Posts from January 2010

Empowering Your Team

Mark Pincus, founder/CEO of our portfolio company Zynga, is interviewed in today's NY Times on the topic of leadership. The part about empowering and scaling the team is really great.

You can manage 50 people through the strength of your personality and lack of sleep. You can touch them all in a week and make sure they’re all pointed in the right direction. By 150, it’s clear that that’s not going to scale, and you’ve got to find some way to keep everybody going in productive directions when you’re not in the room.

Maybe Mark can manage 50 people through willpower and lack of sleep but I've seen many entrepreneurs hit this wall with much smaller teams. The question is what are you going to do about it?

Mark says "make everyone the CEO of something."

I’d turn people into C.E.O.’s. One thing I did at my second company was to put white sticky sheets on the wall, and I put everyone’s name on one of the sheets, and I said, “By the end of the week, everybody needs to write what you’re C.E.O. of, and it needs to be something really meaningful.” And that way, everyone knows who’s C.E.O. of what and they know whom to ask instead of me. And it was really effective. People liked it. And there was nowhere to hide.

He goes on to explain how this works and why it is so powerful. Read the entire interview if you are running a startup and looking for some ideas on scaling the team.

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Democracy In Action

Yesterday the President went to Baltimore and spoke to the House Republican retreat. I saw a bunch of tweets and headlines about it yesterday so I used the "add to boxee" bookmarklet and this morning I sat down and watched the talk and the Q&A session on Boxee on our big screen in our family room.

The talk is 20 minutes long and is worth watching.

But the Q&A is even bettter

Watching both videos is a big time committment and certainly is much easier on the big screen at home than on a laptop or desktop. But I'd encourage everyone to do this. 

I sure wish we'd see more of this kind of talk in Washington. Obama talked a lot about "post partisanship" when he was running for President but we've not seen much of it since then.

Both sides have very valid points of view in my opinion. And what I'd like to see is less posturing, less staking out positions, and real debate, dialog, and compromise. I don't know if any of that is achievable but yesterday's discussion in Baltimore sure gives me hope.

AVC People

Jerry sent me an email last night after a day of exchanging comments with the people on this blog. I replied and explained to him:

there are a couple hundred "regulars" that hang out at AVC

it's like our own little "cheers" without the beer

i get to be woody

One of those regulars, Shana Carp, has made it her objective to create a twitter list of all of the regulars. 

She calls her list AVC people

Thanks Shana.

I've added it to my twitter account. You can do the same here.

If you want to be added to the list, please leave your name and twitter handle in the comments to this post. Shana has graciously offered to keep this list up for at least a few months.

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The Monster In Your Head

Jerry-colonnaI've written before about CEO coaches. I'm a big fan of the work they do and how they can help entrepreneurs work on things that are holding them back from being the best leaders they can be. There are a bunch of CEO coaches I can recommend. But my favorite CEO coach is my former partner at Flatiron Partners Jerry Colonna.

Jerry is a special person. He's had three careers before the age of 50. He's been a hugely successful journalist, venture capitalist, and now CEO coach. At his core he is a "people person." When Jerry and I started Flatiron, I was all about the technology and the deal. Jerry taught me to focus on the people, not only who they are and what they've done, but what makes them tick.

And now Jerry has a blog. He's tried blogging before but has never stuck with it in the past. I hope that's not the case this time because a morning dose of Jerry would be good for all of us.

He calls it The Monster In Your Head. As Cameron, founder of Blogrollr, said to me yesterday "that's a great name for a blog". Yes it is. I suggest you all check it out, not just today but on a regular basis.

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Tablet Day

Well today is the day we get to stop hyping and speculating and actually get to see the thing. I'm quite interested. It seems like the perfect device to mount on my elliptical trainer which I intend to do.

But yesterday, in a quick chat with Donna Murdoch, I realized that there's something else about the tablet that appeals to me. The tablet will have both wifi and 3G but it will not be a voice device. That's something I've been seeking for a while.

I used an iTouch in that way for a while but eventually tired of always needing wifi and opted to park it in our family room where it does a fantastic job of being a keyboard, mouse, boxee remote, and sonos remote. I now use the Google phone in pretty much the same way. I've put a second sim card into the Google phone, one that I never use for voice, and use it for mobile apps, mobile reading/browsing, and mobile email reading.

If I am going to carry two mobile devices, which I am doing right now, both don't need to have voice service. One can be my phone and the other can be optimized for other things.

It's still an open debate in my mind whether I want to lug around a big 10" device or the slim Google phone that fits in my pocket. I'll just have to get one and see. But if it turns out, as I suspect, that I'll prefer to lug around the Google phone, the Apple Tablet will fit nicely on my elliptical trainer.

NYC 3.0 Interview

NYC 3.0 is a website that covers the NYC tech startup community. It was started recently by two Columbia University Journalism School students. A few weeks ago, they sat down with me in my office and asked some questions like “what mistakes do entrepreneurs make when they pitch?” and “what characteristics make up a good entrepreneur?”. 

The interview is now up on the web. The video is about six minutes long. Here it is.

Fred Wilson talks trends, advice for startups from Vadim Lavrusik on Vimeo.

How To Calculate A Return On Investment

The Gotham Gal and I make a fair number of non-tech angel investments. Things like media, food products, restaurants, music, local real estate, local businesses. In these investments we are usually backing an entrepreneur we've gotten to know who delivers products to the market that we use and love. The Gotham Gal runs this part of our investment portfolio with some involvement by me.

As I look over the business plans and projections that these entrepreneurs share with us, one thing I constantly see is a lack of sophistication in calculating the investor's return.

Here's the typical presentation I see:

Return calc

The entrepreneur needs $400k to start the business, believes he/she can return to the investors $100k per year, and therefore will generate a 25% return on investment. That is correct if the business lasts forever and produces $100k for the investors year after year after year.

But many businesses, probably most businesses, have a finite life. A restaurant may have a few good years but then lose its clientele and go out of business. A media product might do well for a decade but then lose its way and fold.

And most businesses are unlikely to produce exactly $100k every year to the investors. Some businesses will grow the profits year after year. Others might see the profits decline as the business matures and heads out of business.

So the proper way to calculate a return is using the "cash flow method". Here's how you do it. 

1) Get a spreadsheet, excel will do, although increasingly I recommend google docs spreadsheet because it's simpler to share with others. 

2) Lay out along a single row a number of years. I would suggest ten years to start.

3) In the first year show the total investment required as a negative number (because the investors are sending their money to you).

4) In the first through tenth years, show the returns to the investors (after your share). This should be a positive number.

5) Then add those two rows together to get a "net cash flow" number.

6) Sum up the totals of all ten years to get total money in, total money back, and net profit.

7) Then calculate two numbers. The "multiple" is the total money back divided by the total money in. And then using the "IRR" function, calculate an annual return number.

Here's what it should look like:

Cash flow sheet

Here's a link to google docs where  I've posted this example. It is public so everyone can play around with it and see how the formulas work.

It's worth looking for a minute at the theoretical example. The investors put in $400k, get $100k back for four years in a row (which gets them their money back), but then the business declines and eventually goes out of business in its seventh year. The annual rate of return on the $400k turns out to be 14% and the total multiple is 1.3x.

That's not a bad outcome for a personal investment in a local business you want to support. It sure beats the returns you'll get on a money market fund. But it is not a 25% return and should not be marketed as such.

I hope this helps. You don't need to get a finance MBA to be able to do this kind of thing. It's actually not that hard once you do it a few times.

Leaders

PopupYesterday I blogged about girls basketball and role models. Today I'm going to blog about football coaches and leaders. I guess I've got sports on my brain this weekend (for good reason).

The NY Times has a nice front page article this morning about Rex Ryan, the rookie coach of the NY Jets. Here are a few quotes:

In Ryan’s first season as coach, he changed the Jets’ second-class existence through the sheer force of his bold and brash personality. He spoke loudly and often about the talent that surrounded him, until the players believed every word he said.

and

Ryan turned one of the N.F.L.’s most clandestine operations in into an open book. The Jets collapsed at the end of 2008 in part because of the tense atmosphere. Ryan changed that, changed a culture, changed the way people felt about coming to work.

Companies are reflections of the people who lead them. Same with football teams. I've watched almost every Jet game this season and last season. The difference in the team is so visible. They play with a brash and bold style this year that was not on display in the Mangini era.

But it's the last line of the second quote that is the biggest deal, he "changed the way people felt about coming to work." That's what great CEOs do. They inspire people to come to work with a bounce in their step and a desire to do great work.

And that is largely about people skills. We all know people who have the special touch with people. They make people laugh, smile, and feel good. Those people make great CEOs, leaders, and football coaches.

But it is not enough to be a cheerleader. You also need to have a plan, you need to be close to the product, you need to know where to lead people. Here's another couple quotes from the Times article:

Instead of operating from a tower like a dictator, Ryan walks the hallways, massaging egos, cooking up defensive plans.

and

"Beneath it all, he’s super, super intelligent,” Pettine said. “Like the guy in the movie ‘A Beautiful Mind.’ The things that come out of his mouth are not being shot from the hip. There’s a plan behind all of it.”

So there you have it. The recipe for a great leader is:

1) Knows how to connect to the team and make them feel good about their work

2) Someone who walks the halls and works on the product with the team

3) Has the intellect to make the right decisions

4) Has a plan

We'll see how well Rex Ryan and the Jets do today against the Colts. They are big underdogs and rightly so. I'll be rooting hard for them and I'm sure the Jets will give it all today.

But win or lose, Rex Ryan has impressed me very much in his rookie season. I look forward to watching him work the sidelines of Jets games for many years to come.

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Role Models

Asst coaching  My 16 year old daughter (in the orange sweater with a player on her lap in the photo) and her friend got up at 9:15am this morning, about three hours earlier than they'd ordinarily get up on a saturday morning, and headed over to the local public school to be assistant coaches in the Greenwich Village girls basketball league.

Both of my girls played in this league in their middle school years and then assistant coached in it during their high school years. The skills and experience they developed playing in this league allowed them to be leaders and top players on their high school team.

Earlier this week, when I showed up at my daughter's high school game, I saw one of the younger girls on her Greenwich Village team in the stands cheering her on. 

As I sat there this morning watching these little girls play basketball, I was thinking about role models. I talked a bit about role models in the Fast Company interview I did last month.

We can back first-time entrepreneurs and have mentors and role models for them and we have those role models in their second, third, and fourth startups and that's the magic–that creates a sustainable startup economy that Silicon Valley has had for four decades now.

Role models are so important. When my girls were young, they had high school players who were their assistant coaches to look up to. They had women head coaches who had played college ball. They had Becky Hammon who was the point guard on the NY Liberty to go root for. They wanted to be them, they listened to them, copied them, and got a lot better as a result.

The same thing plays out in startup land. The young entrepreneurs who are starting companies for the first time are best served by seeking out and getting experienced serial entrepreneurs as angel investors, board members, and mentors. We encourage all of the first time entrepreneurs we work with to do this. And the serial entrepreneurs who work with young founders get something out of it too (in addition to equity). It is a truism that the best way to learn is to teach. I know a bunch of seasoned entrepreneurs who love working with young first time entrepreneurs because they learn quite a bit from it. Matt Blumberg, founder and CEO of Return Path, wrote a great post about this last summer.

One of the best things about the startup programs like Y Combinator, Seedcamp, Techstars, and many others is that they provide a vehicle for young entrepreneurs to connect to experienced entrepreneurs. Mentoring is a big part of these programs.

But not every young entrepreneur gets to participate in one of these programs. I'd like to see more vehicles emerge, not just here in NYC but in every startup community, to connect first time entrepreneurs with mentors and role models. Everyone would benefit from more role models, mentoring, and coaching.

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The Venture Diet Is Working

The 2009 data on venture capital investments is out now. PWC, along with its partners the NVCA and Thomson Reuters, report that VCs invested $17.7bn in 2009 in the "Money Tree Report."

I think that's a pretty healthy number. I've written in the past that $15bn per year is a good number given the "Venture Capital Math Problem."

My concern is that investing went up in the second half of the year to a $5bn/quarter rate, which is $20bn run rate, a bit above the number that I think is optimal for the industry's returns.

2010 will be an interesting year. If VC investments go back up to $25bn to $30bn per year, then the diet didn't stick and we are back to an overfunded industry that will produce subpar returns on average.

If, on the other hand, the new normal is $15bn to $20bn per year, then the diet worked and we've scaled back the business to healthy levels.

Stay tuned and find out which one it is.

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