When The Profile Gets Ahead Of The Proof

I heard this line this past week, and it’s been like a catchy lyric playing over and over again inside my head: “Their profile is ahead of their proof.”

Written another way, when Profile > Proof.

It could apply to a company, a startup, a venture fund, and of course, an individual. And it reminded me the profile of any of these entities can be built up, pumped up, and broadcast widely for not much money or effort. The age of social media is in full-swing, as we all know too well — entirely digital brands are going direct to consumers, disrupting traditional brick and mortar stores; traditional media outlets such as newspapers and cable television are being replaced by celebrity- and influencer-driven “channels”; and “startup culture” is now defacto corporate culture, with early-stage, well-funded startups executives on the coasts commanding compensation packages at many multiples of what Continue reading "When The Profile Gets Ahead Of The Proof"

Heartland Tech Weekly: Silicon Valley excess spreads outside the Bay Area


Typically, when a startup goes public after reaching a billion-dollar plus valuation, it’s considered a “win” for that community. But what happens when that billion-dollar company is no longer a unicorn? Earlier this month, Domo, a Utah-based business analytics startup founded by serial entrepreneur Josh James, filed for an IPO. The milestone shoul…Read More

Where Is Alpha?

As a student of the markets, knowing where to try and find alpha is an interesting problem.  Basically, you have a few schools of economic thought out there.  If we generalize extensively when it comes to markets we can form two groups; the behaviorists and the efficient markets.

Behaviorism in markets is newer.  It’s sexy.  It is appealing because it makes individuals think they have more power than they actually do.  It appeals to our inner instincts that people are irrational and so when they make decisions, things get out of line.

In some cases, I think there is certainly a lot of behavioral economics at work. You can spot it in markets that are illiquid.  For example, last week a scooter company went from a $1B valuation to a $2B valuation.  Clearly, that is behaviorism and irrationality at work.

On the flip side, there are highly liquid markets.  They Continue reading "Where Is Alpha?"

Capital Should Follow Talent

I love today’s post from Fred Wilson titled The Valuation Obsession. It has some good hints in it about valuation vs. ownership dynamics for founders, employees, and investors. It also calls out the silliness about focusing on the wrong things.

Go read it.

I’m even a bigger fan of a statement Fred makes in the post that William Mougayar calls out in the comments.

“I like to invest in companies that smart people are joining. Capital should follow talent, not talent following capital.

This is not just a statement on capital. It’s another hint to the importance – to a founder – of building an awesome team at every level of the journey. It matters at the beginning, as things ramp, and as a public company.

Capital should follow talent. That’s a line I know I’ll be using. I’ll try to remember to say “Fred Wilson says capital should

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Building Brands for Mind, Body, and Spirit

The best brands imbue consumers with positive feelings and emotions that drive loyalty and are fundamentally trustworthy. This is true across fashion and apparel, travel and hospitality, technology, and myriad other categories, yet when it comes to health and wellness, very few brands, outside of some in fitness (think SoulCycle or Equinox), have emerged that cater to a consumer’s mind, body, and spirit. While some like LOLA, Hims, or Headspace have started to make a name for themselves, there is still a distinct void and as an investor, it is up to me to determine whether this void is an opportunity for entrepreneurs or if it’s the status quo for a reason. Perhaps there aren’t meant to be brands in every category within consumer health and wellness, but my working hypothesis is there should be dramatically more than there are today.

The headline macro trend is that there’s a growing Continue reading "Building Brands for Mind, Body, and Spirit"

Quickly Unpacking Microsoft’s Acquisition Of GitHub

Satya strikes again. After being installed in 2014 as Microsoft’s new CEO, Nadella has turned around the Seattle ocean liner on a new course after the Ballmer regime. With Microsoft’s stock price (and technology brand) soaring of late, Nadella and his team have not been shy, with blockbuster platform acquisitions like Minecraft and LinkedIn, innovative product scoops like Accompli for email and Sunrise for calendar, and rebranding its very active, SF-based venture arm as “M12” to further its future technology agenda.

And yesterday, another feather in the cap — GitHub. Not yet profitable but invaluable to developers worldwide, the decade-old company bootstrapped, differentiated from formidable competitors GitLab and Atlassian’s BitBucket, weathered leadership upheavals, and eventually ingested lots of venture capital which helped them weather the challenges they faced. Buying that time and capital paid off, as Microsoft recently announced it would purchase GitHub for $7.5B.

Let’s Continue reading "Quickly Unpacking Microsoft’s Acquisition Of GitHub"

GP/LP Fit

The idea of product/market fit has been around for a long time. And, while founder/market fit is a newer concept, it turns out to be just as important.

Recently, Beezer Clarkson at Saphirre Ventures wrote a post titled Raising A Fund? 9 Questions That Help Get You To GP/LP Fit. If you are a GP raising a fund, you should go read this post right now. In it, Beezer goes through, in depth, the top questions she recommends you ask an LP to determine GP/LP fit.

  1. What are you currently investing in?
  2. Why venture and how long have you been investing in it?
  3. How much capital do you have under management, and how much of that is invested in venture?
  4. How many venture managers are you currently allocating to? Will you be allocating to any new managers this year?
  5. What strategies and geographies are you actively investing in?
  6. What is
    Continue reading "GP/LP Fit"

Seed Deal Flow Tsunami And The Quick Kill

If you read yesterday’s post, you can see just how insane the proliferation of seed financings have been. As a result, I personally cannot keep up with all the deal flow. This a common refrain among many seed investors in private. When I started investing and no one knew me, I would just invest in folks I knew well. There wasn’t a lot of noise for me. In the last five years, we’ve seen the number of micro-funds balloon from over 100 to over 500.

When I started back in 2013, I would try to respond to all the cold and “lukewarm” intros and investor referrals I received as a matter of courtesy. There is simply no way I could do that today (kids, other funds, commuting, etc), and I do not feel bad about this. Surely, some will read this as unfair, and I understand that — so I Continue reading "Seed Deal Flow Tsunami And The Quick Kill"

The VC Twilight Zone

Talk to any Bay Area VC in the last 24 hours, and the talk of the town among investors is universal: “What do you think of the SV Angel news?” Depending on your point of view, it is the perfect trigger for a conversation about the state of the Bay Area’s investment market. Let me be perfectly clear — I do not know anything about SV Angel’s inner workings, and in all of my own interactions with Kevin, Topher, Brian, and @pm (when he was there), SV Angel was extremely helpful and friendly as many people have attested to on social media. (I have never met Ron but hope to one day.)

From afar, in today’s environment of 500+ seed funds, SV Angel is held up as one of the canonical examples for its success at getting into superstar breakout companies (from Google all the way

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163. The ‘Softbank Effect’, Financial Discipline and the Interworkings of a Top Seed Investment Firm (Joe Medved)

Joe Medved of Lerer Hippeau joins Nick to discuss The ‘Softbank Effect’, Financial Discipline and the Interworkings of a Top Seed Investment Firm. In this episode, we cover: The focus at Lerer Hippeau The adoption and integration of the Binary Capital Portfolio Why they dropped ventures from the name Joe’s...

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Investor optics: don’t let the tail wag the dog

Earlier this week a friend was asking me whether her fundraising chances would be improved if she started generating revenues. She’s a natural salesperson and she’s wondering if having small revenues would make it harder for her to sell a big growth story than if she has no revenues at all. When we unpicked it, the logic behind the question is that if there is a small amount of revenue, maybe with small month on month increases, then projections of much larger month on month increases going forward might look less credible than if there were no revenues at all.

In short, she was wondering if she was in danger of letting numbers get in the way of a good story.

Firstly, note that this is backwards thinking. Letting investor optics determine strategy rarely works out well. I get that fundraising is a nerve-wracking process, that investors can be unpredictable

🙂
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How Much Should You Raise in Your VC Round? And What is a VC Looking at in Your Model?

There’s a quick litmus-test conversation any early-stage VC will have with the founder and it’s one that you should be as prepared for as your elevator pitch. It goes something like this …

VC: “How much money are you raising?”
Founder: “$8–10 million”
VC: “What’s your current burn rate?”
Founder: “$250k / month.”
VC: “So at a constant rate of burn rate you’d be raising enough for 2.5–3 years. Why are you raising so much?”
Founder: “Um. Let me check my plan.”

Usually that’s the point in the meeting where a VC realizes that this meeting isn’t going to go very well.

There are many things a VC is looking for in reviewing your business plan but beyond things the like the quality of revenue, margins, OPEX and CAPEX there’s a really simple rule I call, “Cash In, Cash Out, Milestones Achieved.”

Simply put, a VC wants to evaluate how much cash you’re raising and whether this amount is realistic. He or she wants to know how long the money you will raise will last and whether this is long enough to warrant taking a risk on funding you. Finally, the VC wants to know what your progress will look like at the end of this period to know how easy it will be for you to raise your next round.

If you don’t have a firm grasp of these concepts and how a VC thinks your meeting is dead.

Cash In

Cash in. It’s the amount of money you’re raising. A VC is looking for reasonableness. Are you raising an appropriate amount of capital relative to your progress, relative to your team size and relative to your needs?

Of course the VC is looking to have specificity in how you plan to spend the money you’re going to raise and plans that show a pie chart that says, “25% on marketing, 30% on technology and R&D, 20% on infrastructure, 25% on G&A” do not get funded. Yes, I see plans this pedestrian.

VCs want you to raise the “appropriate” amount of capital, which I would define as what is reasonable given your progress to date, your resources and your needs for an 18–24 month period. VCs tend not to want to fund founders who raise too much money in a given round also because they know that sometimes having too many resources will lead to founders burning through cash too quickly. Conversely many VCs believe that constraining cash can often lead to increases in creative solutions at a startup.

One entrepreneur refrain I sometimes hear is “We want to raise some extra money for M&A activities.” This is a red flag for VCs. A VC wants to know that you have a

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How government-backed VC firms help and hurt the Midwest


GUEST: If you look closely at Pitchbook’s annual report, you might notice something unusual about the most active investors in the Midwest/Great Lakes regions (Pitchbook has split the broader Midwest into a few smaller regions). Whereas the West Coast’s most active investors are all financially-focused, private investors, the Midwest contains many…Read More

How to Improve Your Odds of Getting to Yes with a VC — “Land and Expand”

If you’ve read any of my ongoing series on fund raising from venture capitalist (episode 1 — controlling your psychology) you no doubt have heard me say that raising capital is a sales & marketing process. You company is the product and you’re selling an equity ownership in your company but much more broadly you’re selling trust & confidence that you’re going to build something enormously valuable and that you’re going to be enjoyable to work hand-in-hand with over the coming decade of each other’s lives.

In order to understand how to “get to yes” with a VC you first need to understand how VC partnerships make decisions and then you can understand how to increase your odds of closing a deal.

VC Partnerships

Start by understanding how many partners are at the firm you are approaching. It’s pretty easy since nearly every VC lists its partners on the website. Some firms are trickier since they artificially call everybody “partner” but they’re not all “investment partners.” It’s super easy to suss all this out. Find a portfolio company or two that they’ve invested in. Find one that’s on the earlier-stage size or one that raised a long time ago and never scaled and get to know the founder & CEO. They can likely give you the entire playbook of the partnership if you build a meaningful relationship with them and they trust you. The key to your “consigliere” is that they can’t be crazy busy because they’re scaling at meteoric rates. You can’t try to meet the executive team at Bird to understand the Upfront Ventures partnership dynamics because they’re too damn busy dealing with explosive growth.

What do you want to know?

  • How many partners are there?
  • Which partners are active and which are less active?
  • Who in the firm has “pull” to get deals done when they want to?
  • Which partners work well with which other partners?
  • Who are the most optimistic partners and who are the most generally skeptical partners?
  • How does the partnership typically make its final investment decisions?

Decision Dynamics

Each firm makes decisions in different ways so understanding the firm’s decision framework matters. Some firms are “consensus driven” and look for unanimity in the decision or near unanimity. Some partnerships are “conviction driven” meaning they’re looking for a super committed partner who will slam his or her proverbial fist on the table to push through a deal. Those partnerships want to know that the “sponsor” of the deal is willing to have his or her head on the chopping block advocating for this deal. In larger partnership you often have “shadow partners” who serve as the role of an advocate (or detractor) to the main sponsoring partner.

In any

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Step Into The VC Time Machine

One of the things humans are bad at is remembering the past and incorporating the lessons they learned from difficult experiences. I’m sure there’s a philosophical word for this, but I’ve now heard the phrase “this time it is different” so many times that it doesn’t register with me as a valid input.

I woke up this morning to Howard Lindzon’s post R.I.P Good Times (Said Sequoia in October, 2008) and Nobody Knows Anything pointing to David Frankel’s tweet:

All of this ultimately led to me reviewing Sequoia’s classic slide deck from 2008.

I remember reading it in 2008. We were about a year into our first Foundry Group fund, which

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Best Practices for Startup Board Meetings

1) I attended a whole bunch of Board meetings this week on both coasts. Sharing some quick observations on what I typically see work well at Board meetings.

2) Board meetings should be held at company offices IMO. Let Board members see, touch, feel, your products…let them mingle with some team members, help them understand company’s culture, and share in the excitement.

3) Share Board decks etc in advance, at least 3–4 days. Set expectations that people come prepared and having studied the materials. Board meeting is not a time for reporting on activity…but to discuss, ideate, debate, decide.

4) Keep a standard format for Board decks. Present in same format…train eyes to look for information, compare from past reports, and start connecting dots over an arc of time. Boards don’t just decide on tactical at-the-moment stuff, but also longer term strategic directions.

5) I find dashboards useful. Start deck with

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To Innovate Like a Startup, Make Decisions Like VCs Do

may18-07-hbr-paul-garbett-innovation
paul garbett for hbr

A lean startup approach, we are told, can empower big companies to innovate rapidly and effectively in the face of continual disruption, potentially even transforming enterprises into centers of continual new growth. Responding to this promise, many companies have started putting these ideas to use: A recent study of 170 organizations with $1 billion or more in revenue found that over 82% are currently using a lean startup approach in some aspect of their business.

Yet for all of the resources that have gone into applying a lean approach, these organizations do not have much to show yet. Faster times to market, greater flexibility on the way there, and greater focus on the customer — common results of a successful lean implementation — are all positives. However, they hardly represent the transformation that has been promised with this new approach.

What is missing from this equation for

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