Posts from entrepreneurship

Startup Porn

I like Bryce‘s post so much I am cross posting here in its entirety.

The Problem With Startup Porn

I found a box of old Playboy magazines buried in the woods behind my house. I couldn’t have been older than 10 or 11 years old at the time. I spent that afternoon flipping through the pages, discovering a whole new world of excitement, curiosity and wonder.

Hours later, as I warmed my hands by the fire of these same magazines my mom set ablaze, I was left only with the images of naked ladies dancing in my heads.

In my haste, I did not read the articles.

At the end of last year, Playboy announced that they would no longer be printing photos of the naked ladies they’d built so much of their brand around.

Their rationale for such a radical shift- images of naked women, no matter how tastefully done, had simply become too passé.

“You’re now one click away from every sex act imaginable for free. And so it’s just passé at this juncture.”

Now every teenage boy has an Internet-connected phone instead. Pornographic magazines, even those as storied as Playboy, have lost their shock value, their commercial value and their cultural relevance.

What began as simple, racy images of women spiraled into a web of extreme images and acts mere clicks away. At each step the visuals required to elicit a reaction, or even register a response, became so much more graphic than the last that the originals hardly elicit a speeding of the pulse.

As porn goes, so goes Startupland.

It begins with entrepreneurs in the press as heros of creation and innovation. Then comes the stories around how much money these heros are raising. Feel

Feel your blood racing yet?

Then on to quantifying the net worth of these founders and the valuations of their companies. Finally, they’re christened as Unicorns even Decacorns!

Wait for it.

Then Unicorpses.

At each stage the reader becomes more desensitized to the imagery and storyline. They need more. A billion isn’t cool. A unicorn is passé.

So the tables turn and they turn quickly.

5 months ago we saw the advent of the Unicorn Leaderboard.

Yesterday we welcomed the Downround Tracker.

As exciting and evocative as the headlines are while the market heats up, they’re going to need to be even more salacious going down.

That’s the nature of porn, startup or otherwise.

Orphaned Investments

There are two intertwined things that entrepreneurs and their companies get from VCs – money and attention. You need both. And they feed on each other. Attention begets more money if necessary. And more money is usually necessary. Everyone always underestimates how much money a startup will require to get to breakeven and how long it will take. That includes the VCs. And we should know better. But entrepreneurs are even more guilty of seeing the light at the end of the tunnel when it is actually a train coming.

Which brings me to the subject of orphaned investments. Of all the bad things that VCs do on a regular basis, and that list is long, orphaning their investments is at the top of my list of bad behavior. I have never done it. I’ve wanted to. Trust me. I dream of doing it. But I won’t.

And the reason I won’t do it is that I have lived with the costs. I have sat on boards where two or three of the seats are vacant at every meeting. I have put together rounds where two or three of the syndicate members won’t participate. I have sat with an entrepreneur and explained that life is not fair and it is what you do after you realize it that really matters.

Orphaning an investment is when a VC firm decides that it doesn’t really care about an investment any more and stops paying attention. The primary cause is when a partner leaves a firm and nobody picks up coverage of his or her investments. The VC firm says that “so and so” is covering the investment now. Yeah, if you call reading an occasional email “covering.” But it can also happen when a VC loses interest in an investment they made and causes their firm to lose interest as well. It’s easy to not care about an investment if your partner who made it doesn’t care anymore.

And this brings me back to the link between attention and money. If you aren’t getting attention from a VC, you aren’t going to get money from that VC either. When a VC writes off an investment, either emotionally or literally on their schedule of investments, they are closing their wallet to it too. This rule works in bull markets and bear markets. But it is more painful for entrepreneurs in bear markets.

So how do you avoid being orphaned? Like most things, it comes down to picking your partners carefully. Ask around. Find out how they have acted in tough situations. Find out how solid the VC’s position is in their firm. You need to reference both the partner and the firm. The person is important but if they leave you will find out a lot about the firm.

This is the kind of post that after I write it, I get a ton of inbound email saying “you are talking about this company”, “you are talking about this VC”, “you are talking about this VC firm.” So I will say right now that this post is not about anybody, any firm, or any investment. I have been thinking about writing this post for months. I have nobody in mind right now. Other than entrepreneurs and their companies out there that are orphaned, or are going to be orphaned.

You can survive being orphaned. But it will require rebuilding your investor syndicate, it will require the other VCs involved to increase their support and attention, and it will require you to forget about life being fair and get on with it. Getting orphaned is not a time for feeling sorry for yourself. It is a time for doing something about it.

Video Of The Week: Diversity In Tech Startups

The idea of Magic Johnson participating in a panel at a tech conference is pretty damn great in and of itself. But this is an important discussion and this panel captures a lot of great points. It’s long (45mins) but good.

When the going gets tough, the tough get going

It sure feels like the long awaited headwinds have arrived and the tailwinds are behind us for now. A friend sent me this chart today.

You could create a similar chart out of many tech sectors right now but SaaS is as good of an indicator of what’s happening out there as any.

I welcome this new environment. You might think “of course you do, you can buy things less expensively” but I would remind you that USV has a portfolio of investments that are unrealized at this point and subject to a chart like that.

I think any benefits we might get from a better buying environment are negated by the impact on our current positions.

The real reason I welcome the tougher environment is that it will make all of us better. We will have to make better decisions.  The market won’t bail us out. We will have to earn our returns instead of being handed them.

And I’m not just talking about investors. I’m talking about everyone working in tech startups. The going is getting tougher. Time for the tough to get going.

Do You Want Better Board Meetings? Then Work The Phone

I was talking to the CEO of one of our portfolio companies last week. He was preparing for a board meeting that is coming up. He told me that he had scheduled calls with all of his board members and investors that attend his meetings and had completed most of them. He had gotten feedback on what they were thinking about his company, what they are excited about, what they are concerned about, things they want to discuss, etc. He said it had made a big difference in his preparation for the meeting.

I think it will also make a big difference in the meeting and make it a lot better. Soliciting your board member’s input on your agenda is important. But it is also really helpful to have these “one on ones” in advance of the meeting so you can update each board member on the things that they are concerned about. The board members will arrive at the meeting more prepared, they will be more comfortable, and they will also be able to help more. And the CEO will be highly attuned and attentive to the issues that matter most to the group.

This kind of preparation is time consuming. Who wants to work the phones in the SMS era? Nobody to be honest. But it pays huge dividends and I recommend it strongly.

You can keep the calls on the short side, 15-30mins each, and that means it is two to three hours of work for most board sizes and investor groups. I would recommend doing these calls one to two weeks before the meeting so you have time to collect all of the feedback and incorporate it into the agenda and the board materials. But don’t do it too far in advance because you also want your board members and other attendees to be “fresh” in terms of their understanding of what’s going on in the business.

If you have never done this, give it a try on your next meeting. I bet you will be pleased with how well it works. If you do this already, then keep doing it. Because it works.

The Product Hunt Podcast

I listen to tons of podcasts on SoundCloud. I follow them and they just come into my feed every day and I can listen on my phone in the SoundCloud app. It’s a great experience.

One of the podcasts I like is the Product Hunt Podcast. This weekend I listened to this podcast with Patrick Collison, CEO and co-founder of Stripe.

I enjoyed it and because I’ve been on a call since 5am this morning and don’t have time to write today, I am using this opportunity to post something useful on AVC today.

Get The Strategy Right And The Execution Is Easy

In the mid/late 90s, we had a venture capital firm called Flatiron Partners. Our primary investor was Chase Capital Partners (CCP) and for the first year of our existence we worked out of CCP’s offices in midtown manhattan. I learned a lot from the partners at CCP, they were experienced and disciplined private equity investors. One of the best of the group was Arnie Chavkin and he taught me something that I come back to often. Arnie told me “get the strategy right and the execution is easy.”

Up to that point, about ten years into my venture capital investing experience, I did not have enough appreciation for strategy. I came from the “work hard and surround yourself with smart people and you will succeed” school. That’s how I went about my job and that’s what I looked for in teams to back. But Arnie’s words got my attention. The idea that execution could be easy was tantalizing to me. And it made sense. If everyone knows what the company is trying to do, and what it is explicitly not trying to do, then they can be focused and efficient in their work. It also caused me to look at the companies that I worked with that were working really hard but not succeeding and I could see that many of them were not pursuing an intelligent strategy.

One of my favorite stories about getting the strategy right is TACODA, a company that Brad Burnham and I were angel investors in during the post bubble period in the early 2000s. TACODA made enterprise software for media companies that allowed them to understand their audience and serve more targeted ads to them. TACODA was one of the earliest, if not the first, behavioral targeting companies. TACODA was working extremely hard, with a very gifted and experienced team, and yet four years in, they were struggling to build a business. My partner Brad became obsessed with the strategy and go to market and told Dave Morgan, the founder and CEO, that he was “working too hard and getting nowhere” and encouraged him to rethink his strategy. Ultimately Dave decided to flip the go to market model to an ad network and within a year the business exploded and it sold a few years later to AOL for something like $275mm.

TACODA had the right idea, the right team, the right tech, but not the right strategy. When they fixed that, a ton of good things happened.

So if you are working really hard and have a strong team and aren’t getting where you want to go, take a hard look at your strategy. As Arnie told me, once you get that right the execution will be easy.

Tenacity

One of the things I admire most in companies and their leaders is tenacity. I don’t mean sticking with a failed idea for too long. That is a mistake I see a lot of entrepreneurs make in the Seed and Series A stages. That does nobody any good.

I mean years 5-10, or years 10-15, of building a company. I am talking about the period long past when you find product market fit, long past when you raise your first eight digit round, long past your first revenue check, maybe even long past your first profitable month.

Every successful company I have been involved in has gone through periods where things didn’t work, where something important took too long (a re-architecture project, an important business deal, a fundraising process) and the doubts start to creep in. Employees start to lose faith, the media turns cruel (sometimes deservedly so), and you’ve got to hold it all together. “You” is the founder, CEO, and/or the leading investors and board members.

Most of this holding it together falls on the founder and/or CEO. The investors and directors can help a lot during this period, and, conversely, they can hurt a lot too. An aligned founder, CEO, and board can make these rough periods go a lot easier. A misaligned founder, CEO, and board can be devastating.

So now I’m going to tell some stories to make my point more real.

Yesterday our portfolio company SoundCloud announced that they had finally concluded a licensing deal with the music industry’s largest rights holder, Universal Music Group. In the TechCrunch story about that news Ingrid Lunden noted:

SoundCloud .. inked its first partners deal in August 2014 when it launched On SoundCloud. It announced its first big label deal only in November 2014, with Warner Music. An agreement with Merlin — which represents some 20,000 independent labels — came in June 2015

What Ingrid didn’t say is that the conversations with the music industry that led to these deals started at least a year earlier at the start of 2013. So SoundCloud has been working with the music industry for over three years to get a license in place to allow them to do things that have never been done before.

Alex Ljung, the CEO of SoundCloud, said this in that TechCrunch piece:

if you look at SoundCloud generally it’s the first time someone has tried to do something of this scale. We have over 100 million tracks on the platform and play over 10 million artists in a given month. We are really trying to create a platform that embraces all kinds of creativity, something that never existed before. There is no off-the-shelf solution for licensing for this. We had to work with the whole music industry to create something that never existed before, and that takes a little bit of time.

A little time? Maybe a very long time would be more accurate.

For the past three years the narrative around SoundCloud has been that it was stuck in the mud, that remixes and other derivative content were getting taken down, that labels were forcing artists to take their content off the service. All of which was true, but the real narrative was that SoundCloud was going through a difficult and complicated process of developing a new business model for audio content in partnership with an existing industry that has done things a certain way for a long time. Through all of that period, however, SoundCloud’s user base and listening time grew larger and larger and during that period it became one of the top music apps in the world

music category

Through all of that period, which isn’t entirely over, the leadership of SoundCloud, Alex, his co-founder Eric, and the entire senior team stuck together, kept the business moving forward, built a strong management team, and kept the Board aligned and informed. I believe they have emerged much stronger for the experience.

Another story is Return Path, a company that I have worked with since 2000. Return Path’s founder and CEO Matt Blumberg has started, built, sold off, and built again a number of email services for the enterprise that has become a very large business. Matt has gotten the business profitable three or four times only to choose to incubate and build several new businesses and go back into the red. He has survived at least three of our near death experiences where the company was on fumes and it wasn’t clear how we were going to make it another month. Each time he pulled something off, often with the help of his Board and investors.

It was at Return Path where I learned the value of an engaged and aligned Board. Matt put together a real Board early on, with strong outside directors with operating experience, and he has always leveraged his Board to help him through the tough times. Matt has also built a strong culture inside Return Path which is often cited as one of the best places to work in corporate America.

The lesson from Return Path for me is you can survive the tough times and the near death experiences if you have a team that believes in each other and a Board that is equally engaged and aligned. I doubt Return Path would be around today without both of those things.

Another example is Foursquare. Maybe no USV portfolio company (with the exception of Twitter) has taken it on the chin more for being the “hot company that fell out of favor.” And yet sitting here today, Foursquare has built a very real business that is growing nicely and has a very bright future. They survived a move that almost killed the company (the app splitting decision almost two years ago that is still getting critiqued daily and will certainly be critiqued in this comment thread). Their financing processes have played out in the press with a transparency that few companies could tolerate.

And through all of this the founder Dennis Crowley and his team have taken the hits and kept moving forward. They have built technology for detecting locations that is state of the art. They have a location API that I believe is the most used location API in the business. They have kept improving and evolving the best localized mobile search experience and the most fun local social experience. And they have built a real business that is sustainable and has attractive economics.

You can say what you will about Foursquare, and don’t bother because it most certainly has already been said and not very nicely, but it has survived and is thriving. Very few understand that, but those close to the company do. Which is the hallmark of a tenacious and durable founder and leader and his or her company.

I’m almost done but before I wrap this longish post, I’d like to say something about the now public USV portfolio companies. I can’t and won’t talk specifically about their businesses because they are public and I don’t want to go there. I also own large positions in each and every one of them. Their stock prices are all, without exception, in the dumps. And yet I believe in each and every one of them and their leadership and their prospects. They are all led by tenacious leaders and teams who I believe will keep their heads down and execute and get through the negativity and second guessing that is coming at each and every one of them. I admire these companies more today than ever.

Building and operating a business is not easy. I believe it gets harder, not easier, as the years pile up. That is where tenacity and believing in yourself and your team and your business is required. The leaders who exhibit that have a special place in my heart and my head.

Ch-ch-ch-ch-changes

Ch-ch-ch-ch-changes, Turn and face the strange  David Bowie

Just this week I’ve been on the receiving end of a half dozen of those emails. They start with the news that a valued colleague has made the decision to move on. It goes on to thank everyone for a wonderful experience and ends with best wishes.

It’s that time of year. Year end bonuses have been paid. Quotas have been earned. Options have vested. And so people are moving on. Or arriving.

I grew up an army brat. Every spring my dad would come home from work and tell us where we were moving to that summer. I didn’t know that people lived any other way. Each fall I’d find myself in a new school, facing the strange.

So I’m a fan of changes. I crave them. And so when I get one of those emails, I’m happy for the person and hopeful that they will find new challenges and new colleagues and friends in their next endeavor.

But what about the company that is being left behind? Well every departure is an opportunity to rethink the role and the organization. You can’t find an exact replica of the person who has left. But you can find a person who will bring different things. You can split the role in two. Or you can even choose to eliminate it.

My advice to the leaders of our portfolio companies is to embrace change and the possibilities it brings. And, even more importantly, I advise leaders to be open and transparent about the change and how it opens up opportunities for the organization.

The thing I caution against is the tendency to get upset at departures and departing employees. I’ve seen leaders take the mob boss approach of “your are dead to me now” with departing employees. The better approach, which I think is a hallmark of great companies, is the idea that departing employees who leave on great terms are roving ambassadors for your organization. After all, you never know when you are going to come across someone again in business. And it might be a situation where you need something from them.

It sucks to lose a valued colleague or employee or boss. It creates anxiety in the organization about what is going to happen next. But if you are working in or leading a startup you signed up for a boatload of change. Accept it. Embrace it. Make it work for you. Because you can’t make it go away.

The Co-Founder Bootcamp

Co-founder stress and strain is one of the most under appreciated of all the startup challenges. If you don’t have a co-founder, well then you have other challenges, namely having to do it all on your own. But if you do have a co-founder or two or three, I would imagine that figuring out how to get along, stay aligned, communicate honestly and openly, and not drive each other crazy is a big challenge. I’ve seen it so many times. And co-founders don’t like to talk about it because they are afraid that their issues will freak out everyone else; their employees, their investors, etc. That’s why its among the least discussed and under appreciated of all of the startup challenges.

My friend and former partner Jerry Colonna and his colleagues are out to change that. In their CEO coaching work, they come across this co-founder stress issue very frequently. And so they have designed a four day Co-Founder Bootcamp to attack the issue head on. The next one is the first weekend in March.

A concern that I’ve heard from founders is “how are we going to afford $9k per person to do this?”  That’s a great question. My answer is the company should pay for it if it can. And if your investors aren’t in favor of you making this investment in the partnership that drives the business, then they don’t have their priorities straight. Getting the co-founders working right will go a long way to getting the company going right.

If you and your co-founder(s) are struggling, consider four days in the mountains in Colorado in early March with a team of people who can help you work out the kinks in the relationship. It can be a game changer for your company.