How to Make Better Decisions with Data

Companies often use A/B testing to optimize their websites, but they rarely use it for anything else. This is a wasted opportunity. It turns out that if you capture enough data, any repeated, measurable activity can be framed as an A/B test. For example, how does breakfast affect your morning work productivity? If you spend a month or two tracking your productivity along with the breakfast meals that you eat, you'll quickly learn if skipping breakfast turns you into a zombie or if having eggs instead of pancakes will help you get a promotion. Once you internalize the idea that anything you repeat can be an A/B test, you starting seeing optimization opportunities everywhere.

Using Data to Optimize Sales

For example, if you're at a B2B company and have at least a few dozen customers, you can start optimizing your sales process in many directions. A lot of companies just Continue reading "How to Make Better Decisions with Data"

Why Startup Technical Diligence is a Waste of Time

In late 2012, I made the transition from software engineering to seed stage investing. I started Susa Ventures with several friends, and I was going to be the person in charge of all technical diligence. Since practicing software engineers are relatively rare in the VC industry, I (naively) assumed that my background would give Susa a big competitive advantage when making investing decisions. For the most part, I was wrong.

What should seed stage technical diligence actually measure?

My early attempts at doing technical deep dives turned out to be fruitless for a number of reasons:
  • Early versions of a product are often prototypes that are intentionally meant to be rewritten or heavily refactored in the near future.
  • Because getting a product in the hands of users is a top priority, even great engineers will intentionally take shortcuts and accumulate technical debt in order to launch sooner.
  • The ability to Continue reading "Why Startup Technical Diligence is a Waste of Time"

15 Short Stories About LinkedIn’s Early Days

I was lucky enough to be one of LinkedIn's earliest employees in 2003. I joined the company when it was just over a dozen people and was the 2nd non-founding engineer hire. LinkedIn's team at 2 million members
Team photo from 2005, when we reached 2,000,000 users
Yesterday, I woke up to the news that Microsoft is acquiring LinkedIn for $26b in cash. It was a surreal story to read because when I left Microsoft to join LinkedIn in 2003, I never imagined that one day that tiny startup would be acquired for almost 7% of Microsoft's market cap. The acquisition announcement got me reminiscing about LinkedIn's early days, so I thought I'd share some of my favorite memories from my two years at the company (2003-2005). Obligatory caveat: I'm not affiliated with LinkedIn in any way at this point. I don't own any LinkedIn stock. Some of the small details might be a little off Continue reading "15 Short Stories About LinkedIn’s Early Days"

Why This? Why Now? Why You?

Once your startup has some traction, fundraising becomes more straightforward. Investors still care about your vision and your team, but much of their focus shifts toward analyzing and interpreting your numbers: how fast is revenue growing? How many users are logging in monthly? How about daily? What fraction of users are retained for at least 3 months? 12 months? Strong numbers reduce the perceived riskiness of your company even if other parts of your pitch are weak. After all, if your company is making $2m/year and growing 20% monthly, then you must be on to something, right? Raising before you have significant traction is a different story. Instead of data, all you have are hypotheses, anecdotes, assumptions, and beliefs. The best way to win over investors at this stage is to pursue a large market and to have strong answers to three questions: 1) why this? 2) why now? and Continue reading "Why This? Why Now? Why You?"

Startups are Risk Bundles

Startup founders are sometimes surprised when they spend a year or two executing against their roadmap, make a lot of progress, and still have to struggle to raise more capital. Why wouldn't investors be interested in a company if it's much further along than it was last year? Why are the few investors who are interested only willing to invest at a lower valuation? Unfortunately, all progress is not created equal. Sometimes moving forward gets founders closer to the goal of building a huge, profitable company, but sometimes it shows that they're on the wrong path, or that their goal is unattainable.

A bundle of risks

In order to understand if a startup is making meaningful progress, it's useful to analyze it as a bundle of risks that must eventually be addressed. Here are a dozen sample startup risks:

Avoid Piecemeal Seed Rounds

Most founders try to raise their seed rounds in one shot, but some do their fundraising over long stretches of time and across a series of (rising) valuations. For most founders in the latter group, piecemeal fundraising is out of necessity: if they can't raise $1.5m but can raise $400k, then $400k is almost certainly better than nothing. Some founders, however, do fundraising in small increments in an effort to fight dilution, on the assumption that more capital will be available later. Unfortunately, incremental fundraising does little to combat dilution while posing significant existential risk. If you have the opportunity to raise your target seed amount in one shot at reasonable terms, then you should take it. To make the following arguments more concrete, let's look at a typical scenario:

Option #1: Raise $1.5m on a $5m post.
Option #2: Raise $300k now on a $3. Continue reading "Avoid Piecemeal Seed Rounds"

Investor Relations for Post-Seed Startups

When founders are raising their seed rounds, they try to meet with as many investors as possible -- a sound strategy for raising money. However, after those seed rounds close, most founders are unsure about how to allocate time to new investor relationships. Should they start reaching out to Series A investors even though a Series A is over a year away? Should they accept meeting requests from VCs they've never talked to before? If they do meet with new investors, what should such meetings be about? This post will address some of the most common questions about meeting with investors when you're not fundraising.

Should you meet with investors when you're not fundraising?

Yes. Each meeting is a valuable learning opportunity. Things you might discover include: