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Charlie O' Donnell
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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.
VCs promise a lot of things.
We've got all these platforms, advisors, special partners, communities, networks...
...special economic bells and whistles, spaces, programs, partnerships, etc...
Meanwhile, they most useful thing we can give you when you're first starting out seems to be the hardest to get:
VCs see a lot of deals. We see successful companies and others that fall on their face--so getting our actual opinions about something, pass or fund, can be really useful. If nothing else, we're seeing what's out there now and so we can give you a sense of how it compares to what we're currently seeing.
In January of 2010, just a few months after I joined First Round Capital, I got to back my friend Rob May and his company, Backupify. Five years later, he sold that company to Datto, and I got to back him again to build Talla.
Backupify would be the first of what is now a 50 deal track record across my time at both First Round Capital and my own firm, Brooklyn Bridge Ventures. Yesterday, I closed on this "golden" opportunity and so I thought I'd reflect a bit on how the 50 looked as a group.
Well, most of them are still alive, so that's cool. Some of those acquisitions were awesome, like GroupMe, Singleplatform and Backupify were wins. Others, not so much.
More than half the time, these companies have gotten follow-on capital--and another third haven't needed to raise yet. Only a small handful have crashed and burned on just one round of funding.
A lot of the deals are in the "Business pay us directly" space, but most of them are not.
Not a lot of geographic diversity, but I can bike to nearly all of these places, so that's good.
At least 44% of the companies I've invested in have had at least one female, person of color or LGBTQ founder.
Most often, I'm investing in pre-seed rounds, especially since I won't invest when the company has already raised $750k in a prior round.
Most of the time, I'm investing in teams with ideas, not quite products.
Like most VC's I'm mostly investing in software and internet technologies, but about 22% of the time, I've invested in companies that make physical things--from food to physical spaces to consumer electronics.
Mixing up these different categories has not only provided great return opportunities, but it's also a really interesting experience for me. I'm looking forward to the next 50!
Over the last couple of weeks, I've been to a couple of tech events that were sparsely populated by straight white men.
Yeah, can you believe it?
One was a careers panel aimed at women in tech held at Flatiron School and the other was Alterconf. The goal of Alterconf is to provide safe opportunities and spaces for marginalized people in tech and those who support them by highlighting positive initiatives of local community members.
I think there might have been more trans and gender fluid people in the room at Alterconf than there were straight white men. That's not something one experiences in tech that often.
At each event, I felt my behavior change.
Normally, when you're a VC, lots of people are coming up to you, asking your opinion on things--you cannot help but feel a sense of belonging in the room. You're supposed to be there and there's an unmistakeable power dynamic in the room. It's all too easy to get a sense of self-importance and to feel like you have a disproportionate influence on the room.
I didn't feel that way at either event. I didn't feel like I belonged--despite the best efforts of both events to make everyone feel welcome. It wasn't anything that anyone else did. It was all in my head. By being consciously different than others, I felt like maybe I shouldn't be there. Unlike other startup events, the dynamic wasn't set up for me.
It's undoubtedly a lot closer to how a big chunk of the population feels than I'm normally accustomed to feeling like.
Would I say or do the wrong thing?
VC's don't usually worry about saying the wrong things--maybe that's why we disproportionately seem to have built a reputation for saying the wrong things.
Nor do we ever feel like we don't have anything to add to a conversation.
In all honestly, that was a pretty good thing. Feeling uncomfortable because you're in unfamiliar surroundings is a great learning experience. It makes you hyper aware of everyone around you. You can't generalize people so easily and you don't have easy language and anecdotes to fall back on. You have to treat everyone as an individual, listen, and be really thoughtful about what you share and how you share it.
Just yesterday, I was speaking to a founder who told me that if they raised a seed round, they'd hire "another guy or two on the tech team."
"Engineers, not guys."
"They might not be guys...the best people for the job."
"Oh, yeah, sorry."
"Don't apologize to me. Just be conscious of it."
I probably would have let that go had I not been to these events and I'm glad I went. I'll never know exactly what it's like to be a marginalized person--but situations like this help make life more relatable to a wider group of people.
Plus, from a pure business perspective, if you're not going to stray outside the communities that hold the most power and influence, you're going to miss out on opportunities and talent from at least half the community, if not more.
The future will look less and less like me than ever before.
There's less competition in these spaces and where there is great talent, it's my job as a "first check" investor and part time recruiter for my portfolio to be where other investors might not be.
One of my favorite phrases is "performing inception". Inception is one of my favorite movies and I love the idea of meticulously planning out the placement of an idea in someone else's head.
That's basically what founders have to do when they fundraise, because you'll never be more successful with an investor who thought it was their brilliant idea to invest in your company, not yours.
Remember what we learned from the movie. Ideas that stick well in other people's heads have to be simple, and they're better when based on positive emotions.
Who invests is also important--these are people who want to make money, but also be seen investing in the "hot" companies. Sometimes, just proving out a business model isn't enough.
Are you creating a company that looks like something they'd be excited to share?
So what ideas are you trying to place in your next round investor's heads? And how do you do it?
It has to be simple.
If an investor had to believe one simple thing about the world that would eventually lead them to investing in your company, what would it be?
That very idea should be at the heart of all of your PR.
Is it that there is a lot of money to be made in your sector?
Is it that your team is the best out there?
Is it that your business model rises above everything else or is really innovative?
Maybe you're the next obvious iteration of a model that works?
Customers need your product to live happy lives--perhaps that's it.
How many times can you repeat that, and where, and who can you get to repeat it for you? What relationships does this VC have that can help reinforce the message? Content you create, interviews, podcasts, speaking engagements, survey data you research and disseminate, events, engagement over social media... VCs need to see your message time and time again.
Founders should also be spending time in networks of other venture-backed founders--not only to learn, but to have their message and reputation echo back to other VCs.
"Have you met so-and-so? They're really impressive."
Simplicity, consistency, repetition and pervasiveness. That's how to get an idea to stick in a VC's head.
Honestly, it's difficult to think about anything else besides the election and this impending clown show of an administration these days--but I'd really like to get back to blogging about startups.
Consider this post part of my own transition team of posts.
While the country is far from a startup, founders find themselves as essentially newly hired CEOs with a lot of uncertainty surrounding them. This is the position Donald Trump finds himself in now, and by watching what he's up to, we can learn a lot of lessons around how to handle it (or how not to, mostly.)
1) Get to work.
Watching a President-Elect comment on every single SNL skit is like watching a founder who won't stop adding on to their fundraising around. Fundraising feels good when it works out, especially towards the end when there are always a few more angels who want to squeeze into an oversubscribed round. You need to come off of riding that high and put your head down and out of the spotlight for a while after that, and do some real work once you've got your fundraising win.
2) Hire people who create confidence, not the people you already happen to know.
Hiring should be a process--from Day One. If you don't create a process that seeks out the best people from wherever they are today, how are you ever going to do it two years from now, four years from now, etc. Eventually, you run out of people you know well--and frankly, most of these people aren't the best people for the job anyway. Once again, this isn't exactly what's going on in the Trump administration and anyone who has built teams knows it's going to hurt his chances for success later on.
3) Stay positive.
Your competition is going to launch just before you or there's going to be some press saying how the funding cycle is done for your industry. Maybe you'll get a bad review or two for your beta release. These are all people you will need to convince and get the support of in the future, so while discrediting them might feel good in the short term, it doesn't help you win in the future. Instead, why not listen to their criticisms fairly and double down in your efforts to win their support with action and results later?
4) Being a CEO isn't that glamorous.
A lot of people start companies because they want to be their own boss or be in a fast paced environment, but most days, you won't feel like either of these things are true. You're always lacking for resources or time, and you're not moving nearly as fast as you want. The best companies build for the long term, and the job of the CEO is to create processes that effectively take the founder out of way. So, if you're a developer, marketer or salesperson, you're going to have to reckon with the fact that you're now a manager. Instead of building, you're taking meeting after meeting after meeting, and you won't be able to have your hands in everything.
This is the job you asked for--so don't kid yourself what it's going to be like once you get into it. Success can be a curse if you're not realistic about what it's like--it seems from the sobered expression Trump seems to carry around all the time, actually being President isn't nearly going to be as fun for him as running for the job.
5) Don't surround yourself with "Yes" people.
It's easy to live in your own little filter bubble, especially as a founder, or, apparently, as a President-Elect. You can forget that there are lots of people who didn't think your ideas were very good--and those are the people who can make you a better founder, and who can make your company better. It's easy to satisfy a small, vocal minority that feels like "everyone" until you need to build things that really scale. Make sure you listen to a few skeptics along the way and really hear out what they have to say.
In 2008, I tried to fundraise for my startup the week that Lehman Brothers went under.
You can imagine how well that worked out.
Basically, VCs told us that they were going to wait and see how the election turned out--and things didn't really thaw out until the following September.
Extreme uncertainty slows the VC market to a crawl--that's what I learned. We didn't get a bubble, but we got a really tough year fundingwise and that's what I'm expecting. Over the long term, innovation prevailed and 2008 turned out to be a great year to have a 1-3 year old company if you could make it through the next year.
Here's what I would suggest:
1) Reassure your teams about your mission. If you felt good about what you were doing at your company yesterday, you should feel good about it today. Listen to them. Let them ask questions and listen to them. Talk out their concerns. That's most important above all.
2) Find a way to extend your runway--whether it's pausing hiring for a little bit, and yes, thinking about salaries. I don't think there's any worse morale killer than a salary cut, but if you're worried about your company going out of business, some hard decisions may need to happen. Feel free to reach out to me and your other investors and talk about this. This also means taking on extra capital. If you're concerned at all about the fundraising cycle, reach out to anyone who has been floating around the company. Preemptively tell them that you're concerned about the near term uncertainty but you believe in your business and believe you'll have opportunities to make hires, double down on sales, etc., so if they want to talk about coming in at a reasonable valuation, you want to fill them in on all the positives.
3) Find something positive to do as a company--like volunteering. Clear your heads, feel good about helping--because if there's anything we learned last night is that a lot of people feel disadvantaged and we need to start caring about a much wider tent of people than we have been.
I'm available if you need to chat.
Text me and I'll ring you back...
Yesterday, I got caught up in letting my frustration over the election boil over onto Twitter, and it's definitely not the first time.
It made me ask the following question:
Were we better off in 2016 having Facebook and Twitter around?
I talked about it with a few people. One brought up #blacklivesmatter and while I hope some important issues were highlighted, I really don't see these platforms bringing about positive change in the real world. I retweeted and liked things I cared about, but I can't say they led me to take much in the way of real action.
There's a narrative around these platforms that all connection is good--a pride they seem to take in things like #Arabspring, as if revolutions never happened before social media. They seem blind to what's going on in the everyday experience.
We didn't used to be this dumb.
I'm annoyed that these platforms with so much human potential are designed not to make us more educated, more aware, or more empathetic, but to keep us clicking--to suck us in no better than when the nightly news warns of what will kill us, just later in the program.
Someone mentioned the other day that news used to be a loss-leader for media companies, so they never tried to make it into entertainment. They did the news out of a sense of responsibility. As the media business model got more competitive, and the "Big Three" networks felt competition, the function of news changed.
Perhaps Facebook needs to start thinking of news the way monopolistic media giants used to think about it--one of the few ways they didn't make much money. With great power comes great responsibility, no?
I'm not saying Facebook needs to take a view--but it can have a mission to improve the level of dialogue.
Technology has the capability to verify claims and to inform us of skewed perspectives. It can encourage more out of us. After all, who posts an Instagram without working on it for a few minutes first?
What if social media stopped you before you reposted something dubious or inflammatory--even if just for a moment, to remind you of what you were doing.
What if there was a cost to hate?
When I drive around in a Car2Go rental, it reminds me whether I'm driving smoothly and in an eco-friendly manner or whether I'm treating this Smart car like my Mustang. If I'm not, it threatens to suspend my account.
What if I was only allotted a few hate points a month?
The smartest designers in the world could help us be our best selves--and for sure, we need to be better than we are.
Sometimes we're great and sometimes we're not--but I fear that 2016 has brought out the worst in too many of us. If we are to accomplish anything, we need to live on the other end of this spectrum.
Perhaps the greatest thing the Chan-Zuckerberg Initiative can work on is Facebook itself, before it tears ourselves apart.
Other people can raise money for cancer and poverty, but unlocking mass human potential through discourse is a unique opportunity for social media problems to take more seriously.
I wish them all the best at it, starting the day after tomorrow. Our only hope is that tomorrow marks the end of a very bad time for social platforms.
Classpass is nothing short of phenomenon--and it's particularly noticeable to me because I passed on its seed round.
In my defense, I passed when it was Classtivity, a completely different model focused searching for classes. Obviously, the pivot worked out for them.
Still, it's a bit frustrating to see them end their "Unlimited" option to the chagrin of many of their users--just a few months after raising their prices.
The types of businesses I like investing in are ones whose economics *get better* at scale, not worse. Remember how much AOL sucked at peak times back in the day? How much does your local gym suck when everyone else is there?
You should be building something where the more people that use and absolutely love the product, the better your economics get--and the better the offering becomes. This may even sacrifice top line in the short term, but I think these companies will build better, more sustainable businesses.
Now if we can only get all the VCs to think this way.
Here are a bunch of examples of Brooklyn Bridge Ventures companies getting better at scale:
Canary's explosive growth has enabled it to process more video every second than Youtube, learning patterns in order to make its alert algorithms better. The more people who buy and use it, the smarter it gets. Check out its new indoor/outdoor product Flex.
Tinybop's revenues have enabled it to build more and more apps--meaning that when you discover them, there are so many more titles to choose from for your kids. Now, you can buy their apps in bundles at better pricing than just one at a time.
Ringly has expanded its product line to include a bracelet and more and more apps for notifications everyday, enabling lots more use cases.
goTenna's new Mesh product enables off-grid communications in a network that improves as more people have it. Whether the power is out or you're in a remote place, the more users it has, the better it keeps you connected.
Orchard Platform gathers lots of data about the P2P market over time, because they've been integrating with more and more lenders. In turn, they've created more product offerings and enable institutions to get better insight into their investments in this asset class.
Logcheck turns maintenance rounds into actionable data. The more items you track with it and the more buildings you get on the platform, the more insight you can get into your real estate portfolio's health and upkeep.
Plum Print digitizes kids art and turns it into keepsakes and gifts. The more you scan, the less macaroni necklaces and hand turkeys you have cluttering up your house, and the more memorable the coffee table books become as they track your child's creative progression through the years.
The more your product and engineering team uses Clubhouse as its product management software, the more organized and efficient your company gets. Over time, Clubhouse will use that data to make predictions about estimations, deadlines, and bottlenecks that will enable better team planning.
You can't go anywhere in Manhattan these days without seeing Homer Logistics riders in their neon shirts and black box backpacks. The more businesses they sign up, the more efficient their network gets, cutting delivery times, improving service levels, and most important for me as an investor, improving their bottom line. Instead of hemorrhaging more cash at scale like many other last mile delivery businesses, Homer's economics have only improved with its growth. That also means better economics for riders, too--because they make more tips as the network delivers more per rider per hour.
Tinkergarten is now available across 13 states with over 200 leaders for their classes. The more classes there are, the closer you are to a terrific educational and fun experience for your kids. Scale also makes it easier for leaders to fill classes as the brand gets out there more and there are more parents providing great recommendations to friends.
The Wing is only in one location right now, with a *huge* backlog of membership applications. When they open up more locations, the experience of being in this place-based network of inspiring women will only get better and better. Members will cross pollinate across locations and find whatever location is most convenient to them throughout their day.
Agrilyst helps controlled environment (indoor) farms track their data and improve yields. More users and more data makes the platform smarter for each customer.
Bizly is the easiest way to book a conference room in a nearby hotel. The more hotels sign on in more cities, the better the experience is for every user.
Ample Hills is building an ice cream factory. At scale, they'll have better economics and will be able to roll out to more locations and never ever run out of your favorite flavors.
Something interesting happened when Hungryroot got more popular and started to scale. They got more data about what customers liked and didn't like very quickly, enabling them to change recipes and offerings, and expand to categories like breakfast, snacks, and sweets. Cart sizes grew as the variability and selection offering got better over time--and now most of their customers love it so much, they're on subscription.
The lesson here? Build your companies from day assuming wild success as your plan--and don't let usage get in the way of improvement and customer satisfaction.
I can't think of a single time when a white man came to pitch me and I told him his fundraising plans weren't aggressive enough.
Yet this is a message I'm giving to women and people of color all the time.
It's not that this latter group isn't aggressive enough--after all, they're ditching everything else they could to to start companies.
Something else is at play.
Yesterday, I met with a founder with an interesting model who was raising $400k to bring the finishing touches to her product to make it customer-ready. There was no reason to think that her technical team couldn't accomplish this--and, in fact, customers had already been using various hacked together versions of it previously. Yet, for some reason, the goals for her pitch were incremental--despite being in an extremely hot space. I couldn't figure out why she wasn't raising $2 million.
Today, same thing--same rinky dink $300k type pitch--to take a company with a handful of paying customers and get, wait for it, some more paying customers.
These aren't gamechanging leaps of value creation. This is nickle and diming it.
So why are so many diverse entrepreneurs shortchanging themselves?
This is a complex issue and I think there are probably a few different overlapping issues at work here. Pulling them apart and shedding light on them is an extremely delicate operation for a white male investor, and probably not a good idea, but I'm going to go ahead with it anyway.
First off, the vast majority of venture dollars goes to white men. That is a fact.
That does not mean, however, that anyone else outside that category is unable to raise. In fact, the only founder I've ever seen completely run the table for a multi-million dollar seed round based off of a Powerpoint is Chantel Waterbury of chloe + isabel. Seriously, not a single investor turned her down.
Right this very minute, I'm also working hard to secure my spot in an oversubscribed round for a pre-product company led by a female entrepreneur, while simultaneously wrapping up a seed round in a founder of color who didn't have a problem raising at all.
This blog post is not about debating if "enough" diverse founders get funding--whatever that might mean . What is factual is that they do not raise as often as white men--and that undoubtedly sends a signal to diverse founders that it is going to be harder for them, regardless of whether that is true.
And what happens when any founder thinks that fundraising is going to be unnecessarily tough? They ask for *less* money, which might actually exacerbate the problem.
If I told you I had the best idea since sliced bread, and I was raising $10k, you would assume a few things. Maybe the product needs to be tested? Maybe I'm not sure if it really is that good, so I don't want to commit the next two years of my career to it? Maybe we're not sure if customers would pay for it. Either way, you're signalling to others that whatever you've got, it doesn't measure up to the other stuff that's in market.
And the other stuff in the market? It's mostly crap, to be honest. So, when you say you're just raising a tiny amount, most investors are assuming it's not as polished, tested, or certain as the thing that knucklehead just e-mailed me asking for $2 million. The assumption being that you wouldn't ask for that much unless you really knew you had something.
You know what? It's not a terribly bad assumption either. There's so much transparency in the market around fundraising and entrepreneurs are so connected to each other, that it seems unlikely someone wouldn't get the encouragement to go after a $1mm or more round without having something real.
When Chantel asked investors for $3mm for her seed round back in 2010, people stood up and took notice.
Advisors are hurting these companies as well, too--undoubtedly feeding into their own implicit biases. I can't tell you how many times even insiders--people already invested in some of these companies--are telling diverse founders to go for incremental fundraises and not for bigger rounds. It's probably because the founders aren't blowing the same kind of smoke as their other founders are.
Language around confidence dictates a lot about what other people will tell you your next steps should be.
The other thing that happens to diverse founders is that they wind up talking to a lot of less experienced or later stage investors who seem to specialize in diversity from the outside--many of whom may not take the same amounts of risk as others.
So if you're a super early stage with just a prototype, you might not think that a VC fund is the right fit for you--so you wind up at an angel group.
The founder I just spoke to pitched Golden Seeds, for example, a group of experienced professionals that specializes in female founders. From their website, you can find the following phrase:
"Almost all of the companies in which we invest meet these criteria:
Product is in beta (versus alpha) stage of development and has been created with input from clients or potential clients"
They're literally telling you that most of the deals they fund have revenue--because someone isn't your client until they pay you something.
Here's what the Brooklyn Bridge Ventures site says:
"Brooklyn Bridge Ventures manages $23 million across two funds, leading or co-leading investments of around $350,000 in New York City companies that have yet to raise $750,000 in prior rounds... Conversations often start pre-product and pre-deck. "
So, while BBV is a *VC fund*, there's very little question that I'm backing founders earlier than an angel group like Golden Seeds, regardless of who the founder is. VCs don't go later and angels don't go earlier. It's not that straightforward.
When you walk away from an angel group who tells you to come back when you have customers, you're either going to feel one of two things.
1) Either no one ever fundraises before X stage of revenue or traction...
or 2) The deck is stacked against me.
White men never feel the latter, because the deck is rarely if ever stacked against us. So, while 98% of entrepreneurs never get funded, white guys generally feel like the problem is with the investor, and female founders or founders of color feel like the problem is with them. They feel like either their company wasn't good enough, not further enough along, or that, unfortunately, people like them just don't get funded.
Statistically, most white men don't get funded either, but that doesn't hold them back from trying with ever bolder asks and assumptions. Anecdotally, there's a very strong correlation with the size of the plan and the vision and the interest of investors--so if you think it's not going to work out for you, paring back your ask is counterintuitively going to sink your raise altogether.
The last issue at work is the biggest lie in the fundraising world--the relationship. Everyone says they fund people in their network. They ask for warm intros and create this impression that unless you, too, went to Harvard for your MBA, you're not going to get funded.
Sure, people fund their Harvard buddies. It happens.
But, if you actually drill down to how people knew their early backers, the connections were much looser than you think. Sometimes, all it takes is to grab coffee with an advisor you've been following on Twitter to get that much needed first intro. The founder of color than I'm backing now cold e-mailed both me and Joanne Wilson.
The community is so connected now, that you'd be surprised how tenuous the connections are that people fundraise off of. Met someone at a conference once two years ago? Ask them for an intro to a VC. Go ahead. They'll do it and the VC will probably accept it.
At least, that's what a white guy would do.
Venture investing is hard. You're going off of very little in the way of predictive data--so if you're not telling a big story, it's hard for us to imagine one if we don't hear it from you first.
We're out looking for exceptional companies that can achieve *outsized* returns. If you don't own that in your ask and your plans, you're going to get crushed in the fundraising process.
I'm here to make money. You think you have a big idea. So just say it, own it, and be proud of it--and don't be afraid to make an ask that you know you can handle. If you know exactly what you'd do with a million dollars and you're confident in your ability to put that to work responsibly then don't ask for half that.
And no, that doesn't mean pitch like a man. It means pitch for what you need and understand that an investor is there to hear about what's possible, not what's probable.
Because, we all know this company is probably going out of business--but that shouldn't be in your pitch.
I have no doubt that bias plays a significant role in any kind of business transaction, fundraising included--but the overriding issue I see, particularly around diverse founders, is investors' bias away from small, incremental asks, not away from women or minorities specifically.
Don't ask anyone to fund you just to get off the ground. Tell them they're crazy for not funding you to go to Mars.