May 18, 2014

We have always been believers in trying to be helpful to the entrepreneurial community through the content we publish on our blogs. But we find that these only go so deep, and at times, certain practical topics warrant more attention.

This is why we are going to start publishing a series of “Growth Guides” over the next 6-12 months. The point of these are to:

  • Take on topics that we often here as questions that are held specifically for early-stage companies in their first 12-24 months of life
  • Offer more practical insight than what one could gather through blogs or Quora and bring in both our perspectives and those of other experts in the field.
  • Present information that is actually useful to founders and their teams.  So in addition to some theory or broad commentary, these will include actual hacks and other tips and playbooks that are immediately actionable for a founder or an early team member.

We launched our first one of these around content marketing for startups.  It’s a form of marketing that we often hear a lot of questions about and can be effective for early stage companies.  But it’s also a form of marketing that is very noisy, so we tried to cut through the noise and present something that is practical but has sufficient depth. It also helps that Jay, our Director of Platform and Community led content marketing efforts at HubSpot prior to joining.

Looking forward, we are going to be publishing more of these, and I’d like ideas for common topics that early stage founders and team members care about.  It can be anything from mission critical stuff, or even more mundane stuff that takes up time and makes you think “why hasn’t anyone just figured out the answer and told all of us founders?”  Here are a couple ideas that we’ve been throwing around, but I’d love to hear from you what we should include!

Current possible topics are:

  • Hiring your first five engineers
  • Product management before product-market-fit
  • Seed stage board decks and board management
  • Interviewing and reference checking
  • Tools, providers, and services. All the stuff you will need after raising your seed round, but don’t really want to research
  • How to incorporate user feedback into product decisions
  • Performance marketing tests that you should do before PMF

Others or more broad suggestions? All thought are welcome. And again, check out our first Growth Guide on how Content Marketing can be used for startups.

May 6, 2014

There is a ton of chatter today in the news about the expiring lock-up of Twitter shares and what it means for the company and its prospects long term.

There have been a ton of headlines over the past few weeks comparing Twitter to Facebook. The narrative goes something like this: “Twitter usage is not growing fast enough, therefore, it will never be as mainstream as Facebook, and thus, is a much less attractive company long term.”

I don’t have a meaningful horse in this race, as I don’t own any Twitter stock. But I’ve had a long held belief that most people make a flawed comparison between Twitter and Facebook. Facebook is a social network, and Twitter is a media company. Two totally different types of businesses.

But beyond that, I have a pretty strong belief that in the long-term, Twitter will be a thriving service much longer than Facebook.

Why is this? Facebook wins so long as it is the dominant communication medium between one’s social network.  But what we’ve seen is that there is massive fragmentation happening around this use case, and it’s only accelerating.  Want to send messages to your friends? There are dozens of messaging apps for that.  Want to interact around products? There are networks like Pinterest for that.  Want to interact around photos and media?  There are others for that.  Facebook totally realizes the threat of this network fragmentation, and so far, has masterfully used M&A as a means to stave off massive losses of mind and time-share of their users.  But it’s amazing to think that in the short history of the company, they’ve already had to address the threat/rise of massive services and been forced to pay ungodly amounts of money to keep them (and their audience) within their ecosystem.  I think that this is just evidence that the pressure on Facebook to maintain its network dominance will only get greater and greater, and at some point, there will cede their position.  It will happen faster than people think.

I find Twitter to be pretty different.  Twitter wins as long as it remains the easiest, fastest way that anyone publishes to the public.  If the content producers leave, the service will die.  But as long as the content producers find value, the service will have immense value.  And that value is not entirely captured by the number of times one’s Twitter feed is refreshed.  It exists every time you hear a news story mention content that was generated on Twitter, when you see photos from faraway places capturing major moments through Twitter, or when you consume other content or information that is surfaced to you because of what is trending on Twitter.

The importance and impact of the Twitter ecosystem goes way beyond page views.  As a result, I just see it as a more durable property long term than Facebook.  It’s a lot harder to think about competing content publishing services that have been a real threat to Twitter in the past few years. There have certainly been fewer threats than Facebook has faced.  If you were to compete against Twitter on this dimension, I don’t know where you would even start.

All this said, Twitter’s ability to monetize does (currently) depend on the size of their direct audience on their own stream.  And the growth challenges certainly dampen some of their prospects.  Perhaps it is true that Twitter’s valuation is pretty rich compared to its current revenue generation potential.  And perhaps Twitter is never destined to be at the scale of Facebook, and thus is overvalued now.  But I do think that in the longer arc of time, Twitter will survive, and has a better chance of thriving.

May 5, 2014

Seed stage investing has developed significantly over the past 7 years that I’ve been in VC. What started as a rogue, almost anti-VC strategy has become very common. It’d pretty standard for entrepreneurs to contemplate raising an “institutional seed round” prior to approaching VC’s for series A rounds. Many have said that the institutional seed is the new series A.

This is rational because seed investing makes sense for companies that can have capital efficient beginnings. The challenge for those in the market of seed investing is that the barriers to entry in seed are relatively low. The main reason is that it just doesn’t take that much capital to get started. A lot of folks can pull together a few million bucks from high net worth individuals and start operating as a “seed fund”. One could go about writing dozens and dozens of $20K checks, catch a winner, and then build on that to gradually raise more money.  Accelerators and crowd-funding are encroaching on this territory as well.  On top of that, you are also seeing funds that used to be classic series A and B funds struggle to raise capital, and so go down-market to write more seed checks.

This is why the market has become so confusing, and why there seems to be a wealth of seed investors. But some winners have emerged, and I’d argue that their position is pretty well cemented. How do they do it? Three things.

1. Leadership. The seed stage is filled with folks who follow. It’s extremely common for me to talk to an entrepreneur that has tons of demand for their round, but is actually looking for someone to lead, set terms, and be the anchor investor in a $1-$2M seed round. If you think about the number of investors that have capacity to invest $500K+ and lead a round, the number of seed funds dwindles to single-digits (in the east coast). It’s a very different skill set, and requires a LOT more conviction (and more capital). Entrepreneurs are also going to be a lot more discerning about who is going to be a major investor in their round and potentially take a board seat or board observer seat. The market doesn’t need another seed fund that rides along with other investors or hangs around the hoop until a hot investor validates an opportunity then tries to get in.

2. Early. The complaint I’ve been hearing more and more is that many “seed” funds are only investing in companies that already have traction. I totally don’t get it. I find that the market leading seed funds, and the up-and-comers I respect get into deals very early. In our portfolio, over 1/3 of our investments happen pre-product. When I think about some of the other market leaders in seed, I see a similar commitment to being true seed-stage investors and get in early.

3. Gravity. After the investment happens, the best VC’s continue to distinguish themselves by the way they work with their portfolio and impact their outcomes. This is particularly hard for seed funds because a) most seed funds invest in quite a lot of companies and b) the funds are smaller and it’s impractical to hire an army of folks like bigger funds like A16Z.

Despite these challenges, the funds that show leadership in this space find ways to exhibit gravity around their firm and portfolio in a way that founders really appreciate. There are a few ways to do this. Firms like First Round and others have created small “Platform” teams to add leverage beyond the human capital of the GPs. We’ve started to do the same by being the first VC in Boston to hire a top-notch full time person dedicated to platform and community. Related to this, some firms also find ways to create stronger connective tissue between portfolio companies, so that there is collective strength in being part of the same network (SV Angel is the classic example of a firm that does this with a very large portfolio). Finally, a lot of gravity can simply be achieved through focus, which is something that most seed VC’s lack. It’s extraordinarily hard to be a focused, active investor in a company if you are making 8+ investments a year per investor or more. It’s much more practical to concentrate your capital and time in a smaller number of companies where you have high conviction and the skills and ability to make a meaningful difference.

The seed VC market will continue to mature and change.  But I do think that as things progress, we’ll see more and more separation between the really strong players and everyone else.  And I’m pretty convinced that the winners will distinguish themselves through these dimensions above, even as new players come and go and new innovations continue to change the early-stage financing market.

April 28, 2014

Early stage founders have to do a lot of storytelling.  It’s important for fundraising, obviously, but also for recruiting, speaking to the press, motivating the team, etc.

There has been a meme going around about a talk that Kurt Vonnegut gave regarding the “shapes” of stories.  The idea that there are only so many different story-arcs out there, and that they can be illustrated  in a particular way.  There is a cool infographic here and there is a video of him talking about it here.

This got me thinking about the story-arcs of VC pitches, and the stories that get me (and I think a lot of different investors) particularly excited.  There are a few of them, but these three below really tend to stand out to me.

Story 1: Winter is Coming

Synopsis: Some structural change or shift is happening that is going to turn an industry upside down.  The hero company is either is making that change happen (best case), or is going to solve some major problem or capitalize on some major opportunity that presents itself because this change is happening.

Example: Uber. The first time a cab medallion owner saw Uber working, if he was a Game of Thrones fan, he said “oh shit… winter is coming”


Story 2: Jiro Dreams of Sushi


Synopsis: This is a story of craftsmanship.  There are tons of things broken about how a problem is being solved today.  The hero company is going to solve it 10X better than anyone has ever solved it before.  You trust this hero because she is just that good.

Example: Oculus is a good example of this. When you see their Kickstarter video, what do all the industry experts say? “I have seen lots of different VR goggles before… but nothing like this”. Another one of my favorite startup pitches I’ve written about before was for 2U (FKA 2Tor).  The first line of the pitch was “bar none, online education sucks. We are going to make it great”.


Story 3: The Undiscovered Country


Synopsis: I have seen the future, it’s just not here yet

Example: Ethereum or something like it is a possible example. In this story, the hero company contemplates a future that is a step function or two different from the current trajectory of technological innovation. It sounds whacky, crazy, hard to understand, and could be a complete miss.  But what is being proposed really does change everything, and that change will span multiple industries, making it a different narrative from story 1.   BTW, to learn more about Ethereum, check out their explainer video here.  (Thanks Aaron White for this example!)

In a future post, I’ll talk in a bit more detail about how entrepreneurs can craft their story effectively for different audiences, and go a bit deeper into the shapes of these narratives.  Until then, I’d love to hear other story-lines that I may have forgotten that are particularly effective and motivating.

April 22, 2014

Not sure why, but over the last few years, quite a few people I know took on EIR roles at various VC firms in both the East Coast and in Silicon Valley.  Overall, there are positives and negatives to being an EIR.  The positives are kind of obvious:

  • A reasonable paycheck to work off of while you think through your next company
  • Exposure to a large data set of portfolio companies and companies that a VC reviews
  • Expansion of one’s network through the network of the VC
  • Usually few official “strings” attached to the VC aside from an implicit or explicit expectation that the firm get a “first look” at a company that is started during this time.
  • Exposure to the venture capital process and a behind-the-scenes look to how VC’s work and evaluate deals

The negatives are relatively well known too. Mainly, they revolve around the signaling and reduced optionality that the entrepreneur may give up by hitching themselves to one firm over others even if that firm has no official rights associated with financing that entrepreneur’s company.

Personally, I don’t feel that strongly one way or another that entrepreneurs absolutely should or shouldn’t consider EIR opportunities.  But watching a number of folks go through this, there is another, less obvious downside to the EIR role: it becomes hard to avoid absorbing the negativity of the VC process.

I’ve said before that one of the downsides of Venture Capital is that it tends to be a negative job. You say “no” all day long, you spend the most time on companies that are struggling, etc. VC’s get really good at analyzing investment opportunities and pointing out all the reasons why an opportunity won’t work, or is too high risk, or is too expensive, or is deficient on a dozen other dimensions.  It’s hard to avoid this when investing is your day job and you say “no” 99% of the time, but I think it’s not necessarily the most helpful atmosphere for entrepreneurs that are trying to figure out a company to start. Even just hearing the internal chatter about companies can be a bit toxic, but on top of that, EIR’s end up getting pulled into specific discussions around companies, and sectors, and even sit in on company pitches in their areas of expertise.

All of these probably seem like a selling point to founders, who would be eager to expand their horizons and understand how the capital side of the innovation business works.  And for some founders, it probably does help.  But I think many if not most founders will find it difficult to absorb the learnings of Venture Capital as an EIR without also becoming much more critical and overly-analytical about the companies they are looking to start.

All that said, here are some other suggestions for entrepreneurs who do think an EIR gig is a fit, but want to avoid some of these challenges:

  • Focus on firms and EIR roles that are structured around significantly helping you find your next company.  This isn’t all that obvious. Many VCs do EIR’s primarily to draw someone on the outskirts of their network into their network.  Once they are in, they don’t do anything particularly differentiated to significantly enhance one’s likelihood of hatching her next company – they basically get a desk, a paycheck, and can “hang out” or grab coffee with the investment team once in a while.  Talk to past EIRs and try to tease out how instrumental the VC firm was in helping them find an idea, shape their team, etc through something structured and programmatic or just plain effort and sweat equity.
  • Avoid the temptation to play VC. This is something else I’ve seen – an EIR role ends up being a way to “get to know” a talented entrepreneur with the potential that he or she would actually join the investing team instead. It’s easy to get sucked into “playing VC”, and it’s insanely distracting to be put in the position of deciding whether to pursue venture vs. actually work in earnest to start a company. I think it’s hard to do both, and introducing the possibility of playing VC just gets in the way of an entrepreneur’s ultimate goal.
  • Don’t do it for too long.  Most EIR roles I find are time-bound at something like 3-6 months. But some are open-ended. I think it’s best all around to limit one’s time as an EIR for a bunch of reasons. The longer you do it, the more likely it is that you’ll be impacted by the risks above.  Also, I think that it’s helpful to start getting different perspectives after a while, and also to get re-energized and re-focused.  It’s can be pretty frustrating for an entrepreneur to be an EIR for a period of time and not end up with an idea or company that they are ready to be fully committed to.  Funny enough, I find that most of my friends got a burst of new energy and focus when they completed their time as an EIR but continued experimenting on their own. Maybe it’s the change of scenery, or the fire knowing that you are no longer on someone else’s payroll, but it’s a trend that has been interesting to observe.

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  • Lee Hower
     - 14 hours ago
    @realkenmiller definitely Ken. I'll be out in SF again in late Sept and prob once in Oct too, will give you a ping
  • robgo
     - 2 days ago
    Every time I see the @UniqloUSA ad with @jjacobs22 I think, the poor guy can't see! Must have been a sunny day for a photoshoot
  • robgo
     - 2 days ago
    RT @bsiscovick: Interested in UI/UX/design? Come join our team as a Design Intern. Details here - RT pretty please;)
  • robgo
     - 2 days ago
    Design vs user experience
  • robgo
     - 3 days ago
    Wow, @SethMacFarlane was a producer of Cosmos. Cool