The 7 Cardinal Sins of Startup Founders

Cardinal Sin #1: Delusions of Grandeur

The worst kind of founder is one who thinks they are the second coming of Christ. NO, your company isn’t going to be worth billions. NO, your idea won’t change the world and feed the poor or stop climate change or bring peace to the Middle East or save the fucking whales. NO, your idea isn’t the next “Uber” or “Airbnb” of this or that.

In reality, your idea has as much merit as a Justin Bieber love potion or a testicle scratcher.

Just remember: you and your startup are not hot shit until it’s actually hot shit.

What you should do instead:

Leave your ego at the door and be prepared because I have a ridiculously oversized revolver that I am ready to use. And if you send me a bad pitch, you better hope I use it on myself first before I

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The 7 Cardinal Sins of Startup Founders

Cardinal Sin #1: Delusions of Grandeur

The worst kind of founder is one who thinks they are the second coming of Christ. NO, your company isn’t going to be worth billions. NO, your idea won’t change the world and feed the poor or stop climate change or bring peace to the Middle East or save the fucking whales. NO, your idea isn’t the next “Uber” or “Airbnb” of this or that.

In reality, your idea has as much merit as a Justin Bieber love potion or a testicle scratcher.

Just remember: you and your startup are not hot shit until it’s actually hot shit.

What you should do instead:

Leave your ego at the door and be prepared because I have a ridiculously oversized revolver that I am ready to use. And if you send me a bad pitch, you better hope I use it on myself first before I can use it on you. And if you somehow managed to dupe another VC to invest in you, remind me to shoot them instead.

Cardinal Sin #2: Being A Phony

I hate suck ups. I always get ambiguous emails from people who read my articles and it somehow magically changed their life enough to “reach out” to me. But it always turns out to be a bunch of BS because what they really want is my money. I can’t stand it when people beat around the bush about wanting funding because unclear intentions are a waste of my time.

There are dozens of articles that tell entrepreneurs to commiserate or praise in order to build rapport with VC’s, but that’s just awful advice because I already know all the tricks in the book. This isn’t a god damn high school romance where you are being shy and stuffing love notes in your crush’s locker.

What you should do instead:

Just stop being such a sycophant and grow some balls. Tell me about your startup and that you need funding. Just be straight with me and I will do the same.

Cardinal Sin #3: Not Paying Attention

If you look at my contact page, I have 3 simple steps that I require all founders sending me pitches to follow. There’s a problem though: out of the hundreds of email pitches I get every week, I have yet to receive one from someone who followed every single instruction.

You ask for a short pitch but get the National fucking Archive instead.

News flash: adding more words to your email won’t make you or your startup sound any better and it sure as hell won’t help convince me to give you my money.

If anything, I am deeply insulted every time this happens.

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Should VC’s Start Crowdshaming Shitty Startups?

Like most VC’s, I get carpet bombed with pitches almost non-stop. They can range from the benign and harmless pitches all the way to the ones that were clearly written by someone who had just discovered bath salts. Most pitches are just plain awful and seeing them infest my inbox has brought me to the breaking point.

It got me thinking about ways I could combat the problem: I could delist my email address? No, that would mess up my deal flow by making me less accessible.

I could write a detailed guideline of what I look for in a startup? Already tried that and apparently everyone doesn’t know how to read.

I could hire an analyst but I would be condemning that poor sap to a life of depressing pitches which could then lead to suicide.

But out of the blue I remembered watching a new show called Salem and in the very first scene, the village fornicator was being pilloried and brutally branded. This got me thinking: what if we could do something similar to bad startups?

Public humiliations have been around for centuries now. In pre World War Japan, adulterers were laid bare and publicly exposed. Dunce caps were placed on the heads of unruly school children. And if you really wanted to get medieval? "A butcher selling bad meat would have to suffer the offending piece of meat being tied under his nose whilst tied up in the town square for public ridicule."

But nowadays we have something called “human rights” which prevents us from using such barbaric forms of punishment so that’s one less way of stopping bad startups from pitching us.

But what if we did something similar instead? What if we could crowdshame bad startups the same way a judge shamed this bad driver?

If you think about it, crowdshaming bad startups makes perfect sense: there are dozens of online forums filled with investors who disparage bad stocks all the time. Jim Cramer even goes as far as smashing things to get his point across.

Hell, even startup entrepreneurs have a website they can use to bad mouth venture capitalists.

Why doesn’t the industry have its own online forum where we can pillory and flog the bad startups who pitch us? Why don’t we mention them in our blogs or our tweets? Why don’t we have a blacklist that’s available for all to see?

Here’s an idea: every VC firm should have a disclaimer on their “send your pitch” page which saids this:

"Follow our guidelines and don’t send us bat shit crazy pitches or else we will publicly shame you on our blog and Twitter."

However, crowdshaming bad startups could Continue reading "Should VC’s Start Crowdshaming Shitty Startups?"

The Upside & Downside of This New VC Firms Strategy

Silicon Valley has long prided itself for creating the “Pied Pipers” of the world but ironically enough, venture capitalists themselves have been reluctant to disrupt their own industry and the traditional 2/20 model.

But just recently, Kent Goldman, an ex First Round Capital partner, is trying something radical: he’s spreading the wealth with his founders.

It’s simple enough; all founders in his portfolio get a cut of the carry, something unheard of in VC.

I was a bit reticent when I read about his new approach so I decided to write up a list of the pro’s and con’s:

Pros:

-Collaboration on a whole new level. A lot of times, founders will remain one dimensional not because they are lazy, but because they only know so much. By fusing founders with different skill sets together, you can create an environment of cool ideas.

Don’t know anything about marketing? No problem, Continue reading "The Upside & Downside of This New VC Firms Strategy"

The Upside & Downside of This New VC Firms Strategy

Silicon Valley has long prided itself for creating the “Pied Pipers” of the world but ironically enough, venture capitalists themselves have been reluctant to disrupt their own industry and the traditional 2/20 model.

But just recently, Kent Goldman, an ex First Round Capital partner, is trying something radical: he’s spreading the wealth with his founders.

It’s simple enough; all founders in his portfolio get a cut of the carry, something unheard of in VC.

I was a bit reticent when I read about his new approach so I decided to write up a list of the pro’s and con’s:

Pros:

-Collaboration on a whole new level. A lot of times, founders will remain one dimensional not because they are lazy, but because they only know so much. By fusing founders with different skill sets together, you can create an environment of cool ideas.

Don’t know anything about marketing? No problem, just ask the founder who does. Need help with your coding? No worries, someones got your back.

-Everyone is in it for everyone else. The Amish people are renown for their sense of community - when everyone lends a helping hand, the entire village thrives. Upside is well on their way to creating their own little version of a Amish startup paradise.

This has one major implication: a very young startup in it’s infancy won’t have to hire as many people because all the founders can contribute to each others startups and lend a helping hand.

-Deal flow magnet. If startup founders knew they could get a piece of the action, why not take Upsides money? This model could be a great differentiator and help make a founders decision much easier. 

With that said, the skeptic in me still sees some potential hiccups:

Cons:

-How helpful can others founders actually be? If you throw a bunch of people into a room and ask them to assemble a rocket, chances are that the rocket scientist will be the only one who knows how to do it.

And this could be the same thing for Upside startups. With so many different types of companies doing vastly different things, you might not always get the synergy that you expected.

One founders unique skillset won’t be of much use if the other founders can’t take advantage of it.

-Conflict of interest: lets imagine a scenario where 2 different founders in Upsides portfolio (lets label them Startup A and Startup B) are helping each other out. The collaboration goes great and both companies go on to attract investors for a Series A round.

But here’s the problem: one investor (lets call him Big Wig VC), is deciding to invest in Startup A but discovers Continue reading "The Upside & Downside of This New VC Firms Strategy"

What The %$#*! Happened To Creativity In Silicon Valley?

Everyday I see the same things:

The same half assed startup names that take a perfectly normal word and bastardizes it by adding a “-ly” to the end; the same generic websites with screenshots of the startups app on a oversized iPhone; the same startups who proclaim they are the next “Uber” or “Airbnb” of this and that. And then there are the same cliched terms like “disruption” and “scaling” being thrown around incessantly.

So now I have a question: what the %$#*! happened to creativity in Silicon Valley?

In the valley, engineers and coders are the heroes. Even designers are getting more street cred now. But there’s always been something about this status quo that has bothered me: these same people don’t seem care about creativity anymore.

Our obsession with “coding”,”growth hacking” and “scaling” has turned us into a singular mind hive that I like to call the “Silicon Valley Blob”. Anything tech related gets sucked into the blob and everything else gets rejected.

Take for example Box and Dropbox - I can’t for the life of me see the difference between the two besides pricing and the logos. For someone of my basic cloud storage needs, which one should I pick? I can’t decide.

But let’s look at another example, this time between Lyft and Uber.

Although I am well aware of the key difference between the two, they offer essentially the same service. But without any hesitation, I picked Lyft. Why?

It’s simple really: Lyft just has more creativity. Their trademark pink mustache and fist bump was not only marketing gold, but a hit with users.

If you were one of the first investors being pitched Lyft and the co-founders told you that they planned on putting a big pink mustache on customers cars, you would have thought the idea was stupid. And then you would have started asking questions like “But what’s your scaling strategy?!! Revenue projections? Burn rate?”

But when was the last time a venture capitalist asked, "what’s your creativity strategy?"

In the past, a good tech startup could get by on their technical prowess and create awesome services like HootSuite but with increased competition, that is no longer the case. I get dozens of pitches from startups with identical products so deciding who to invest in has become an impossible task.

The truth is, any nitwit can get technical knowledge - all you have to do is go to school for that. Good engineers and coders are a dime a dozen nowadays. Even supermodels can learn how to code now. But the one thing you can’t learn is creativity - it’s something that you have to develop and nurture.

So why Continue reading "What The %$#*! Happened To Creativity In Silicon Valley?"

The Unusual Economics of My New Small Fund

Charlie O’Donnell wrote a short blog post of the economics of his fund and no surprise, it was representative of how a typical VC fund operates. But since my fund is far from being typical, I would like to share with you the weird, un-sanitized and detailed economics of it so lets get started!

Management fees: *UPDATE* I’ve decided to go with no management fees PERIOD! I am about to say something no other sane VC has said before: I dislike management fees. As a kid, I had no allowance so I earned every dollar I made. It’s a philosophy I carry with me to this very day.

Fees often provide improper incentives for VC’s so I decided to do something different: I came up with a one time management fee of 4% and it’s a lump sum paid out only in the first year. After that, no more fees.

My fund is about $25 million, so the fee works out to $1 million. Whoa, did I just hit the jackpot? Far from it. The life cycle of the fund is 5 years so I have to stretch out that million dollars. Startup costs aren’t cheap either:

Limited partner agreement. This is the fancy legal document that your investors sign. It’s typically 30-50 pages long and absurdly expensive - you can expect to pay anywhere between $25,000 all the way up to $100,000!

So how much will I be paying? $25,000. Yes, I know, that’s an insane amount of money to spend but an iron clad LPA is crucial because it helps you avoid legal headaches in the future.

Also keep in mind that the lawyer is not only drafting an LPA, but an subscription agreement and your standardized term sheet.

Back office: It works out to $100k every year and covers almost everything: accounting, audits, taxes, financial statements, capital calls, banking etc. In the end, that’s half of the $1 million fee already gone.

Staff: Just one analyst will be hired to help source & manage deal flow along with liaising with our existing portfolio companies. Salary will be 80k; 400k in total over 5 years so that leaves me with less than 100k in fees. P.S I’m still looking for an analyst so send me an email if you are interested.

Offices: I have a co-working space in Brooklyn that runs for about $6000 a year. It comes with a desk, computer, wi-fi and access to conference rooms for pitches.

Carried interest. Here is where I stray from the herd: 20% is standard but it’s based heavily on performance. Basically, if I make a 2x return, it is bumped up to 25%. A 3x return is Continue reading "The Unusual Economics of My New Small Fund"