for customers or make enough money from each customer, and that the whole thing is problematic on its face. It’s a bit like telling someone their child is ugly, and maybe the founder won’t want to hear from me again, but at least they got real feedback.
It’s easier to handle if you’re getting that feedback consistently. That’s why we created Feedback.vc. We create a blind panel of 10 investors from venture funds who rate you anonymized pitch across multiple categories, providing you with a detailed report on how fundable and workable your idea is.
This way, you’ll know exactly why you’re being turned down and if it makes sense to double down and come back in a few months.
Every election cycle, you hear the same thing—Republicans are good for the economy and electing a liberal will tank it. This is especially the case this time around as we’re in the middle of the longest running expansion this country has ever seen—and no one wants the other shoe to drop. There’s a lot of fear that making the wrong choice will mess things up.
Not surprisingly, there’s very little evidence that either party has a particularly good or bad effect on the economy—and more evidence, in fact, that the President has very little impact on performance. That doesn’t stop people from taking credit or dishing out blame.
Rather than thing of our economy as a perpetual motion machine that will always just go up and down and that somehow a caretaker President knows exactly the right spot to kick it in order to get it to run correctly, we have to assess the unique challenges each time period presents.
Today, our economic competitiveness in the world is in serious jeopardy—and our ability to turn economic output into the health and wellbeing of our citizens has already slipped. This is of the utmost importance to measure, because, after all, what is the point of making money if you can’t enjoy it?
As I look upon the current state of the economy and the challenges that we face as an investor, it strikes me as being very clear what kind of an economy will work best if I’m seeking investment returns going forward—and that is a more progressive one.
What I mean by that is where new market entrants create healthy competition and push the boundaries of innovation. I mean a world where small business and big business can both thrive while sharing in their success with workers. I’m talking about an economy where the ills of an unjust society—housing, poverty, addiction, gun violence, healthcare, etc. don’t drag behind us like an anchor we forgot to address, costing everyone more and more human and monetary capital until we properly address it.
Here’s what I think a more progressive economy can do to ensure higher growth:
Technology has created an unprecedented lack of competition—especially given our reliance on platforms—and it needs to be opened up in order to kickstart more growth. Forty years ago, access to consumers was much more open than it is today. Advertising mediums were more diverse and there weren’t a limited number of companies that customers had to touch before they could spend. Today, you do more online shopping than ever before—and 50% of that goes to Amazon. You access the internet through, at best, two choices of ISPs at home. When businesses want to reach an online customer most effectively, they basically have Facebook and Google to choose from to spend money on, creating a scenario where these platform companies have all the data necessary to pick and choose category winners. Amazon can use purchase data to create new Whole Foods brands and Amazon labels. Facebook and Google can get into financial services while boxing out advertisers of alternative products. While the right might tell you that government regulation gets in the way of competition, it seems pretty clear that it’s lack of government regulation that is the biggest impediment. Have we forgotten that the only reason Apple even exists today is because Microsoft feared the government’s anti-trust enforcement in operating systems. Microsoft literally floated its nearest competitor, which was on the verge of bankruptcy, in order to avoid additional government scrutiny. How would things have looked today had Apple actually gone under, which Microsoft would have otherwise had no issue with? We would have never gotten the iPhone and mobile technology would probably be at least five years behind where it is today, if not more. No one says you can’t make a lot of money—but when a small number of companies control access to key resources, sit on cash instead of continuing to innovate, and block competition, this isn’t a path to a dynamic economy.
When you look at where the economic opportunities are, you have to look at where the problems are, and we face no greater existential threat to our economy than climate change. The creation of more sustainable goods, services, and transportation, cleaner energy, and environmental remediation technology represent a huge opportunity for the US to be a world leader and a growth opportunity. We’re not going to create lots of jobs building cars, but we might be able to do it building those windmill farms the President likes to make fun of. Only an administration that takes climate science seriously and thinks in terms of New Deal sized economic mobilization will be able to take advantage of this growth opportunity. Rolling back environmental regulations not only causes real economic costs in terms of healthcare and climate change related weather damage but it attempts to turn the clock back on an economy that just isn’t coming back and won’t be relevant in the future.
It is pretty clear that we cannot sustain this level of military spending—especially in a world where the enemies we face are either not even nation-states at all, or they are nuclear powers where we cannot dare entangle ourselves with in conventional military warfare. The war in Iraq has cost this country trillions of dollars that could have otherwise been spent on infrastructure—the way China has. From a purely economic standpoint, investing in diplomacy has a much greater ROI than investment in war—and any general will tell you that. We need to rebuild our State Department so we can redeploy all that capital into education, healthcare and infrastructure, versus things meant to either explode or eventually rust away.
To that end, we need to start taking into consideration wellness and other measures of the economy over and above the stock market as a measure of economic success. The opioid epidemic is literally costing the economy billions, if not trillions of dollars—so when you hear that stricter regulations and accountability stalls the economy, keep in mind what lack of regulations can do as well. This scourge has decimated communities and seriously damaged the labor pool with multi-generational consequences. When so few people even own stock, and so much of it is owned by even fewer, it just isn’t an accurate measure of how the average American or how a majority of Americans is doing. While our economy booms, our life expectancy is declining, lagging that of comparable countries. When two-thirds of the country can’t afford an emergency $500 expense and nowhere in this country can minimum wage cover the cost of a two bedroom house or apartment, it’s hard to say the economy is “working”. Sure, unemployment is low, but actual labor participation (the percent of working age people actually working) is declining. What is the point of making money if you can’t take care of people? Not only that, if more people’s basic needs are met, you’ll see more of a push towards entrepreneurship. No one is going to start a company if they’re tied down by healthcare costs and threatened by poverty—yet we know that all of our growth comes from the creation and success of small businesses. Whether they be local small businesses or venture backed startups, if we do a better job of providing for the basic necessities of healthcare, economic stability, and education, we’ll see more people set out to create new businesses—especially if the competitive landscape is fairer.
Economic mobility is also key to growth. You’re not going to start something new or strive to do anything if you can’t see yourself moving up along with the success of the company you join. We’ve gotten away from sharing the wealth in favor of outsourcing contract labor. There’s no way you can say that our economy is better when a janitor is better off 35 years ago than they are today—but that’s exactly the case when you take into consideration the lack of upward mobility that employee has, as evidenced in this NY Times story. Outsized economic success doesn’t need to come at the expense of wages and benefits.
Looking at progressive policy as being singularly about higher taxation, lower profit, and therefore lower stock market returns isn’t just short-sighted, it’s too narrowly focused. When corporations profit at the expense of workers, those costs show up in other places around the economy. When lobbying buys off our politicians, we’re not actually operating in free market capitalism—we’re operating in a form of socialism in which the government props up the wealthy.
I’m an investor.
I’d like to make a lot of money—and I think I’m only going to be able to do that if we have a forward-thinking economy, an educated and healthy workforce that has enough stability to take entrepreneurial risks, and highly competitive ecosystems.
I don’t see the right providing pathways to any of these outcomes.
Raising a venture capital fund is hard enough. You’re going around to a bunch of people trying to convince them that you have what it takes to pick the big winners in a sea of aspirational companies that are destined for the scrap heap.
Now try doing that as a first time fund manager—without a long track record and lots of exits. Yet, that’s what has to happen if the profile of the check writers is going to be different than it is today. Barely 10% of the investing partners at VC firms are women and the number of investors of color is microscopic.
Since fundraising is often about who you know, and most people tend to be in networks that look like them, this exacerbates the problem of diversity in who winds up getting venture dollars.
One way to change this landscape, instead of waiting for VC jobs to open up is to go out on your own and start a fund to invest in the opportunities you see in your own community. Unfortunately, the way the Limited Partner landscape is setup and the nature of SEC rules, emerging managers are fundraising with their hands tied behind their back.
Most bigger institutions won’t invest in first time funds—and even those that do tend to need to write a minimum size check to make it worthwhile. They also don’t want to be more than 20% of a fund. The reality of fundraising for a new, smaller fund is that you’re mostly going to wealthy individuals to raise.
Here’s where it gets tricky.
You have to be an Accredited Investor to put your money into a VC fund, but the way the system works, there are many accredited investors who wouldn’t be able to meet the minimum investor requirements the system forces VCs into.
The rule on a fund is that unless everyone is a Qualified Purchaser, meaning they all have $5mm in assets, you’re stuck with two different types of limits on how many investors you can have. If your fund is no more than $10 million, then you can have up to 250 (or, 249), but if you get above that, it’s 99.
So, if you want to have a certain sized fund and you’re capped on the number of LPs, simple division gets you at a minimum number each person has to invest to hit your goal.
I guess the idea has always been that for something so risky as VC, you only want “sophisticated investors” involved—with “already rich” being a proxy for sophisticated. God forbid the average person gets a cut of the pre-IPO growth of all of these companies that hit the public market like a falling knife.
The rich people got to invest in Uber for a 5,000x return, but the rest of the public had to wait to get a…
* checks current share price *
…negative twenty-five percent return after it went public.
Point being, you’re off pitching to rich people—and not just rich people—super rich people way over and above the minimum accredited investor numbers.
Well, what do we know about rich people. First off, they tend to be overwhelmingly white and male. We have heard about pay gaps in this country—about the cents on the dollar various groups are making compared to white men, but the wealth gaps are even worse. For every $100 of wealth in a white family, the average black family holds a little more than $5 worth of wealth—and wealth is a better predictor of who can invest in venture capital, a long term asset class in which people are only putting part of their money into because if its high risk.
This is all context around what the investor number caps mean for the kind of money you need to ask people for in order to build a decent venture capital fund.
Let’s say you want to go raise a small seed fund. You’re not even looking to go big. You want to write $100k checks and be done with it. You can’t really lead rounds and you can’t support them over time. Here’s what it looks like in terms of people able to raise from just “normal” wealthy people, assuming they’re not all super-wealthy (Qualified Purchasers).
Ok, so assuming with some recycling, maybe you get to 95% invested across 30 deals, if you maxed out on the number of LPs allowed, each person would only have to do about $4k per year for three years. That’s not too bad and I think someone who is well networked actually has a shot at this.
But, look at how the numbers change as you want to write more meaningful checks.
If you want to lead seed rounds—backing founders from diverse and underrepresented communities, for example—you’re going to need bigger checks, especially if capital willing to co-invest in these communities is sparse.
Look at what happens when you cross over into that $500k initial check size—your fund busts through the $10mm limit for an “angel fund” and now your base of allowable investors shrinks to 99. That means that the minimum investor who fulfills their three year investment period commitment goes from writing a $4k check a year to over $53k, even though the fund is barely 5x the size.
Investing over fifty grand per year in a VC fund is some serious dough. When you separate the universe of potential VCs between those who can source 99 $50k check writers per year and everyone else, the stats on who is connected to wealth within their network is going to dictate that group is a less diverse pool.
Now, look at the numbers if you want to have a more substantive strategy that continues to support these companies over time with follow-on capital.
At 50% reserved, you literally cannot create a VC fund that is in a position to lead using these limits unless you know people who can write checks of $80k per year. Even writing checks of $250k is going to be a struggle, because going from $100k to $250k means you need about 7x the average annual LP check.
Now imagine if the limit was 500 investors. Thanks to fund administration platforms like Carta, the technology is there to easily manage these pools of investors, so that’s not a problem.
You would have this huge network of potential fund supporters and here’s what the stats would look like:
This makes a huge difference. Now, you could be out writing half million dollar checks and reserving half your fund for follow-ons, and each underlying investor is only responsible to fund $16,000 per year. Sure, not everyone has that, but way more people can do that than $80k.
Plus, at this level, you could get those same investors backing multiple funds at a time, which is better for competition among funds, and also broadens the base of who gets experience in VC. They’d also be more likely to keep backing these funds for their Fund II, III, etc., and not stop putting money to work while waiting for those early payouts from the first fund.
It’s also better for the limited partner. No longer do they have to risk huge chunks of capital to get exposure to this risky asset class. More LPs could get involved with less money each—and those investors will also tend to be more diverse.
The vast majority of LPs I’ve had to turn down because they couldn’t meet my minimum check size of $250k were women and people of color. I’ve even stretched to be inclusive of those groups and lowered the minimum for some, and it’s still incredibly difficult. For every “stretch” LP I take below the minimum, I have to find a bigger one to balance them out in the average.
People worry about over-investment in the asset class, but what we’re talking about here is the tiniest part of the asset class. You could create 40 funds of $25 million each and it wouldn’t equate to a quarter of the new money that WeWork got after its disastrous implosion.
What you would get is a whole bunch of new startups blooming, able to hire because they have funding and more chances for larger VCs down the road to have backable companies to take to the next level. Plus, you’d probably get a lot of diversity in the types of companies being backed, the approaches of the founders and the geographies of where they are starting.
Lowering the bar on how much an LP has to lockup in a fund makes raising capital for new and emerging managers easier, provides more accredited investors access to the asset class, and undoubtedly would diversify the pool of people running funds.
There’s one thing that no one can ever take away from Adam Neumann—he was world class at fundraising.
His ability to tell a story and gain investor confidence was unmatched relative to the underlying progress of the company. He exuded confidence told people he was going to change the world.
It’s not actually surprising that investors bought into it, considering that for a long time, VCs have focused on one particular archtype of leader as being more worthy of venture investment than others—the bold, confident visionary who will talk big in the pitch meeting.
As an investor whose portfolio is run by diverse founding teams more than 50% of the time, I’ve noticed a difference in how people relate to talking about the future across various groups.
There are some founders who see predictions about the future as a kind of promise—and so they hesitate and get uncomfortable around the idea of insisting that X, Y, or Z will happen. They tend to pause or give concessions around direct questions.
“So, what will your margins on these new locations be?”
“Well, it depends on the location…and obviously, they need some time to get up to peak efficiency…but we think we can get somewhere between 30-35%”.
That sounds like a less confident answer than just “35%”.
But it isn’t.
It’s a more complete answer in the mind of an operationally focused founder.
If you flip the question around and said, “Do you think you can get 35% margins here?” that same founder will give the most unequivocal, most confident “Yes!” you ever heard. They just don’t like making solitary, definitive statements without making sure you know all the variables and caveats—so you can be as informed as possible and not surprised at all when things don’t go exactly according to plan as typically happens in a startup.
Those founders tend to be terrific to work with on the operational side. As an investor, you tend to fill more informed about the complete picture of the company’s performance—and not like you’re having smoke blown at you.
They don’t fare as well in fundraising, however. Investors might say they lack confidence or it feels like they aren’t really “on top of” their business, when in fact, they know their business extremely well.
In my experience, those founders are disproportionally from underrepresented groups. My theory is that in a world where they experience a lot more scrutiny than the average straight, white male founder, they’re more conscious of what it means to take on investor capital and the expectations around performance that it brings.
I think our view of successful leadership style needs to change just as much as these founders need to be more aware of the fact that we as investors are in this to take the risks, and that no VC is going to go homeless if a deal doesn’t work out.
You don’t need to tell us all the caveats around your prediction of margins, but we shouldn’t fault you if you do. Maybe it’s time we changed our perspective of what a strong leader looks like—that it’s someone who is transparent around the risks and is more conservative about predictions while still striving just as hard to crush expectations.
“Maybe it’s time we changed our perspective of what a strong leader looks like—that it’s someone who is transparent around the risks and is more conservative about predictions while still striving just as hard to crush expectations.” -Post This Quote to Twitter
Does it make sense to write a bigger check to someone who talks a bigger game without being conscious of the execution details they need to get right to back it up—or someone who sweats the details, too?
Obviously, it doesn’t need to be either extreme, but I see too many otherwise terrific operators getting dinged in a fundraising meeting because they didn’t act like the ringmaster at a circus. We should be more ok with people who act in a fundraising meeting like they do at a board meeting—collaborative, flexible, opportunistic, and willing to measure twice before cutting once.
Here’s one way that these types of founders can win more investors over without trying to be someone they’re not: Own it.
Enter a meeting and set the tone by saying something like:
“Just so you understand where we’re coming from and to set a context for our conversation. We’re operators and we’re meticulous about getting all the details right that form a strong foundation for this company. We built a culture based around transparency and thoroughness--so when we talked to our team about what we’re going to accomplish, we don’t blow smoke. So, if you feel like you don’t hear a bold line like “We’re going to put a TV in every household one day” that’s not because we don’t think that’s going to happen—that’s because we know there’s no point to doing that unless the TVs actually work. Don’t mistake that for any lack of enthusiasm about the business or the size of the opportunity. This is a huge market and there’s no reason why this can’t be a public company one day—but we’re here to make sure we’re all on the same page about the plan to get there and to show you that we’re eyes open on the risks and that we can handle them.”
If Adam Neumann had run WeWork like this, he might still be running WeWork.
If you want to know whether or not your pitch resonates with VCs, check out Feedback.vc to get a report on how an anonymous panel of VCs feel about your company. Use the code FOUNDER50 for 50% off and sign up and submit ASAP before the next cohort of reviews fills up.
A lot is made of the best practices around raising capital—but I think a lot of the advice is a bit too clever. First off, most of it is parroted by people who never raised any money.
No one ever says, “My idea wasn’t good enough and that’s why we didn’t raise.” They’ll come up with a lot of reasons why raises didn’t happen, like “The round fell apart because it was too close to the holidays.”“No one ever says, “My idea wasn’t good enough and that’s why we didn’t raise.” They’ll come up with a lot of reasons why raises didn’t happen…” Click to Tweet this quote
VCs want to make money and there’s more money out there than there are good ideas—so I just don’t buy into the idea that there are a bunch of good companies out there whose fundraising purely depends on getting into a VC’s inbox on the right day of the calendar. When a company is beating its plans and a team is super compelling, a VC will go out of their way to fund something no matter what time of year it is.
That being said, VC bandwidth is limited—so if there are times when more people are pitching versus less, or when they are working more or less, that might have an affect. However, if you follow the conventional wisdom, everyone should pitch in January and no one should ever pitch two weeks into December.
But, if you were the one maverick who did pitch two weeks into December, and the VC isn’t off for vacation yet, than wouldn’t your chances be greater?
I think founders should be more concerned with “How can I get on someone’s calendar” than when the deal will actually close. There’s something to be said for trying to get onto the calendar during times when it isn’t likely that anyone else is—like those August and December time periods. A few years ago, I went to SF to connect up with other VCs and went 12 for 12 in getting VC meetings the week before Christmas. No one takes off that week and, not surprisingly, no one pitches.
You should be pitching when you have the best story—when the money and resources you have as taken you as far as you can go while still leaving yourself enough runway to raise. But how do you know when that is?
At Brooklyn Bridge Ventures, we created a kind of focus group for venture, populated with real VCs. It’s called Feedback.vc and it’s a double blind system that looks a bit like a YC application. Ten VCs look at it and give their feedback anonymously, with the results being summarized in a report that looks like this.
If you want to be one of the first to check it out, use the code FOUNDER50 for 50% off the feedback report. This way, no matter when you pitch, you know you’ll be putting your best foot forward.
If there’s any one thing I’ve focused on in my VC career, it’s trying to give real, actionable feedback to founders. I’ve made a bet that if a founder pitches me, whether or not I fund them, if I make the process worthwhile by telling them exactly why I couldn’t get there, they’re likely to recommend that other founders do the same.
The risk is that if I give a definitive “no”, then if they pivot, or figure out something else, or if they get more traction than I expect because I was flat out wrong, then I’ve closed the door on my opportunity to invest.
I’d rather do that and take that risk then give them wishy washy, meaningless feedback that blends in with all the other investors that do the same.
There are other reasons why the process of fundraising doesn’t provide good feedback, leaving founders frustrated and uncertain as to why they’re not getting more investor traction.
As investors, we offer money as our product—and the demand for it is high. Our inboxes are full and it takes a lot of time to try to get back to everyone.
Part of what makes the process take longer is the format—you write a long story in pitch form and we’re supposed to write one back. It would be so much easier if investors could quickly get to what matters, and give them quick directional responses—yes to this market, no to this team, yes to this way of making money.
A no is a no, and since most VCs try to sugar coat things a bit, everyone walks away feeling like they just missed getting a meeting or getting funded. You really have no objective way to determine how close you came.
Not only that, but whatever commentary or criticism we do give might not be commensurate with how good you are. Maybe I mentioned market size, but I could be grasping at straws for a near miss and that’s not actually a really big issue.
I recently got pitched something that I wanted to say, “You’re a terrible person for thinking this is a good idea” but I didn’t want to start a fight with the founder nor have that founder go around badmouthing me in the community because of the feedback. However, that’s what I really think.
If I could have said it anonymously, I probably would have—and honestly, I think that’s what this founder needed to hear.
A VC’s interest in keeping relationships open sometimes flies counter to their desire to give honest feedback.
It’s really hard to keep track of every investor’s response and lay them out side by side to figure out if you’re getting strong signals on particular aspects of the pitch. After dozens VC pitches, most founders don’t get feedback given to them in such a way that makes it easy to create a narrative as to what’s wrong.
About a year ago, Lauren Magnuson and I started looking at how to go about getting founders real feedback. We talked to a bunch of investors about what was important and to a bunch of founders as to what they were trying to get across.
We did this because we believe that if founders are going to invest their personal resources into a project—time, money, reputation—and take that big career risk, it should be easier for every founder to get honest and specific feedback from real venture capital investors.
We created Feedback.vc—a double blind system where a panel of investors review anonymized submissions along a structured format designed to give you feedback specific to crucial aspects of your business--product, market, economics, team, and raise. This way, you can find out what’s actually resonating with potential investors and also what needs work. Not only that, but investors can request to be connected with you directly if they like your anonymized submission.
If you’d like to be part of our first Beta cohort, you can use the code FOUNDER50 for a 50% discount.
Is this pay to pitch?
No. We don’t believe in charging for direct access to VC’s, and that’s not what we offer. What we have heard from founders time and again is that direct meetings with investors don’t always garner honest and consistent reactions. Anyone can pitch whoever they want, but not everyone gets the detailed, specific feedback they're looking for.
Why isn’t this free?
We would love to be able to offer this service at no cost to the community. As a small fund, we’re not able to sustain the costs in time and resources it takes to build and run the platform. We offer discounts to underserved communities, and we will be donating a portion of our proceeds to CodeNation—a nonprofit that equips under-resourced high school students with the skills and experiences that create access to careers in technology.
Who is this for?
This product is aimed at founders who want to set themselves up for a successful fundraise by getting honest feedback from real investors. You get a detailed review on several aspects of your business, so this isn’t for an idea you just had in the shower. And since our investor panels have a limited time capacity, we’ve designed this for companies who are at the stage of investing in the improvement of their business. Our aim is to make your raise more successful in orders of magnitude more than what you invested.