Posts from entrepreneurship

Women Entrepreneurs

There is gender bias in the startup sector. Anyone who believes otherwise has their head in the sand. And yet there are vast numbers of women entrepreneurs out there. The Gotham Gal has been profiling one a week on her blog (Women Entrepreneur Mondays) for five years and never has a shortage of women entrepreneurs to profile. So the truth is women are starting companies every day and participating in the startup sector. But it isn’t easy to be a women entrepreneur and they face a set of challenges that is unique to their situation.

Sukhinder Singh Cassidy, a serial entrepreneur in Silicon Valley and a former Google executive, surveyed a bunch of successful women entrepreneurs and penned a post with all that she learned from that work. It’s a good read and full of stats about the differences between men and women entrepreneurs. It also has a great list of actions we can all take at the end to make things a bit easier for women in startup land.

Through the work of women, like Sukhinder and Sheryl Sandberg, and my favorite – The Gotham Gal – women are making their voices heard in startup land and things are changing for the better. But there is still a lot of work to be done and Sukhinder’s list is a good place to start if you want to help make a difference on this issue.

The No Stack Startup

There’s been a lot of discussion in recent years that the “full stack approach” is the future of startups. My friend Chris Dixon articulated the reasons for going “full stack” very well in this post from last year. But like many things, the best approaches are at both ends of the spectrum. Either go “full stack” or go “no stack.”

My partners Andy and Albert have been writing about the no stack approach this past week and it is the topic of the week at usv.com.

At USV we have never been excited by the full stack approach. It is well suited to investors who have unlimited amounts of capital to invest and a need to put all that cash to work. We aren’t that kind of investor. We like low capital requirements and low burn rates and extremely high rates of return on invested capital. So no stack seems like it will suit us well.

Our partner Brad said in an internal email about this today, “We need to think through defensibility, margin sustainability, and not having control of some infrastructure.” So that’s what we are doing now. And if anyone would like to weigh in on this, the comments here at AVC is a good place as is the usv.com topic of the week conversation.

Well That Sucked

I just wrote a longish post on the plane to SF this morning, hit publish, and lost everything.

Normally WordPress autosaves the post when an error happens but it did not this time.

So I’m not going to have time to rewrite that post today.

So maybe we can talk about the topic instead.

I wrote about the best legal/tax structure for social entrepreneurs. I am seeing more and more social entrepreneurs adopt the for profit corporation for their social enterprise. With innovations like the B Corporation for aligning interests, and with more investors understanding that financial returns and social impact are not mutually exclusive, it seems like this may be the better structure for social enterprises that can create a sustainable business model.

Valuation As A Scorecard

When you set out to build a great company, it’s hard to know how you are doing along the way. There does come a time when you know you’ve done it. Apple, Google, Facebook, Amazon, Salesforce, Tesla, etc got there. We know that. And the founders of those companies know that too.

But two years in, three years in, four years in, it’s hard to know how you are doing. The market moves quickly. Customers are fickle. Competition emerges. Trusted team members leave. Your investors flake out on you. And so on and so forth.

So entrepreneurs want something they can hang on to. They wants a scorecard. A number. Validation that they are getting there.

And that thing is often valuation. If the “market” says you are now worth $1bn versus $500mm a year ago and $200mm two years ago and $50mm three years ago, then you are making good progress. The numbers tell you so. And it feels good.

Valuation can also be used to compare how you are doing against your friends. Your YC classmate got $100mm and you got $200mm. You are doing twice as well as she is. That feels good, at least it feels good to you.

Valuation is an entrepreneur’s scorecard. It has always been this way in startup land, but it is even more so these days when financings and the valuations are reported every day as the most important news items in the tech blogs. Tech blogs are the stock ticker of startup land. And entrepreneurs and everyone else around them watch the ticker waiting for the next “unicorn” to be printed.

I hate the word unicorn. It’s using fantasy to describe something very much reality. But I don’t want to digress from the larger point I’m making to go down the unicorn rat hole. Just please don’t use that word around me. I will likely throw up and that won’t be pleasant.

This obsession with valuation as the thing that tells you and the world how you are doing has a dark side. And that is because valuation is just a number. Unless you sell your business for cash at that price, valuation is just a theoretical value on your company. And it can change. Or you can get stuck there trying to justify it year after year all the while doing massive surgery to your cap table to sustain it.

And the markets can move on you and one day you are worth $2bn and the next day your are worth $500mm. Did you just mess up by 75%? No. The market moved on you.

The message of this post is don’t let yourself get sucked into a world where a number is your measure of self worth. Because you don’t control that number. The market does. And some days the market is your friend and other days it is most decidedly not your friend.

Measure yourself on whether your employees are happy. Measure yourself on whether your customers are happy. Measure yourself on how much free cash flow your business is generating. Measure yourself on how your brand is known and appreciated around the world. Measure yourself on how your spouse and children feel about you when you come home from work each day. You control all of those things, at least to some degree.

But please don’t measure yourself on valuation. It might make you feel good today. But it won’t make you feel good every day.

Taking Inspiration From Failed Projects

It’s easy to dismiss ideas after the first attempt fails, but I don’t think we should do that. Instead we should learn from what worked and what didn’t.

I saw the news that the Mayweather fight was watched on Periscope by many people and thought “that was the same thing that used to happen on Justin.tv.” Justin.tv failed, or actually pivoted into a big success, but Justin.tv did not work as a business. I’m not saying Periscope or YouNow (our bet in that sector) will be successful but if they have learned from what worked at Justin.tv and what did not, they will have a better chance of success.

I’m reading Nathaniel Popper‘s excellent history of Bitcoin called Digital Gold (out May 19, available for pre-order) and he goes all the way back to the mid 90s to tell the story of the development of Bitcoin. In 1997, Adam Back invented Hashcash as an early attempt to create a digital currency. It failed as a digital currency in its own right, but later emerged as the proof of work algorithm in Bitcoin.

It’s easy to look at Bitcoin and say “that came out of nowhere”, but the truth is Bitcoin emerged from several decades of work in cryptography, peer to peer networks, and digital currencies. Satoshi had some breakthrough ideas in his white paper, but much of it was inspired by earlier work done by others.

That’s the way it always is. In tech, in literature, in the arts, and in most everything.

Having Empathy For Your Users

My partner Albert has a great post up today on the limitations of data and A/B testing in managing a product. He strongly advises that product teams do two things that many don’t do

1) do in-person product testing sessions to see users interacting with the product and develop an understanding of why users struggle with aspects of the product

2) use the company’s product (really all employees should do this)

I want to echo Albert’s point and suggestions. I feel like the companies we meet with and work with generally do a good job of instrumenting their products and collecting on data on what is working and what is not working. But they often don’t have good answers for why the behavior they are seeing is happening. It’s hard to fix something you know is broken unless you understand why it is broken.

Dumbing Things Down

I had lunch with Milton Pappas yesterday. Milton and his partners at Euclid Partners taught me the venture capital business in the mid/late 80s. We got to talking about mentors and I asked him who taught him the venture capital business. He told me General Georges Doriot of American Research and Development taught him a lot in the late 60s and early 70s. Milton and his partner Bliss McCrum started Euclid in 1971.

As we were talking about biotech, an area Milton loves and invested heavily in, he told me that he ran into so many people in that sector who were brilliant but could not communicate what they were working on simply and crisply. He returned to Doriot and told me that the General had advised him that “I don’t care how brilliant an entrepreneur is, I won’t back them if they can’t explain themselves simply and in a manner everyone can understand.”

That rings true to me. It is not enough to understand something that others don’t understand. At some point you have to convince people that what you are doing is important and they should join your company, buy from your company, invest in your company, and write about your company. I like to call this “dumbing things down” but it doesn’t have to involve simplification (although that is one way to do it). It could also involve creating effective analogies, describing a future state where the technology is in mass use, or some other technique that makes something complex easy to understand.

One of the essential techniques in bringing technology to market is simplification. Dumb things down. It’s super important.

eShares

This post is self serving to some degree as USV is an investor in eShares. But in the world of VC and startups there isn’t much that is more broken than cap table management. eShares fixes that by putting the entire cap table online and allowing your company to issue new shares and options directly from the platform. It’s kind of like writing checks directly from your accounting system. Everything gets recorded and there are no missing stock certs or broken promises.

I explained this to one of our portfolio companies last fall around the time we made our investment in eShares. One of the co-founders replied via email “we don’t need that, our cap table is all in a single spreadsheet.” A month or two later, as we were doing a round of financing, when the lawyers were doing their diligence, it came out that our cap table spreadsheet was missing some shares that had been issued but not recorded. I had a good laugh at that because it is always the case that something is not recorded. A perfect cap table is very rare, unless you are using a tool like eShares.

The VCs and angel investors aren’t hurt so much by this because our investments are large and mistakes made on our shares are easily caught. Employees are the ones who have the most to gain from eShares because they are the ones whose issuances are most often missed or not properly recorded on a cap table and these mistakes can go on for a long time before being caught. This causes issues in terms of exercise price changes and tax issues for the employee.

If you are starting a company, do yourself a favor and start building your cap table day one on eShares. If you have been managing your cap table in a spreadsheet for years and are tired of doing it that way, talk to eShares. They will help you “port” your cap table to their system. That’s part of the onboarding service they provide. And then you can start issuing shares the way you’d imagine it would be done in 2015. The way most companies is doing it is circa 1900. I’m serious about that.

If you want to learn more about eShares, contact them here.

VCs as Gas Stations

I was at an event the Gotham Gal had last night for her portfolio. I was asked a number of times “when is the best time to raise money?”. In general, I believe the best time to take money is when it is being offered. To some extent, VCs are gas stations and you should fill up when it is convenient.

I don’t drive that often, and when I do mostly drive electric cars, so gas stations are not a common place for me. But when I do drive a gas powered car, I tend to fill up my car when it gets below half a tank and I use stations I like and are convenient for me.

I think this analogy works to a point for VC fundraising. You should raise money when you still have a fair bit of cash in the bank. Driving around on fumes frantically trying to find a gas station is not a great idea. Raising a round when you have a month of cash left isn’t either.

I don’t shop around for and drive out of my way to the best priced gas station. I am happy to fill up at a fair price at a place that I like and is convenient to me. I would apply the same rule to raising money. Don’t shop for the very best deal, particularly if it means an elongated fundraising process and time away from the business. If a fair deal is being offered by a firm you like and trust, shake hands, close the deal, and get back to the business.

The place the gas station analogy breaks down is that for the most part the gas is same from gas station to gas station. That’s not true with VCs. You can buy really bad gas and you can buy really good gas from VCs. Some VCs can kill your company. Some VCs can propel your business forward. And some VCs will leave you alone.

So choose your gas wisely when shopping for the VC variety. And fill up when you’ve got a half tank and you are passing by one of your favorite stations.

Lifestyle Businesses

Yesterday in the comments Elia said:

I sure wish we wouldn’t call non-VC fundable opportunities lifestyle businesses. It sounds like the person working on that business spends his days on a beach somewhere in the sun and collects the checks that come in. Just because it makes less money than a VC invested business doesn’t mean it isn’t still a business that takes lots of work.

We don’t have a good term for these types of businesses yet. Independent or indie is the best I’ve heard so far. Maybe, Fred, a post here and this community can come up with a great name we can all use?

I had never thought that the using the word “lifestyle” to describe a business that was too small to be interesting to an investor was derogatory. But I can see Elia’s point.

There is, however, a difference between what we’ve been calling “lifestyle” businesses, and “indie” businesses. My friend Bryce has launched an effort to fund “indie” businesses. As I’ve understood it, an “indie” business is one that might be large enough to support a significant investment but the founder wants to remain independent and therefore has no desire to exit and thus taking VC investment doesn’t work.

I touched on all of this is my ten ways to be an entrepreneur presentation (video, deck). Most of the entrepreneurial ventures I describe in that presentation are not backable by VCs. Only the last three (the startup, the breakout, and the company) are.

So I would define things this way:

Lifestyle – too small for VC, but will generate enough annual cashflow to be a great business to own and operate

Indie – might be large enough to justify and provide a return on a VC investment, but the desire to retain control and remain independent makes VC untenable for the entrepreneur

VC Fundable – large enough to justify and provide a return on a VC investment and the founder is willing to exit at some point and provide a capital gain to the investors

So with all of that in mind, I would like to ask a final question and then take this discussion into the comments. Is the term “lifestyle business” derogatory or dismissive in any way and do we need to find a better term for that kind of business? And if so, what should we call them instead?