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Charlie O' Donnell
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I send out a monthly mailer of deals that I'm investing in that I'm looking for co-investors for. Because I'm investing so early, a lot of times these companies are not only pre-revenue, but they might also be pre-product. I also invest in a really wide range of opportunities, so many of them don't look like you're typical venture deals.
Tinkergarten is one such company. At the end of 2015, I backed a husband and wife team expecting their third kid to build a network of outdoor kids classes--not an Uber for kids classes, Classpass for kids classes or Airbnb for kids classes. Actual kids classes: finding teachers, vetting them, training them, creating content--all of the unscalable things you'd never want your tech startup doing. They barely had any tech and I think they had maybe three teachers at the time I backed them. I couldn't even get the round closed and had to send a second, slightly desperate note to my co-investor list:
We did eventually get the round closed and today, I'm excited to announce that they've raised a $5.4 million Series A led by Owl Ventures. This year, they'll reach 1000 leaders and they're currently in 48 US states. They have an amazing tech platform managing the whole process, from recruitment to class management to parent communications.
There are a lot of models out there that investors would think is unscalable that I'd say if you actually figured out a way to do economically, just means you've built a better moat. When you actually offer a service or product you built and own your customers directly, loyalty goes up, brand value goes up, and you can be your own platform to launch a lot of different opportunities--if you can do it well.
These days, while you'd maybe rather be Classpass than you're average, run of the mill cycling studio or a faceless big box gym, I'd argue that you'd rather be Soul Cycle than Classpass. Same goes for Shake Shack, Seamless and your average deli. If you're not a special brand, you'd rather be software, and if you're software, you're always fighting to hang on to your network advantage as tech likes to disrupt networks and middlemen.
Excited to see Tinkergarten get recognized as a special brand.
No one likes it. Founders don't start companies so they can spend half their time asking people for money and VCs don't love the dance either.
However, it's a necessary animal, so the least everyone can do is act professionally, and most of all value each other's time. That's what I'm most frustrated by--the lack of respect for other people's time. Too often, both sides walk away from fundraising processes feeling like a lot of it wasn't time efficiently spend--even when it does lead to a round.
So here are a few things both sides should do to make the whole thing go a lot smoother.
- Be upfront about the possibility of you investing now versus whether this is a "get to know you" kind of thing. It's fine if you want to learn about blockchain or you never do pre-product and maybe the founder will oblige your curiosity at some point, but right now, they need cash, so don't waste their time if chances are 0%.
- Don't take multiple meetings and then pass for a reason that you should have passed on at either the e-mail state or after the first meeting. "We just can't get there on a consumer deal" is not a reason for passing after five meetings.
- Be transparent about process and timeline. If you need 8 partners and a Magic 8 Ball all to agree, let them know when you've decided to start serious due diligence.
- Never ever take a meeting with a founder when you're in the middle of fundraising your own and can't write a check within reasonable timelines for this round (usually about 30-60 days for a seed.)--unless you let them know beforehand.
- Make it clear where your money comes from and what control you have over it. Are you a fund? Is it personal money? How did you come into it? Does anyone else need to approve this deal?
- Make references to founders you've backed available upon request.
- Be transparent around where you are in the fundraising process. Does the VC need to call a special partner meeting because you already have three term sheets or is this the beginning? I know you want to move fast, but don't make a VC prioritize your timing when I'm literally the first meeting. I have other founders who literally need to know tomorrow or the round will close.
- If you're going to take a meeting with an investor and you don't think it's a good fit, just say it. Don't make them do any due diligence or make an offer only to not take it.
- If you wind up getting more interest than you anticipated in a seed round, give the investors a fair opportunity to work together. When you send terms around, get a hard number from everyone within a reasonable deadline. I favor the simple math approach. Take the amount you want to take, and divid it by the amounts offered based on everyone's average or requested size. If you're 2x oversubbed, as long as you like everyone, give them a shot to do half their allocation, and distribute evenly what isn't taken. People might gripe or bail, but the absolute worst is when you do a bunch of work, take meetings when you say you're still fundraising, and then get completely shut out of a deal.
- Don't accept introductions to other co-investors investors unless you're willing to take money from the person making the introductions. If someone shows me a deal, and then you cut that person out, that's professionally embarrassing for them and puts me and them in a weird spot. There's just no reason for that if you manage the process right. If you really don't want to work with them, just be upfront about it.
- Take a moment to think about who might expect you to pitch them--former bosses that have been successful, people who funded the last place you worked at. If your experience is due in part to the effort and resources of others, it feels like good practice and courtesy that you at least give them a look--or let them know why you might be going in a different direction.
For both sides:
- Take professional meetings in professional or public settings during business hours--busy hotel lobbies are ok, but ideally, you avoid happy hour time because that's a less professional vibe.
- Alcohol should not be consumed in a professional discussion between two people where money and uneven power dynamics exist.
In reading the NYT piece about the negative experiences of female founders raising, one quote stuck out to me:
"They put up with the comments, Ms. Renock said, because they “couldn’t imagine a world in which that $500,000 wasn’t on the table anymore.”
If you've ever had to fundraise, you can understand this. It's an extremely vulnerable time where you're getting a lot of rejection. When you finally get someone willing to fund what by now seems like a crazy idea, especially after all the criticism you've gotten during the process, you get in a mode of pushing for a close. You're willing to overlook just about anything because you really need this money. Rent is due. Credit cards are maxed. You don't want to lose this fish while it's on the hook.
That's why so many of these founders went down rabbit holes that, in hindsight, maybe they shouldn't have--and where they have gotten some pushback. That's why the agreed to meet at such and such time or place, or ignored the first set of comments.
They felt like this was the *only* opportunity for their company to survive.
The reality, and what it's important to remind founders of, is that there is *always* other money. If one investor seriously wants to put money in, there's nearly zero chance that they're the only high net worth individual or VC on the face of the earth that will get there. You convinced one person, and that means you can convince another.
It's never ever worth having your values take a back seat or not receiving the utmost respect from those who invest in you. Know that you can move on, and there will undoubtedly be a much better partner for you in someone else.
In fact, this is where you can use the ecosystem to your advantage. If you tell community leaders that you got an offer for investment from someone you don't trust or someone that you don't think respects you or your boundaries, so you want to find replacement investors, I guarantee people will be willing to help.
It's one thing to take time to just help someone raising--it's another to help someone who has had a crappy fundraising experience that no one should have to go through. Founders and investors alike will point you in the direction of well-respected and professional investors.
Plus, many of the high net worth angels who mistreat founders aren't serious investors anyway--and there would have always been a strong chance that they would have bailed on you before the finish line.
This is the worst question a VC can ask.
It presupposes that the only good deals are the ones they can't get into--which is an odd way to think about the world. I suppose the only club deal they would want to get into is the one that doesn't want them as a member.
There are lots of examples of huge deals that could have been had by anyone early on--Airbnb, Casper, Uber, etc.
And there are even more examples of oversubscribed companies that flopped.
In the seed round, there seems to be little to no correlation between the "hotness" of a deal and its eventual success--and even less so with the returns. Hot deals get bid up. Prices go up, and returns go down. The more you pay, the less you make. It's simple math.
Yet, so many investors--those who tout their networks and ability to see things early--question how they got to something first, or why it hasn't been scooped up already.
Could you imagine them pitching to their LPs?
"We see the best deals--they're so good, they're already taken and we couldn't get in."
I wonder if this is the same conversation they had with their significant others the first time they met.
"Why are you single?"
Glad they weren't trying to adopt children...
"How come no one wants this baby?"
House hunting must be difficult...
"You mean, the people who lived here before don't want it anymore?"
Happy Fundraising! :)
"In May 1940, Franklin D. Roosevelt called for the production of 185,000 aeroplanes, 120,000 tanks, 55,000 anti-aircraft guns and 18 million tons of merchant shipping in two years. Adolf Hitler was told by his advisors that this was American propaganda; in 1939, annual aircraft production for the US military was less than 3,000 planes. By the end of the war US factories had produced 300,000 planes, and by 1944 had produced two-thirds of the Allied military equipment used in the war."
Never before and not since then had any country mobilized itself, and so dramatically reshaped its economic focus, around a singular focus. The ability of the US economy to churn out the mechanisms of war at such a scale in such short order changed the tide of history.
Today, we face different kinds of threats--and while we hear of stories about bombs and guns--the real wars are being fought with ideology, the environment and technology. Our everyday lives are being threatened by lone wolves influenced by words, hackers who need nothing more than an internet connection and never have to touch a gun, and our own fragile planets inability to recover from what we've done to it over the years..
If someone has an explosive backpack, you can't stop them with a tank.
No bullet in the world can stop a hacker from breaking into our most vulnerable of systems.
And floods? Good luck with your missiles.
These threats are only stopped with raw human intelligence, ingenuity, and yes, the ability to reach across cultures and connect with people as fellow humans not separated by borders.
Smart people are our last line of defense. Kids learning to code or learning Arabic are going to do more good than kids learning how to shoot--and yet, intelligence is under attack in our society. The same politicians who champion strength and defense are making the most destructive cuts to our best weapon against our enemies: education.
At a time when we should be undergoing the most massive mobilization of human intelligence we've ever seen--we've got a government trying to build more bombs and guns at the expense of every other social program to improve ourselves as a nation.
Could you imagine if, at the onset of World War II, Roosevelt called for more shovels and barbed wire to dig trenches? Or bows and arrows?
That's what we're doing if we're not making sure that we win the race to produce the most computer scientists, the most impossible cryptography to break, or the best solutions to combat our changing environment.
Exponentially spending on education should be seen as patriotic in the way that increasing industrial output was in the 1940's. Rosie the Riveter should be Rosie the Programmer. The GI Bill shouldn't just be paying for you to go to college if you sign up to shoot a gun--it should pay for your education if you sign up to protect our cyber infrastructure or learn the language of our enemies so we can gather intelligence.
We need a serious public commitment to getting smart as a country in the same way we committed to being strong over three quarters of a century ago. Instead, we're rehashing Hillary's e-mails, fighting on Twitter, and trying to win meaningless political points instead of solving our biggest issues.
How in the world did we get to the point where being intelligent was partisan?
We're not the smartest country on earth--and we're not the country with the most PhDs, coders, scientists, language experts, etc., and that should put the fear of God into us the same as when we weren't the country with the most nuclear weapons. Whether you're a Republican or Democrat, if you can't see the writing on the wall that this country isn't well prepared at all for the threats of the next 50 years--and that those threats aren't threats of military takeover, then I don't know how to even begin to have this conversation with you.
I didn't grow up in a neighborhood where gunshots were a thing--and I know I am incredibly lucky for that. That's why when I pulled up to the corner of Atlantic and Fourth by the Barclay's Center yesterday at a couple of minutes after 2pm, the sound of gunfire was pretty startling, and it's not something I can easily shake.
Pop! Pop! Pop! Pop-pop-pop! Pop!
I knew what it was right away.
A car or motorcycle backfires once. Construction noises are mechanical and repetitive. Fireworks go off with a kind of chaotic randomness that you only get when timing is dictated by the burning of a fuse.
These pops had intent, and moreover, desperation. You hear it in the cadence. Those three quick squeezes in broad daylight on what is perhaps the busiest intersection in Brooklyn can only come from someone who has long stopped caring about the moments after their actions.
I was glad to be on my bike because I was out of there immediately. Whereas my first instinct in many instances might be to help--I was one of the first on the scene when I paddled out in a kayak to the helicopter and plane crash over the Hudson quite a few summers ago now--guns change the game. Guns are to be run from--unless you're in unfortunate enough proximity to be closer to grabbing it than you are to getting away.
I got away and called 911, and flagged down some MTA police on Hansen Place as well.
This post isn't intended to say we need gun control.
It's to say that if you have any logical thoughts in your head, a desperate person with a gun presents a relatively simple choice for society:
If you don't believe that babies are born pure evil out of the womb, then you have to concede that either the problem is the gun or the desperate person. This is a person consumed with so much fear, hate, frustration, etc., that they believe that ultimately, the risk of throwing their whole life away is worth pulling the trigger. If you pull a trigger, chances are you're going to get caught or killed.
So if you don't mind the guns, then what are you doing to address the person?
At one point, this person went down a path that conceivably could have been avoided with some help. We know that--and we know the root causes. Maybe they had an unaddressed mental illness. Maybe they grew up in a family decimated by unfair criminal justice policies and lacking in positive role models. Maybe they lacked economic opportunity, and turned to crime out of financial desperation--that they saw that the upside of theft or drugs calculated out to be higher than a life on welfare or in homelessness.
Sure, not everyone who deals with this winds up in a life of crime. That doesn't make the people who do purely to blame. Not everyone who eats spoiled food gets sick--but you don't blame the sick people for not having iron stomachs, you blame the restaurant. You don't just enact policies to penalize restaurants either--you give them little hand washing signs for the bathroom, you inspect food along the supply chain. You figure out the root causes and work on preventing them no matter how far up they go.
We know, factually, that all of these things contribute to crime--so if you want to prevent this from happening again and again, and you're not going to blame the gun, then you've got to enact policies that have way more empathy for people than the system currently does.
You have to decide, as a society, that we're not going to let anyone get to the point where they think the solution to any issue they have is to start shooting in broad daylight in a busy intersection. You'll decide that you'll teach kids anger management, communication, and give them skills that make them productive in society, not forgotten by it. You're going to fix the issues that create havoc and desperation in people's lives--like getting bankrupted by a health issue or having an unstable housing issue. You'll treat addiction for what it is--a disease--rather than a crime.
That's what I can't reconcile about most of the gun rights defenders. Their policies seem to align with not providing any services or social safety nets to people. It's like, "We know your world sucks and is full of pitfalls that other people don't run into, but still, we're not only not going to do anything to help you, but we're not going to do much to curtail the guns that exacerbate these issues."
At this point, it doesn't seem worth arguing about whether guns should be a meaningful part of people's lives--but I hope we can all agree that desperation should not be. Throwing people in jail and losing the key doesn't solve for the desperation component, but we know what does.
So if you don't have a policy of gun control, I look forward to hearing about your support to increase funding for education, housing, physical and mental healthcare, and worker protections.
One aspect of venture capital that rarely gets talked about is competition to get into a deal.
What happens when a founder has that rare wealth of riches when they're choosing who they're going to allow onto their cap table? The tables turn and the one being pitched to becomes the one pitching.
The moment when you find out that you're not guaranteed a slot is my least favorite as a VC. I've seen different investors react to it differently. Some are really competitive. They want to "win" a deal--by beating out others.
Personally, I don't like being left out of the chance to work with really great people on big problems worth solving. I love this job so much and like seeing other people succeed that I have serious FOMO not to hear those stories firsthand and be able to make those hiring intros, pitch a reporter, or ask the right question at the right time in a board meeting. When it all works out, it's amazing--and when it doesn't, it's really tough, but challenging in the best of ways.
At the end of the day, however, a VC's money is just as green as the next one--which is where your reputation comes in. There's nothing I can say or do at the moment of offering to invest that is more convincing than the sum total of what not only the fifty plus founders I've worked with beforehand have to say about me, but the countless others I've run into as an investor. I take 150+ pitch meetings a year, and probably do a speaking thing every other week if not more.
That's why it blows my mind when VCs are standoffish or disrespectful, or even worse, dishonest. The reputation you create off of each 1:1 interaction with a founder is like a rainy day fund. Every time you truly help someone, even if you don't back them, is a small deposit. It's a founder being willing to say something nice about their dealings with you or to recommend you to a friend.
Helping every founder is an impossibility. Sometimes, you just can't stick around one more minute at an event. You've got friends or family waiting--and sometimes, you just need to put the e-mail down. You can't get to that one founder that keeps pushing themselves back up to the top of your inbox, because you have four term sheets out and you're trying to help someone close a round, and someone else hire a COO. You can't get to everyone, but you can respect everyone you did get to--and act like you know that as hard as you're working, they're working even harder.
Every time you slip an obnoxious term into a cap table, or take six positive meetings before ultimately passing for a reason that should have come out in meaning one, you're debiting your rep. That's going to come back. Maybe someone might actually ding you, but you're not going to have a founder go out of their way to recommend you either.
Founders are making incredibly important decisions when they decide what investors to take. They're literally stuck with this group for the duration of their company--and there is going to be no one they'll trust more for a recommendation than another founder.
So, as you're building your career, treat every founder as if they're going to talk to that one founder whose company is 3x oversubscribed--the one you think could make your career if only you got a shot to participate.
For the last couple of months, I've been recording interviews with founders and recruiting professionals for the Startup Recruiting Podcast. Despite my best efforts to make it tactical--full of hacks, tips, tricks, etc., the common themes that keep coming up are much more about meaning, mission and values. At first, I'll admit it felt a little fluffy, but more and more I realize that without answering questions about the "why" of what it's like to work for your company, you're never going to be able to write that pitch e-mail, LinkedIn message, or have anything convincing to say in an interview.
Here's what every founder should put in some time to not only have an answer, but to make sure that answer is backed up by actions, incentives, and real effort at your company:
1) What's the reputation for greatness that will attach itself to your employees long after they leave?
Will your company be known for being a great place to learn to sell? To scale lots of data? To build brand? To push the envelope around computer vision like at Clarifai? What kind of a challenge will a VC know that they can back a former employee of yours to tackle?
2) Why are employees at your company great teammates to each other?
If 1+1 is going to equal something more than 2, your team will have to be better together than as individual contributors--so while you might think the most important question is how they're going to do that, you'll realize that if you can handle the "why", they'll figure out the how. Check out the x.ai employee pledge for a great framework on this.
3) What is it that you sell?
You don't sell a product. You sell something else. Is it time? Is it piece of mind? Is it a lifestyle? Reliability? Clarity around what your customer cares about and why they buy your product usually means your employees are focused on what matters most--and helps you figure out which potential new hires are best suited to deliver.
4) Why would an employee recruit their friend?
You know why you started the company--but that doesn't mean it's the same reason why a front end developer would tell their friend the growth marketer to join. Thinking about the incentives for your individual contributors to recruit others keeps you focused on the day to day of each employee up and down the org chart. Can you create an environment as clearly articulated as Do Something? Is it because you're hiring people others would like to work with like at Zola?
5) What will this company look like in five years?
It's highly unlikely that you'll survive five years if you can't imagine it--and a strong founder vision not only provides direction around day to day tasks, but also inspires people. It's really easy to get stuck on the metrics you need to get to the next round and to forget to play the long game of people development and skating to where the puck is going.
Bonus: What are others likely to hear about your organization?
Your recruiting brand is different than the brand around your product--and should be attended to just as intentionally. Etsy spent a lot of effort making sure the Etsy culture permeated outside its walls. What are you doing to spread your company's culture?
I don't know whether or not Donald Trump colluded with the Russians around the election--or whether any of his associates did either.
I certainly don't think much of him--and it certainly doesn't seem beyond him, but obviously I don't have all the materials and information I need.
But what I do know is that anyone who is sure of their innocence wouldn't fire the very person investigating them IN THE MIDDLE OF THE INVESTIGATION. Can anyone logically imagine an innocent person thinking, "I know I didn't do anything, but instead of waiting until I'm cleared, I'm going to get rid of the main person I need to vouch for my innocence and that of my staff."
It's completely unconscionable--and any other politician who doesn't denounce it isn't representing their constituency well. It wreaks of the kind of abuse of power that ultimately sent Nixon packing--and the fact that Trump and his staff either don't see that or don't care is deeply deeply troubling.
There have been many days this year where I sit here and say, "Should I be doing my job or raising hell today?"
Today, it is clear what we all should be doing. This is a fork in the road we cannot afford to go down.
I can't tell you how many pitches I've taken where a founder told me they needed revenues, or a fully functioning product to raise capital--and they were told that by X number of investors, so they took it as gospel.
Plenty of companies have raised money pre-revenue and pre-product, so why the discrepancy?
What you're most likely hearing from an investor who says this is that what it takes to raise from *them* and they're not speaking for the whole market. I always qualify these kinds of statements by saying, "I can't speak for other investors" when I suggest how likely someone is to raise in their current state.
When you sit down with an investor, just like when you sit down with a customer, you need to qualify them--to ask whether or not they have invested in a startup at this stage. This way, if they've done pre-revenue or 10k MRR a month or pre-FDA approval before, you know that if you get turned down, it's not because it was too early for them.
Otherwise, you really don't know if they're suggesting the bar is higher then where you are because they just don't take risk at this stage.
Some of my best investments, like Canary, Orchard and goTenna, were pre-product, but not every VC wants to take that type of risk. Make sure you know you're pitching to the right stage VC when you go out.
It's hard to answer that question, because even if you look at fundraising data, you don't always know a) when the round was actually closed vs. just announced or filed and b) you don't know when fundraising actually started. Maybe it was wrapped up in a week or maybe it took six months.
That being said, I was super curious what my own track record had to say about it. As it turns out, from 2010-2016 inclusive, 75% of my deals are done in the second half of the year.
What's the reason for that?
I have a few theories.
First, you probably don't want to have the holidays cut into your fundraising process--so most people time their raise to wrap up before the end of the year. There's a noticeable push to start raising in September to wrap things up right away. That would explain why you don't see much in January and February--because those deals were done in the 4th quarter.
What it doesn't explain is the slow second quarter. What's going on in April or May?
Well, perhaps a lot of people start new companies after the holidays--maybe after they wrap up a previous job. If that's the case, and if it takes a few months to fundraise, then you probably wouldn't see much in April. That would mean that you start fundraising almost as soon as you leave your last job--which is probably rare. You probably want to put a few months into testing the idea, recruiting an early team, etc.
This points to the idea that deals are happening because of the founder's time table--not the VC's. That I largely agree with. In fact, I think the perception of the VC timetable is largely overblown. Supposedly, all VCs go on vacation in August, but I've done as many deals in August as March, April, and May combined. A few years ago, when I was at First Round Capital, we had our largest month of the year in August. Obviously, those weren't new pitches, but it shows we were still working.
Similarly, I've found it super easy to get meetings with VCs before the holidays. While you might not get your deal closed right then and there, they're still in the office, and their calendar is probably more open than you think.
Rather than try to game the system too much for your seed round, it's best to get to know investors as early as possible, and raise whenever you need to raise.
I know a guy.
In fact, I know a lot of guys. That’s good because guys are all anyone is looking for these days—or even speaking to.
"Tech guys" in general.
Guys who might want to fund our round.
How tired are women of being either excluded in the language of who people are looking for, or being lumped in with men and being described as "Guys"?
It’s bothering me, too, actually. And it’s not just guys that do it.
Women do it all the time, which kind of blows my mind.
How hard is it to refer to people like this?
People use “guys” as a catch all term for addressing and referring to a group of people—and it’s just wrong. I know it doesn’t seem so bad, but it’s just a lazy habit that makes me think people are being lazy about lots of other language things—the way job posts are written, the way HR manuals are still unwritten, what profiles of people are recruited, etc.
Do you think Uber set out from the beginning to be an environment unfriendly to women?
I don’t—but unintentional and lazy lapses breed a kind of broken windows environment that just compounds on itself. Boundary lines get pushed everyday, millimeters at a time, until all of the sudden you’re actually surprised to find out you have a toxic culture.
Be intentional about your language and your culture. How you speak, and what you say, signals all sorts of things about you.
People ask why I don’t have much of a Brooklyn accent—and the answer was that I spent a lot of time to think about how I wanted to sound and what I wanted to say. If I can avoid sounding like someone who might shake your bakery down for money, then anyone can speak like they care about how women get addressed.
It's really easy to be dismissive these days--because people talk a lot of shit.
There's probably no more dismissive group than founders--because you have to dismiss a lot of doubt and negativity on your way to success. However, a lot of founders have a tendency to be overly dismissive--to tell themselves a narrative and stick to that, no matter what anyone else, even if the criticism is warranted.
Sometimes, it isn't based on a lot of information--like when someone says you should be worried about a competitive product and a founder really hasn't even looked at it yet. Other times, the criticism comes from someone who doesn't know the founder that well, so the excuse is, "Well, they don't really know me."
Over the last couple of years, I've started practicing a very different response to criticism. I generally assume it's all true.
That makes me more open to it, and frankly, pretty vulnerable to letting some difficult to hear things sink in.
Then, I try to prove to myself that it isn't true--which I can do pretty easily most of the time thankfully. Going through that exercise keeps my actions well examined--and holds me more accountable.
So, if someone says I'm selfish, I look for ways in which I'm not to disprove that I am to myself. Sometimes, you wind up in a situation where you might not feel a certain way, but you don't have a lot of evidence to the contrary. Maybe I don't think I'm selfish, but I really haven't been doing much for other people lately or taking their feelings into consideration--so I've been inadvertently selfish even when I don't intend to be.
It's not the easiest exercise in the world, but I can't recommend it enough.
Just had a few conversations with startups around how early to hire for marketing. For most founders, it seems silly to hire for marketing when you don't have a product in market to sell.
So, when are you supposed to start marketing? The day it launches? Seems a little late for that. You'd like to have developed an audience to be able to launch your product to--because as any PR person will tell you, relying 100% on other people's audiences can be a tough sell.
So now imagine developing an audience before you launch. Would you do this with an incessant stream of marketing and company e-mails for a year?
That would be like the worst Kickstarter pre-sale ever.
"Hey, we're still working on it."
"Yup, still working."
"Oh, sorry... We're kind of delayed."
"Look, here's a picture of Bob in the warehouse with some parts that don't look like the thing you ordered yet."
"Want to buy another one before you even have the first one you ordered?"
No, you wouldn't build up much of an audience this way. So how do you build up audience? You do it by gathering people around something they care about--by providing a network value, connection, and engagement around the thing they care about.
Sounds a lot like "community," doesn't it?
Communities should be built around values, not around products, so you don't need to wait until you have a product to launch a community.
Let's imagine you're building a de-stressing wearable. You put this band around your wrist, and you automatically feel completely zen. The only issue is that the product isn't going to be ready for a year.
That's actually an exciting opportunity because you have a year to develop a really thriving community around reducing stress.
- Writing a book on the topic, perhaps a curated set of essays on de-stressing from the world's most zen executives, celebs and processionals.
- Setting up a series of local meetups across the top 25 MSAs dedicated to reducing stress.
- Creating a great de-stressing tips e-mail newsletter.
- Starting a de-stressing podcast.
- Launching the StressTech conference.
- Creating a "Humans of NY" style Instagram featuring tips from regular people about how they deal with stress.
- Offering online and offline courses related to fighting stress--maybe even a certification around stress coaching.
If you did all of these things, is there any doubt that you'd have somewhere on the order of 25,000-50,000 e-mail addresses of people who care about fighting stress in their lives or workplaces or whatever? How amazing would your wearable launch go if you could market it to this cultivated community?
Not only would it be amazing, but how much would it be worth to you in actual dollars? Could you double your launch targets with a community like this? How much more would you sell in a pre-sale?
The point is, before you wonder who is going to do all of the above, if you do the math on how much better your launch outcome would be, is it even a question whether or not a hire to do this would make for a great investment? The dollars in salary of a person on staff to build this community *well* ahead of a launch could easily be made back based on your new increased launch trajectory. In fact, I'd argue that the earlier you hire this person, which means more dollars spend, the increase in the chance of your success.
The key to hiring this person would be making sure they are extremely organized and process oriented. It would be easy to think of them as "creative" and while they would definitely need to be a clear communicator, they're not really creating any *new* ideas. The themes and values they'd be working around should be carefully fostered by the founders--and ideas of what's possible are already out there. The key to a good content and community person is the crispness of the execution, making sure you've got lots of moving pieces working in order and on time, and organizing things like examples of voice, tone, and things to keep in mind about stakeholders into editorial and community processes and rules.
Plus, this community strategy wouldn't just end at launch--it's something you'd probably want to do anyway, and the earlier you start it will just compound your returns more and more over time.
VCs lie. Everyone knows that or at least suspects it.
What you don't know is whether they're lying to you or to themselves. I can't tell you how many times I've heard an entrepreneur make a generalization about VCs based on a few meetings that was completely wrong--and they were usually basing their statement off what the VC told them.
Often, it's that the company didn't have enough traction, which could mean either one of two things:
1) The VC just didn't like the idea or the founder, but didn't want to just come out and say it, so they raised the bar to a level the founder wasn't capable of hitting anytime soon--which is lying to the founder.
2) Or, they just don't really take this kind of early stage risk, but they call themselves opportunistic, which is mostly lying to themselves, and kind of lying to the founder, too.
Logic would dictate that you either don't invest at this stage, or you don't like the company, or you don't like the founder. One of those things has to be true when you pass.
When you aren't honest about why you passed, word gets out into the market on whatever you made it, and it grows like the worst kind of fake news:
VCs don't invest in food (Blue Apron).
VCs don't invest in brick and mortar (WeWork).
VCs don't invest in women (Rent the Runway, Zola, Houzz, Modumetal)
VCs don't invest in education (General Assembly)
VCs don't invest in... Yeah, you get it. Just about everything I've heard VCs don't do, I can think of an exception--and that's the key. VCs invest in exceptions. Given that we'll see thousands of opportunities for every one we invest in, it is the exception that we ever invest in anything.
Most of the time, we say no.
Our default is "no", but the process dictates that we're supposed to come up with a reason everytime we do. Sometimes, that reason is just, "It didn't get me to a yes," and they can't figure out why it didn't, so they make something up.
On top of these falsehoods about VCs that get out into the market, you've got entrepreneur cognitive dissonance. You go into a meeting thinking you've got something good, and when an investor tells you no, your inclination is to be dismissive of the investor. They didn't understand because X. They were stupid. They don't understand your market. They're not risk takers.
Very rarely do I ever see a founder attempt to raise money and say, "Hey, you know, this idea wasn't nearly as good as I thought it was, and the fundraising process helped show me that."
Even fewer times do I hear, "The fundraising process helped me understand that I'm not really prepared to run this business."
Being anti-founder is pretty taboo, so the community is always going to point figures at investors before they'd ever suggest to a founder that maybe they're not cut out for this.
It's only after absolute failure, burned friends and family money, burned savings, and probably a year or two, do founders ever really admit these kinds of things.
I should know. That's what I did. I blamed investors for my own shortcomings as a founder. So, yeah, add a third lie to that list.
So, whatever you heard, you probably heard it wrong--because usually VCs are lying to themselves, lying to you, or you're lying to yourself.
Getting the truth in venture capital is really, really hard, so just be careful when you're spreading fake VC news.
There are a lot of relationships that would be a little weird if they hadn't become commonplace--the kind of thing where someone raised by wolves might not adjust to so easily. A waiter requests money from you at the end of a meal, a doctor looks into your open mouth, and demanding strangers get into your car if it's yellow and has a number on the roof.
One relationship that isn't so commonplace is having a venture capital investor--especially for the first time. There are a lot of things that a VC does that might feel intrusive--asking to be on your board, going through your financials... I mean, didn't they say yes to your pitch? Why are they doing due diligence all over again--every month??
Of course, as investors, we know why we do these things--but do we ever take the time to explain it to our founders?
Perhaps regular meetings would be less adversarial if you said that you wanted certain information on a monthly basis so you could understand what was going on with the business and how it works, and without that, you wouldn't be in much position to help. Being there to learn should be a lot less threatening than being there for oversight.
Or what if you just opened by saying, "There's just A LOT of stuff to have to worry about as a founder--and no one can reasonably expect you to see behind every corner. While your business is different, I'd like to bring what I've seen other companies experience at different points into the conversation, so that we can get ahead of them or connect you to the people who have experienced these issues before."
That's a little useful than, "Show me your financials," regardless of what the docs said you have to do.
Perhaps it might be worth asking a founder what they want the investor around for. What do they see as the investor's job description? It would be pretty hard not to establish trust if the investor just does what the founder laid out for them to do--as long as they're on the same page about what that should be.
"Why" helps build trust and it can go as deep as you want. Why are you a VC? Why do you bother being an active investor when you could just write the check and coast? So much of the success of a founder relationship stems from the basics of personal connection, yet we spend a lot more time focused on the business than on the two or three people that are signing up to spend a fair amount of time together and share responsibilities to each other.
Perhaps the due diligence process needs a human update.
I asked a founder the other day the following question:
Can you describe a candidate that would be a fantastic hire somewhere else that would never thrive in your organization?
If you can't answer that, it's going to be really difficult to find the people that *will* thrive in your company. Not every candidate is a great hire for every company. Obviously, you want to hire above a certain level of competency and work ethic--but if you're going to find people who really thrive, you need to understand the unique place your company is to work at, and who succeeds there.
Moreover, you need to define it from day one, and it needs to be pervasive throughout all the decisions your company makes, especially the hiring ones.
What do you value in people and how will the presence of those people affect your culture?
Which of these values are unique to your company?
What processes, incentives and language will you use to help shape the environment they work in?
Which of these are unique to your company?
Ideally, a company should be able to announce to the world, "This is what we value in people and this is how we work" and it should attract the right people and dissuade the wrong ones.
Most seed funded companies either never get around to these definitions, or create ones that could apply anywhere, valuing "hard work" or "diversity" without really ever stating in specific terms what that means.
A company's culture and values should turn away super qualified applicants that would succeed elsewhere, but clearly wouldn't be a fit for this specific environment. Otherwise, prepare to cycle through a lot of people without a clear idea of why they didn't work out or perform up to and beyond expectations.
Just realizing that I forgot to list one risk factor in my Fund II PPM--the possibility that the US turns into a fascist dictatorship. That probably won't have a positive effect on venture capital returns.
I mean, think about it--how well do you think those late 1930's German venture capital vintages did? How about Venezuela funds from 1998?
So, if you're annoyed or distracted by all your favorite tech and startup people talking about Trump--you should probably get used to it because this administration has become a real problem for our industry. It's no longer just a political issue when you're operating in an environment where the government is threatening the otherwise very stable national platform by which you've built your business on. Investors are willing to take early stage risk because they don't have other risks like nationalization of industries, martial law, dissolution of human rights, etc. It's easy to take that for granted, but that's why places like Russia have trouble getting their startup community off the ground. What investor wants to take that extra layer of government risk?
Does it get to the point where a VC has to say, "Well, I'd love to back you, but you're Muslim and the chance that you'll be deported is a founder risk I can't take."
That's the path we're headed down now if we don't stop it. Never in my lifetime have I ever seen a US government enact a law that favored one religion over another. That's a line I never thought I would see crossed--and we're barely a week into the administration.
This should be everyone's problem just because of human decency, but if that doesn't get you, now we've got a serious business risk on our hands, too. Don't think that a war with China won't put a damper on your quarterly earnings or the pre-money of your next round either.
Oh, and don't forget paying 20% more for all the goods and services not made here. Get ready to have to start paying your software engineers even more so they can afford to live.
Even if these terrible things don't come to pass, you're going to have a serious talent crisis unless your company starts speaking up. Startup workers tend to be younger, more educated, live in cities--meaning that whether you agree with them or not, these aren't the kinds of policies they can get behind. They want to live in a tolerant, global world free of discrimination--and they care a lot about the missions of the companies they get involved with, both as employees and as consumers.
So while you might be worried about pissing off half your red state customers if you sign an anti-Muslim ban petition, you might lose half your dev team if you don't, and then where are you? What are you doing as a company to show that you have core values these days? What does it say to your employees that are immigrants or children of immigrants if you stay silent?
No matter who you voted for, these issues are now on your doorstep, begging for action, because they touch all of us.
I just spent a weekend at a professional development retreat for venture investors. It wasn't about how to be better price negotiators or about tactics for getting dealflow.
It was about investors trying to be better people.
On that journey, there was honesty, and with honesty came pain, and eventually, acceptance. People cried. They asked for help and depended on each other for strength.
I contrast that with our first taste of leadership from Donald Trump--sending his Press Secretary out to try and convince the public that the inauguration was better attended than it was.
His dishonesty wasn't just with us, it was with himself. His insecurity was so powerful that it was painful to watch. I found myself shifting from anger to pity--pity that he has to live with himself, alone in a shell of lies that he not only tells others, but himself. Watching him lie is like watching someone stab themselves over and over again.
That gut wrenching feeling isn't being inflicted on me by him--it is my empathy feeling what it must be like to be him. I can only withstand a fraction of the pain his insides must endure.
Donald Trump isn't the strong leader he aspires to be--he is the weakest form of leader, because he clings to outdated masculine ideals out of place and out of touch with the modern world.
We know now that he is not alone. His pain resonates in great numbers.
So many men who grew up being told that their worth was in their ability to provide, to be strong, to not cry in the face of pain, and to be protectors, find themselves hopelessly, and dangerously, lost.
They voted for Trump in the hope that they could turn back the clock--that emotionless physical strength, the kind that proves itself by being unyielding, by eliminating opponents in a zero sum game, could still win. If they could reestablish a real *man* at the top, they might be able to turn the world back to a place that made sense to them--and to put a lid on their innermost feelings of pain and fear threatening to escape.
Hillary Clinton wasn't a threat because she was a women--she was a threat because she was feminine. She endured pain and embraced it. She turned the other cheek to a cheating husband and forgave. Both women and men held her association with Bill against her--as if those trying moments in life ever have clear and perfect answers.
She might have won more votes had she taken Bill out back and shot him.
She listened first--asking others for help before forming her opinions. She reconsidered her stances when new information emerged.
Leaders don't change their mind or reconsider--not if they want to be strong.
This is not what men do.
So many men had a similarly hard time with Obama--and why they elected Trump in response. He was comfortable enough with his own sense of self to display emotion--a taboo in a world where people of color who share their feelings are derided as "angry black people". Many felt that Obama was weak, because he cried over gun violence--our symbol of American strength.
A sensitive, weeping black man that cried about guns and tried to make peace with Iran versus wiping them off the map was a threat to so many layers of monolithic American masculinity standards that one could lose count.
This is not what men do.
"What men do" is what Trump does--deny, lie, fight, bully, shout, all while dating supermodels and showing off their wealth--their hollow, empty, meaningless wealth that never seems to be enough.
Watching Trump as President is like watching a movie caricature brought back from the past struggling to come to grips with the fact that the world has changed--a caveman, a knight, a cowboy. His friends are dead and he doesn't understand this new and confusing place. He acts out, making a mess and embarrassing himself in the process, and he is shunned. There has been no greater shunning of a candidate in modern history and he knows it--which is why he is so preoccupied with remind us that, the way the game is set up, he won.
Undoubtedly, it's how so many men feel today in a world unfamiliar to them.
Trump and his fury doesn't belong any more than these masculine ideals. Our world has complex social problems that require unity and compassion, not the biggest bomb or the most tanks. He is no more the answer than a bottle or a gun, but there is no denying that both provide comfort and the power to escape, even if it doesn't last.
Trump will not save these pained men. How can he face these difficult challenges if he isn't strong enough to cry? Our issues around violence, poverty, and disease fail to upset only those who cannot understand them.
Could you even imagine such a thing--the man who can't be around crying babies or who accused news anchors of crying on election night, as if there was something wrong with that?
How many times do you think he was yelled at, or beaten for crying as a child? He was schooled in a military academy known for its abusive environment.
How many of his supporters who accuse liberals of crying experienced the same kind of threats and experience of violent punishment?
Unfortunately, women will not save us from these men. They cannot, on their own. They do not hold nearly enough positions of power. They are hamstrung by a system rigged against them, intentionally.
But the feminine--the feminine will save us all.
Our only way forward is with empathy, collaboration, and long-term thinking. We need the strength to admit and undo our wrongs, to accept help, and to engage in dialogue with and find common ground with those who oppose us--to co-exist versus dominate. We need these "feminine" traits to emerge and be embraced in all of us, particularly our men.
We need to teach our children to embrace that which we do not understand as a lifelong study, not with gut reactions. We need to set that example for them.
We need to care for the weak and the oppressed. Their struggles are our own failures--because we are in this together. They are not to be blamed and forgotten about.
We need to embrace change--because things change, and we must change with them.
We need to admit that tears are the appropriate response to tragedy. They are a sign of human capable of the fullest extent of emotion, which is the only kind of human with enough resolve and strength to find solutions.
Anyone else will crumble into the dust from which they came, becoming a relic of an idealized but problematic past.
** Thank you to Jerry Colonna for inspiring the title of this post and for helping me create the space, both physical and emotional, to explore these emotions.
Most companies don't get to do more than a handful of hires during their seed round--so the idea of a "recruiting process" might seem a little bit heavy handed. However, these early employees will not only have a lasting impact on the DNA of the company, but hopefully they'll be some of the most important hires you'll ever make. (If they turn out not to be, you probably hired poorly.)
Startups that don't create a process tend to fall into the following traps:
1) They never identify values and therefore fail to use them in the screening process. Are there things that you want every last employee to care about? Did you ever bother writing them down, telling interested hires about them, or using them as any kind of meaningful filter? There's a saying that goes "If you don't stand for something, you'll fall for anything." As keepers of the brand, what your employees believe in will ultimately be reflected in how people think about your company as these values make their way into your products and marketing.
2) They hire a guy they know. Most venture backed startups are started by men, and one's network tends to look a lot like them--so when guys start companies (and often when women do, too, especially on the tech side), they tend to make the first few hires from their network. Every single time you add someone who looks like the person hired before, the chances that the next person will look and think differently decreases. How excited will a female engineer or a marketing professional of color be to be the first non-white male hired when the team is already ten or fifteen people? If you don't go out of your way to not only create an outbound recruiting process, but track its metrics, you'll be fishing in only half the lake, or less.
3) They run out of leads. You might know a lot of very talented people, but once you put them through your hiring funnel, you probably don't know as many as you think. Some just took a new job and others aren't quite the right fit. Even if you do know a lot, if your company is successful, you'll need to know a lot plus more tomorrow, and even more the day after that. Maybe you can hire your first five employees from your network, and maybe even ten or twenty, but then what. What happens when you start making ten new hires per month? When do you think that lead generation process should start? Answer: As early as possible. Not only are you going to need to sift through great numbers of people if you're ever going to build a company of any kind of size--but to make sure you get the *best* people, you'll want as many people in the top of the funnel as possible. Just like in sales, if you don't put in lead generation tools for talent as early as possible, and start tracking it, that well is going to run dry very quickly.
4) They underhire. Startups don't have much money in their seed round, and so they tend to be very cost conscious around salaries--even though they say that talent is the most important thing in their company. They'll even tell themselves a narrative that unless you're willing to accept below market wages, then you're not the right fit for a startup. First off, how many founders are taking below market wages? If you're 25 and you're making 80k, plus, you own 75% of the company, that's a pretty sweet package compared to your peers who teach kindergarten or work in book publishing. Maybe you should raise a little more money, take a little more dilution, and get out there with fair offers to the people you've identified as the people most able to make your disproportionate ownership of the company worth millions (especially since their share isn't likely to be worth millions). The area I see the worst underhiring is in marketing--where the first hire has likely not done more than pitch for PR or worked a few years at an agency. They've never built a brand or thought strategically about what a marketing team should look like or that it's their job to generate enough customers to build one.
5) They hire for the wrong set of needs. I encourage all startups to build out at least two or three years of an org chart, identifying which hires should come in when. What I should also encourage is for someone to line that hiring plan up against a product plan and a sales plan. When seemingly great hires churn out quickly at companies, the complaint I most often hear is that "They didn't need me" or "I could have helped them earlier, but now it's too little too late." Identifying what you need when is one of the biggest startup challenges, which is why founders should spend a lot of time networking with other founders who have built similar products. That's how you learn when a COO should come in, or that you need a release engineer when you're managing a suite of apps, or when a second PM can be helpful.