February 11, 2015

Today it was officially announced that Microsoft has acquired our portfolio company Sunrise. It’s a fantastic outcome for everyone involved and I know that Pierre, Jeremy, and the team are going to have a huge impact within MSFT. As someone who uses Sunrise every single day, I’m super excited for what’s to come.

Personally, this day is a bit bittersweet because I loved working with this team. I was originally introduced to Pierre through Jeremy Fisher (the founder of our portfolio company Wander) and was privileged to be on the company’s board during its seed stage. During the past two years, I’ve learned so much through this collaboration, and two things in particular stick out.

First, speed and a maniacal obsession with user experience tend to beat fancy features and functionality. Sunrise launched in an interesting time when multiple other companies emerged targeting similar problems. The approaches of these companies varied considerably, but some of the other funded companies had a major emphasis on algorithms or AI. In the midst of this, Pierre and Jeremy stuck to the belief that there was so much fundamentally broken about the mobile calendar experience that great design and rapid improvement would be a much better strategy than trying to implement or invent complex features out of the gate. It was a counter-intuitive move, but this principle is something that tends to work time and again in end-user focused applications (either consumer or B2B). Pundits like specs and features, but users like products that are fast, natural, and just work.

Second, in Pierre and Jeremy, you have entrepreneurs that have a deterministic and complete view of product design. By deterministic I mean that they had a very particular point of view of how and why things should work and where the category is headed, even if it differed from conventional wisdom. They also have strong convictions about how everything ought to fit together – from the smallest interactions to big bet-the-farm product bets.

Their approach was also very complete in that they spent just as much time thinking about launching products, onboarding users, handling support inquiries, and growth as they did on designing how their product works. In particular, the team was obsessed with growth from the beginning, and it was always in the forefront of their thinking and a factor in most decisions.

Congrats again to Pierre, Jeremy and the team.  It was great to work with them, as well as with our coinvestors Balderton, Resolute, Lerer, Box Group and others. Looking forward to the next time!

February 5, 2015

On Tuesday, we put out two different sample pitch decks that we think can guide entrepreneurs as they try to communicate the information behind their companies. Although pitch decks are well-trodden territory online, we tried to introduce decks that were specifically designed for how they would be used in practice. In particular, we introduced a version that I lovingly refer to as the “super-short deck with kitchen-sink FAQs.”

You can see the example deck embedded at the end of this post, but in summary, it’s a very short document (five to seven slides) followed by an extensive appendix that maps to the most frequently asked questions a founder is likely to face.

What distinguishes this deck is that we think it’s designed for the way most seed stage fundraising conversations actually happen.

The days of walking into a VC’s office, putting up a deck on a screen, and then going into your song and dance are largely gone, at least for your first few interactions with a firm. In particular, this is very foreign when you are talking about pitching an angel investor or seed fund, especially if you have done your work to get a good, qualified intro.

Instead, this structure of a deck is super useful in the various interactions that actually happen. For example:


Often, first interactions begin via email. You may be able to open the door through an intro, but often, an investor would love to see a deck. This ask is sometimes made of the referrer, or else it’s made directly (e.g., “Can you send me a deck so I can see if this is a fit to ensure I don’t waste your time?”). Usually, this leads to a conundrum. Founders don’t love the idea of sending a full deck with all of their hard-learned information to investors with whom they’ve had very little interaction. But it’s also hard to say no to a request like this.

What you are able to do with the short deck is to send along the first 5-7 slides without the appendix. This should give the investor the gist of the status and progress of the company, and you as the entrepreneur can tell the investor that you have materials that go really deep into the details in a subsequent meeting.

As part of this, I’d also include a link to the LinkedIn (or Behance, Dribbble, GitHub, etc.) profiles of the team for reference. This just allows for a natural and appropriate level of information sharing via email.

First Meetings

Usually, your first few interactions with a VC are with one or two team members. In that context, what is the most natural thing to do? I promise you it is usually not to go slide by slide through a 15-20 page deck. Even if that’s how a VC is wired, I think founders can kind of guide these conversations to seem more like discussions and not a pitch.

In almost any scenario, when you meet someone to have a discussion, you start much more casually. You introduce yourself. You talk about how you know the person who referred you. You tell your story about how you decided to start your business and how you met your co-founders. It’s more of a narrative that initially doesn’t fit into slide form. From there, it’s usually helpful to have some structure, which is why having some slides is usually a good thing.

So, the setup for these meetings is something as follows:

“Let me tell you a bit about who we are and why we started this business. We can keep it conversational, but I have a handful of slides that can help guide the discussion.”

You should be able to get through the 5-7 slides pretty quickly. But along the way, an engaged investor will pepper you with questions. This will require some improvisation, but some questions warrant just a verbal response (even if you have a slide) to keep the conversation flowing. But in other instances, you’ll hit pause, and then flip to the FAQ slide and dig deep there.

(Oh, and if the investor isn’t asking questions or isn’t engaged, just end it and move on. Your time is too valuable, and early stage fundraising isn’t about convincing skeptics, it’s about finding true believers.)

If things go well, you leave the investor feeling like:

  1. There is a simple, coherent, and succinct story behind your company.
  2. You have exuded a mastery of the details of your business and good preparedness.
  3. The beginnings of a rapport has been built through the flow and authenticity of the conversation.

After the Meeting

After a meeting, many investors will ask for a copy of the deck. This is used for a document of reference and for sharing the story with one’s partners for feedback.

As a reference item, this format is again very helpful, because it’s very neatly organized by topic. Story matters a lot less for this purpose. And hopefully, this structure reinforces to the investor that this founder really has their act together as a result.

As a sharing deck, the short explainer-plus-kitchen sink deck leaves a good “blink” reaction as it gets passed around from colleague to colleague within the firm. If the recipient is checking it out while on the go, the fist seven slides allow them to get the gist really easily and quickly. They probably won’t dig deep into the FAQs in this context, but having them present again communicates that you have your act together.

For colleagues that have more time at the firm, they aren’t really looking through the story but instead focus on the details. Often, as a second opinion for a partner, I see my role here as digging deep into one or two questions that I have particular expertise on, so I can quickly get to the thoughts that the founder has presented and evaluate from there.

Other Thoughts:

Later in the process: If there are further discussions, usually you stray away from the deck at that point and instead dive into specific questions. But if you are going through the process in a parallel fashion (i.e. with multiple investors progressing along similar stages in your fundraise), and you decide to create material to answer an important question that came up, this material can just be easily slotted into the deck without messing up any sort of flow. So this short-plus-kitchen sink structure is also very flexible later in the process if you are still using a deck.

Time to create the deck: I submit that this deck format takes a lot less work to create than some other formats. It’s actually pretty hard to think about how a story comes together in a coherent fashion, and the more you decide you want to say in your story, the harder it is to weave everything together. This structure allows you to focus hard on a five- to seven-page story, and from there, you can think about how to best communicate the discreet pieces of your business and strategy that are important to understand.

Warning: Don’t feel like you need to create every single slide in the templates we offered. This list is a superset of what you’d want to include, but it also might leave things out that are critical for your specific business. If you don’t have real meat around a question — or just think it’s not that important to include — don’t force it. I remember in the old days when a lot of founders wrote text-based business plans. I found that most of the content was useless because it was clear that a template was used, and thus many sections were filled just because they existed.

Less is still more, even in a set of FAQs.

Good luck!

January 26, 2015

I had lunch with Brett Martin this week, an entrepreneur I’ve gotten to know a bit over the years. We were talking about a decision that I’m thinking through. I was kind of waffling.

He asked a really good question. “How will it feel when you have the right answer?”

This got me thinking in a completely different frame of mind. Usually, I think of decisions in terms of logical factors. Pro’s and con’s. Mental scoring across some set of attributes. Things like that.

“How you feel” is a bit different, and asked to answer how I would feel strangely put a lot of clarity around my thinking.

When I talk to some VC’s that are new to the role, we often talk about how one develops conviction around an investment opportunity. Again, we talk about factors one evaluates when looking at an investment opportunity. These are definitely important.

But I tend to also suggest something that is more akin to a feeling. I’m not sure where I heard it first. I definitely didn’t invent it. I think my old colleague Bijan has mentioned it in a blog, so maybe that’s where I first heard it. I encourage the investor to ask themselves “would I want to work for this company?” and “would I want to co-found a company with this founder?”  Often these feelings are completely supported by rational arguments or objective measures.  But framing it this way cuts through the clutter of uncertainty.

What are other feelings you want to have when you are making important decisions? Maybe for hiring decisions, or major strategy decisions? How will you feel when you come across the right choice?

January 20, 2015

There were a number of interesting articles published over the last week in response to Mattermark and CB Insight’s data around early stage financing activity. In particular, a number of people commented on what looks like a dramatic rise and fall in seed deal volume over the past four years coupled with an increase in seed investment dollars.

As a team, we’ve been thinking about what has been going on in the seed market in recent years. Are we in the midst of major transition? Have things settled to the point that there is a new normal? Should alarm bells be sounding, or is it business as usual?

Answer first: we think that the seed market has settled somewhat, so charts like these don’t really cause much alarm but are generally consistent with what we’ve been seeing. Couple thoughts.

First: It’s impossible to accurately chart the level of angel and seed activity over time. The data sources are not at all robust, so while the trend may be directionally accurate, the levels are not. And I’m not saying they are off by 20%, I think it’s close to an order of magnitude off. Here’s an obvious gut-check. Almost all series A’s have some prior funding round, so that would be either seed or angel (usually both). I also would argue that as an overall market, at least 2/3 of seed funded companies fail to get to series A. Based on this, you would expect that the steady-state level of seed + series A deals for any period of time would be at least 3x the number of series A’s. As you can see in the data, this isn’t anywhere close to the case.

Furthermore, I generally find that almost all the companies I consider for an institutional seed round has raised some angel capital in the past. So the number of angel rounds should be some multiple of the number of seed rounds. Again, this is far from what you see in the data, where there are actually fewer angel rounds than seed rounds. The bottom line is that I would completely ignore the absolute level of investment activity reported, but I think the trends can be illustrative.

Second: So what does the trend show? It shows that there was a rise in seed funding activity followed by a decline several years ago. This was caused by the so-called “series A crunch” where many seeds failed to raise series A’s, causing seed investors to buckle down and invest more carefully. That’s kind of old news – the number of seed deals simply lagged the performance of seed investments made in 2012 and 2013. On absolute terms, I think we still have a fairly healthy level of seed investing activity. Based on the Mattermark data (which might be inaccurate but hopefully is internally consistent), it looks like we are currently in an environment of similar investment activity as late 2010 and 2011, which I would characterize as bullish but not frenzied.

Third: The definition and dynamics of seed rounds have changed. In our view, seed rounds are the new normal for most early stage software based companies. What’s also the new normal is that the majority of seed funded companies raise some money before their seed round from angels. But because of the capital efficiency of building and launching software products, what these companies are able to achieve prior to a seed round is pretty broad. Internally, we talk about he “broadening definition of seed”. Seed rounds can look like a company that is pre-product or has an early product prototype. But in some cases, companies are able to launch a product that grows to tens of thousands of dollars in monthly revenue or more through modest initial investment.   This means that “seed rounds” should end up looking pretty different, and can become confused with A rounds pretty easily.

So, what does this mean for founders? Here’s what I’d take away:

  1. The size and purpose of financing rounds have been shifting. For a really good summary of this, just read Jason Calcanis’ recent post here:
  2. The market for raising seed money today is pretty solid, so there isn’t really a reason to be worried or concerned by the shape of these graphs. Sentiment among seed investors isn’t excessively optimistic, but they aren’t overly bearish either.  There is plenty of appetite for good seed-stage investment opportunities. Also, remember that in good or bad times, promising companies get financed and can have a terrific start.
  3. The parameters of seed rounds have broadened. Overall, I’d say that most companies should plan on a financing path where they raise <$500K from angels first, followed by $1-$3M in funding from an institutional seed investor. But although I think these are reasonable guidelines, there will be many many outliers. Just like some series A’s are $4M and some at $15M, there will also be a broad range of seed rounds. Don’t sweat this. The goal for any financing round is simply to get your company to the next major value-accretive milestone. You should raise enough to accomplish this for your own company, and know that others will probably do things pretty differently.
January 12, 2015

As an early stage investor, should you pay up for team or traction?

I posed this question on Twitter in Dec and got a bunch of different opinions.  It’s something I’ve been thinking a lot about recently.  Prices in the startup world are relatively high.  And as a firm, we generally believe that there isn’t a “sub-prime” market for VC.  This means that while it may be possible to find the odd “cheap” deal here and there, the goal is to invest in the best opportunities, which often come at market prices.

This question isn’t just relevant to investors either.  When you are thinking about joining an early stage company, how should you be evaluating the risk of the overall company?  How should you be weighing the presence of a great founding team vs. early signs of traction?  It’s not totally intuitive.

The Case For Team

The case for overpaying for team goes something like this. Great teams find traction.  Great teams also know what to do with traction and can work from there to build a company of value.  Great founding teams also attract other great team members, so the advantage compounds.

Teams are durable, traction less so. Traction is fleeting for a bunch of reasons.

1. You may only get traction with a small set of early adopters that will never translate to mainstream users

2. Your product may have gotten traction due to some distribution hack or novelty factor, both of which may not lead to sustained usage and growth

3. You may not be able to control the operational complexity and economics of your business even though there is a lot of demand

4. Barriers to entry are so low in software that new entrants can always steal your thunder, and sometimes draft off your early learnings

5. It is hard to translate rapid end user adoption with actual business success (eg: monetizing a large audience, or moving from end-user SAAS to enterprise sales).

So, if you are going to pay up, pay up for team. If there is “conventional wisdom” here, I think this is it.

But a counter-argument can also be made.

The Case for Traction

The case for traction is some version of this.  Going from 0 to 1 is really really really hard.  Great teams fail to build a product and get early distribution successfully all the time.  But when something is working, it doesn’t matter why or how it happens, it’s such a rare occurrence that you need to pay extra special attention.  Also, great teams are much harder to identify for a bunch of reasons.

1.  Teams that seem great on paper or by reputation may actually not be great.  They may have just been lucky. We tend to overly-ascribe value to individuals sometimes, when luck or circumstances had more to do with one’s track record than their actual capabilities.

2. Greatness doesn’t always carry over in different contexts. For example, different type of products, different go-to-market challenges, different market context, different stage in one’s life, etc.

3. Great companies are often founded by first time founders who don’t seem obviously special.  For every David Sachs, you have a David Karp.  Karp turned out to be pretty extraordinary, but it wasn’t obviously so when Tumblr got started.

On top of this, there are probably a lot more people in the world who are capable of taking something from 1 to N, vs. 0 to 1.  So if you have a company that has traction, attracting talent to augment what’s already working is quite doable.

Traction for Consumer, Team for B2B

A more sophisticated answer to this question is that broadly speaking, you want to pay up for traction over team in consumer, and overpay for team with less traction in B2B.  The observation is that founders of great B2B companies more often then not have some demonstrable track record as operators or entrepreneurs.  This is less often the case for consumer. Generally speaking, this is because of what it takes to get early distribution in these markets.  In B2B, more of the distribution challenges for certain types of products are in the team’s control.  Someone with experience and relationships are better at landing early customers, negotiating more favorable deals, building out and managing a sales team, raising more money earlier to build a more robust product, etc.  In companies that require more viral distribution, a great team still has an advantage, but perhaps less of one. Often, consumer companies that gain early traction do so on completely new, emerging distribution channels that an experienced operator who is used to working at greater scale is completely unfamiliar with.

In my view though, it’s less about a consumer vs. B2B dichotomy and more about what distribution channels a company is going to take advantage of and how early growth and monetization are likely to happen.

The Founders Perspective

This post is mostly from the early stage investors perspective, but what does this mean for founders?

In a world of constrained resources, founders are in a way “paying up” with each hiring decision or dollar they spend.  So they are similarly making the judgement of where to be allocating resources.  A very common mistake I see some companies make is hiring a very seasoned marketing executive way too early, and then realizing that it was a mistake to pay-up for team at that moment in time.  The converse is that I’ve also seem companies choose not to stretch to bring on more senior or more expensive talent when the time was right, and then lament “I wish we had hired her 6 months ago”.

Not “paying up” when the time is right is a challenge for founders broadly.  It is true that it pays to be conservative with cash early on and that being lean or being CFBE gives you a lot of leverage. But in a world of asymmetric outcomes, it’s important to make big bets and pay up even if it feels uncomfortable.  But as both investors and operators know, choosing the right things to pay up for, and doing it at the right time is easier said than done.


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