There are a lot of awesome people in the startup community, but Paul is among the most awesome.
3405 posts categorized "Venture Capital and Technology"
There are a lot of awesome people in the startup community, but Paul is among the most awesome.
Dr. Mandel counts 262,000 well-paying jobs in tech and information, an 11 percent jump since the economy crashed in 2007. The $30 billion in annual wages generated by the tech sector is small compared to the $90 billion in wages paid to the still-dominant financial sector, but tech wages have grown since 2007 while finance wages decreased.
I would have thought the real estate sector was larger (it may be) and it is also a bit surprising to me that tech is bigger than media & entertainment.
One of NYC's great strengths is the diversity of its economy - finance, real estate, media & entertainment, retail, fashion, health care, education, and now tech. And the reason tech is growing so fast in NYC is that it is embedding itself in all of these other industries. It's not entirely clear to me whether Gilt is a tech company or a fashion/retail company, it is not clear to me whether ZocDoc is a tech company or a health care company, it is not clear to me whether Codecademy is a tech company or an education company.
And you know what? It doesn't really matter to anyone other than those whose job it is to count jobs in various sectors. What does matter is if you want to work in tech, build a new company using tech, and be part of a vibrant tech community, NYC is one of the best places in the world to do all of those things, and a lot more.
I'm a crotchety old guy. I worry about all these new companies. I’m glad that they’re easier to start, but the problem is, they’re just as hard to finish as they have always been.
The thing in Mike's quote that really speaks to me is the difference between starting and finishing. Starting requires an idea/inspiration, a team, some technical skills, the ability to iterate on the MVP and find product market fit. That's hard for sure, but what happens after you find product market fit is even harder. That's called building the company and building the business. And that is where I have seen all founders struggle. The ones that have done it before a few times seem to manage through this struggle better. The ones who are doing it for the first time really need a lot of help from mentors, coaches, and their team to get to the finish line. And many don't. Mike handed his company over to more seasoned managers and many other founders end up doing that too. Sometimes the VCs/investors have a role in making that happen. Sometimes the founder makes that call on their own.
The skills that get you from idea, through initial product, past product market fit, and into a market leading company are very different from what it takes to manage a 200-500-1000 person global business that needs to exectute well across a range of dimensions and keep everyone aligned, motivated, and working well together.
The quick pivots, the exhausting product/engineering sprints, the rapid fire innovation, the missionary zeal, etc work so well in the early days but they get old quickly and they don't scale. At some point calm, rational, supportive, and highly communicative management skills are required. And learning those on the job is hard. As Mike points out in his post, it is a bit easier to learn those skills from watching someone else who is really good at doing that. And that is why Mike argues that founders should pay their dues working in someone else's company before starting their own.
I agree with Mike that learning from someone else is a better model for becoming a great CEO. But often a first time founder has the right idea at the right time and assembles the right team and ships the right product. And getting behind that kind of founder has produced the best returns over time for USV and for many VC firms. So the art is helping the first time founder learn how to turn themselves into a great leader manager or helping them decide that they should step aside and let someone else take over.
I have seen both done both many times. There isn't a right way or a wrong way. But there is a right way or a wrong way in a specific situation with a specific founder and company. It all depends on whether the founder wants to make that shift, is making that shift over a reasonable period of time, and that the company is making that shift with them.
It's postseason baseball time. So I will use a baseball analogy here. The starter rarely pitches a complete game. Most times the winning team will leverage both a great start and a great close from two different pitchers. And there are plenty of both in the hall of fame.
Update: As my friend John points out, there are only 5 closers in the hall of fame. Not sure what that means for this post, other than my analogy was a bad one and I should have done some homework before using it.
Hunter Walk has a good post up on the coming competition among angels with syndicates to get into deals. Hunter observes:
My guess is there are also some angels who were popular when they represented a $25k check but won’t be as sought after if they try to push $300k into a round.
What Hunter is getting at is the difference between leading and following. A lead investor sets the price and terms of the investment, takes a large part of the round, and usually agrees to represent the entire round on the board. Then everyone else gets to pile in behind them and piggyback on all of that work. And the entrepreneur and lead investor allow the followers to do that because either they are likely to help the company in some way or because the company needs more capital than the lead is prepared to invest at this time.
USV is a lead investor. Benchmark is a lead investor. Gotham Gal is a lead investor. I suspect Hunter's Homebrew is a lead investor.
Angel List Syndicates are turning angels who have traditionally been followers into leads. That's a good thing in many ways. The more folks who can lead a round, the better, at least for the entrepreneurs. But, as Hunter points out, it will mean that less of these angels will get into rounds than before because they will all be showing up with a lot more money than before.
It also means that they will have to learn to lead and lead well. They will have to step up before anyone else does. They will have to negotiate price and terms. They will have to sit on boards. They will have to help get the next round done. Essentially they will have to work. That's why they are getting carry from the syndicate, after all.
And over time we will get to see who is actually good at this and who is not. And I can tell you this. Not everyone is good at this. In fact, very few are. It's hard to be a great lead investor and a completely different thing than being a well sought after angel investor who can get into someone else's deals. Some will turn out to be great at this. Many won't. And only time will tell who is and who isn't.
This is a question I like to ask our more developed portfolio companies who have built large markets/networks/user bases. I ask them "if you were a startup and you wanted to compete with our company, how would you go about it?"
I think it is very important to understand your weakest flanks/vulnerabilities and then shore them up. If someone will compete with you by coming at the market "mobile only" while you struggle with maintaining a large web and mobile presence, then you should know that. And it probably means you need to rethink your mobile strategy so you can close off that open flank. If someone will compete with you by offering a free version of what you charge $10,000 a month for, then maybe you need to think about a freemium offering to close off that open flank.
This question is a particularly good one to ask at a senior management offsite or board offsite/strategy session. It often leads to changes in priorities and/or strategy. I have engaged in many excellent strategic discussions that came out of asking this very simple question.
I thought of this today when reading Benedict Evans' post on how one might do this to LinkedIn. I would suggest the folks at LinkedIn read it as well as anyone else who likes to think this way.
I am in Paris this weekend and I always love being here. I am reminded of attending LeWeb back in 2008 and having dinner with Jeff Clavier and Reid Hoffman and our wives.
And I remember meeting with Alex and Eric from SoundCloud at LeWeb that year. We didn't invest then, nor the first time Alex pitched me, but a little more than a year later Alex sold me on the third pitch and we are very happy that he did. I mention an entrepreneur pitching me about 22 minutes into this video. That was Alex (and Eric).
So in the spirit of all that, here's a video of a panel I sat on at LeWeb 2008, moderated by AVC community member, Ouriel Ohayon.
I had dinner with my daughter Jessica last night. We got to talking about creativity. She's a photographer. I asked her how she thinks Pieter Hugo comes up with his ideas for photos. She said "I bet he reads a lot about the topics he is interested in and then writes his own thoughts down and from that comes the ideas for the work".
That led to a long discussion about the value of reading and writing, with a particular emphasis on writing. I told her that I toiled in the VC business for close to twenty years before I hit my stride and the reason I found my stride was my adoption of blogging.
As all of you know, I write every day. It is my discpline, my practice, my thing. It forces me to think, articulate, and question. And I get feedback from it. When I hit publish, I get a rush. Every time. Just like the first time. It is incredibly powerful.
And it is permanent. There is a long and winding record of my thinking out there on the public Internet. Google "mobile app deep linking" and you find my post first. At the top. That's because I have been thinking about mobile app deep linking and I wrote my thoughts down.
A journalist is doing a profile of me. I told him that I don't like profiles of VCs. I suggested that he should focus on the entrepreneurs who are doing the real work in startupland. But that didn't get him to back off. He replied
I understand your reticence, though think it would be instructive to hear how you’ve come to some decisions. (What struck you about Twitter, for instance? Many people would have shaken their heads.)
What struck me about Twitter? That's here. I wrote it down.
The New Yorker has a piece on Stanford's StartX. They ask some interesting questions and end with this one:
If the university is a farm, do the students become the cows?
I have promoted this idea of becoming an early stage investor to a number of Universities and schools within Universities for some time now. It isn't the IP and patents that are held by Universities that interest me. It is the human capital that is inside of them.
Universities are organized to educate students and do cutting edge research. The byproduct of that is a lot of great ideas. In an era when the cost of a University education has gone up way faster than the value of it, we need new business models to sustain universities other than tuition increases, federally funded research, and the generosity of the alumni.
I think capital gains from equity investments in startups that are birthed inside universities is an interesting idea and I am glad to see Stanford and some other schools trying it out. If Universities are the farms, I think students might be the farmers, not the cows.
The JOBS Act was signed into law on April 5, 2012. This legislation was designed to make it easier for small businesses in the US to raise capital and contained a number of important and valuable changes to securities laws. One of the most promising changes in the JOBS Act is around the concept of General Solicitation.
General Solicitation is the marketing of a securities offering (a fundraise) publicly in the open market. The Securities Act of 1933 (which still governs much of securities law in the US) prohibits "general solicitation" or other forms of advertising in securities offerings pursuant to Rule 506 and Rule 144A which are the two most common forms of securities offerings for private companies.
In response to the JOBS Act, the SEC has lifted the ban on General Solicitation and on September 23, 2013, companies can start to use public marketing in their fundraising efforts with some important conditions. I blogged about how important this could be for startups when that news came out.
First and foremost, if you want to use General Solicitation, you must limit your investors to accredited investors (investors that satisfy net worth or annual income requirements) and you must undertake some specific efforts to make sure that your investors are in fact accredited. This is above and beyond what is typically required in a securities offering where General Solicitation is not used.
But the SEC has not stopped there. They have put foreward additional rules for public comment. If anyone in the SEC cares to read this blog, they can consider this my public comment. I am not planning to send in a formal comment nor is USV or anyone else at USV.
It is my opinion, and that of those who we do business with, including our securities lawyers, that these proposed rules effectively make General Solicitation a non-starter for startup companies. If the SEC's intention, with these proposed additional rules, is to neuter General Solicitation to the point that it is legal but nobody avails themselves of it, they will succeed.
Here are a few of the most problematic rules:
1) A 15 day filing period for Form D before the company initiates its fundraising process (and before the company even knows if it will be able to raise capital). Typically we file for Form D after the raise has been completed. To do so before the company intitiates a fundraise is not realistic and ignores how startups raise capital. If there was one rule that I would most like to see the SEC remove, this would be it.
2) The requirement to formally file all written materials provided to investors with the SEC is very burdensome when entrepreneurs update their slides and other fundraising material from meeting to meeting.
3) The penalty for violating any of these rules is a one year prohibition from being able to raise capital under Rule 506. Given that startups need to raise capital frequently and they need to avail themselves of this form of securities offerings, this effectively means that a startup that violates any of these rules is likely to be put out of business. This is way too harsh and means the risk/reward analysis around using General Solicitation is skewed too much toward risk. Which means nobody will use it.
USV is an interested party to this rulemaking process in a number of ways. First, we invest in startups. The more startups there are, the better for us. So anything that creates more financing for startups is good for us. And anything that makes it harder for startups to raise capital is bad for us. Further, we are investors in CircleUp, a fundraising platform for startups that would benefit greatly from opening up General Solicitation.
I have been investing in startups since the mid 80s. I have participated directly or indirectly in the financing of hundreds of startups, possibly more than a thousand when all of my activities are aggregated. If I am an expert in anything, I am an expert in the financing of startups. And in that capacity, I can tell you that the proposed additional rulemaking around General Solicitation is a non-starter in startup land. If these rules come down as drafted, we will keep doing things the way we have been doing them for years and possibly the single most important change from the JOBS Act will have been for naught. And that would be very dissapointing to me and many others in startup land.
Here are some other links worth reading on this topic: