Chris gave this talk last year at startup school. It’s great. It’s about 20mins so an easy watch.
Posts from entrepreneurship
VC is a service business like law firms and ad agencies. Our customers are the entrepreneurs we back. Our shareholders are our limited partners. When we do a good job of helping our customers create value, our shareholders benefit.
But, like law firms and ad agencies, it is hard to provide truly objective and unbiased advice when you have a conflict of interest. In the law and advertising business, clients will demand that their service providers don’t work for their competitors. The same is mostly true of entrepreneurs and VCs. There is no language in the stock purchase agreements we sign with our portfolio companies preventing us from investing in a competitor. But there is an understanding about conflict avoidance and breaching that understanding can have negative reputational consequences.
The problem that arises is that conflct is not the same to everyone. As I said to an entrepreneur yesterday, “conflict is in the eye of the beholder.” This entrepreneur had pitched me on his business via email and I told him it sounded a lot like one of our portfolio companies. He was shocked as he didn’t (and doesn’t) see it. A few months later, he went to see the Gotham Gal about making an angel investment in his company. She pointed out the exact same conflict to him. Again he was surprised. So he emailed me yesterday about the situation and I pointed out that not everyone sees conflict in the same light. But I went on to point out that the perception of conflict is conflict.
When someone feels that something you invest in is encroaching on his or her territory, you have created a perception of conflict with that entrepreneur. Even if he or she is dead wrong about that, it doesn’t really matter because they are now in conflict with you in their own mind and they won’t listen to you the same way again. And that is the most powerful leverage point a VC has when making an investment. If you cannot get an entrepreneur to listen to you objectively and rationally, then you have lost your greatest hope of postively impacting that investment. And that is a tool that VCs should not throw away lightly.
So the meta point I am making in this post is that it isn’t the facts that matter when discussing conflict. It is the perception that matters. If anyone in a relationship with you percieves that you are in a conflicted situation, you are in a conflicted situation whether you agree with them or not. Your only choice is to try to convince them otherwise before you obligate yourself to the conflict situation. Once you’ve obligated yourself, it is too late.
A friend in the VC business told me yesterday that he thinks this is the biggest issue top VCs face. Because they get to see the most interesting investment opportunities, but the opportunity cost of saying yes to an investment is that they take themselves out of the running for everything else in that category going forward. I agree that conflict issues are large and need to be front and center in everyone’s minds when making an investment decision. But I also think that large markets are large and there are ways to slice them up in ways that do avoid conflict. And if you can get an entrepreneur comfortable, you can make multiple investments in a large space. We made five or six social media investments. We’ve made a similar number of crowdfunding investments. I would like to make a large number of bitcoin related investments. If you think carefully upfront about how these markets will likely segment themselves over time, and if you can make that case upfront (not after the fact) to an entrepreneur, I think you can navigate this tricky issue.
But the thing you have to keep in your mind first and foremost is that perception is reality. And managing that is the most important thing of all.
Ben Horowitz has a great post up on his blog, called Why I Did Not Go To Jail.
I would encourage everyone to go read it. But in the event you aren’t going to do that, he tells a story about an options strike price plan that his CFO recommended to him. It turns out the plan was against the law and his GC stopped him from implementing it.
I’ve heard a lot of ideas over the years that, like this options strike price plan, sound too good to be true. And in most cases, they were just that.
I have developed a deep skepticism around anything that sounds like a free lunch. As the saying goes, there is no such thing.
My friend and former business partner Jerry Colonna has created CEO Bootcamp. It’s a four day retreat in the Colorado mountains with 19 other CEOs and a few facilitators, led by Jerry. The first CEO Bootcamp was last fall and you can see what attendees thought about it here. And here’s a blog post by Sooinn Lee about her experience last fall at CEO Bootcamp.
There are two aspects to this experience. There are the four days where attendees learn skills to help them manage the leadership role they are in, and there is the ongoing support that the group of CEOs provide each other after the retreat is over.
The CEO Bootcamp has some requirements. They are:
You’re the CEO of a tech startup that has employees.
This is the first time you have been a CEO within a company of this scale.
You’ve logged immeasurable hours and have made tremendous sacrifices.
You’ve had success with your company. You realize there is more to this game than “success.”
You may be tired, but you must be vulnerable, curious and courageous.
If you fit these requirements and want to spend four days in early April in the Colorado mountains with a bunch of peer CEOs figuring out what it takes to be a successful leader, you can apply here.
I told a Rob Kalin story yesterday and I am going to start this post with another one. When Rob left Etsy for the second time, it fell to me to tell everyone what was happening at the company’s all hands meeting. I asked Rob what he wanted me to tell the several hundred employees who would assemble to hear the news. Often there is a story concocted about the founder or CEO wanting to step back, take more time with their family, needing a break, etc. And so I wanted Rob to tell me how he wanted this story told.
Rob said “Tell them you fired me. They will know anyway. You might as well tell them the truth.” So that’s what I did, with empathy, respect, and appreciation for Rob and his work. It went well. The team was happy that I was being straight with them. I then handed the stage to Chad who took it from there and has been doing a great job ever since.
I don’t tell that story to bring up old unhappy times. Although it may for some. I tell it because Rob had the courage to allow me to tell it like it is.
And yesterday Chris Poole told it like it is. With a blog post that is simple, honest, and sad. He made the decision that our portfolio company Canvas has failed. Running out of money is always the thing that brings this moment of reality. But so often an acquihire is arranged, or the company is put on mothballs, or you just stop hearing about the company. The story of failure is buried.
I prefer the way Chris did it. We tried, it didn’t work, we failed.
The truth is, as Chris explained in his post, that the first product Canvas was a failure. The pivot to DrawQuest came too late, took too long, and now DrawQuest is a succeeding product inside a failing company. I know that Chris is going to try to find a way to keep DrawQuest going. It’s got 400,000 people who use it every month and 25,000 people who use it every day. But it has not monetized particularly well and the Company hasn’t found a good way to inject virality into the product so it can spread without expensive marketing dollars. If you know of a good home or a good steward for DrawQuest, email me. There is a contact link in the footer of this blog that will send me an email.
Chris says he is going to blog about the things he learned from this experience. Chris hates writing. But I think he will do this, as therapy for him, and as a post mortem for him and everyone else. So pay attention to his blog, subscribe to his RSS, or follow it on Tumblr.
Like his post yesterday, I expect Chris will continue to tell it like it is.
My friend Gary said this to me the other day in an email. He wasn’t talking about me but he could have beeen. Last night I went to bed thinking about my work, dreamt about my work, and woke up thinking about my work. It’s been that way for me since I started Flatiron in the mid 90s. To some extent it’s been that way for me since college. Fortunately I have the Gotham Gal and three awesome kids to keep me from going fully into the fire. I spent the past four days skiing wtih my family and some new friends and enjoyed it immensely. If anything I am letting my work sit idle in my brain more these days than I have in a long time.
What Gary was talking about when he wrote those words to me was failure. And when you are your work, your failure at work is personal. Deeply personal. When Flatiron melted down after four great years and one awful one, it was painful. I went to see a therapist for the first time in my life. It was the best thing I could have done. I had been to see coaches but I had not taken the deeper dive into what was driving me. A few years later I was energized and Brad and I started USV.
Failure can sow the seeds of success. It did for me. It did for Mark Pincus when he turned the failure of Tribe into the success of Zynga. It has done the same for countless others. But to get through failure, you need to be able to separate who you are and what your work is.
One of my favorite lines from an entrepreneur came from Rob Kalin. I am sure I’ve shared it here a few times. He said “I am an artist. Making websites is my medium right now” That’s a helpful way for entrepreneurs to think about their work. They are the painter. Some paintings will hang in the MOMA and others will sit gathering dust in a storage room. Not every thing you create will be brilliant. But you can be brilliant while still making work that isn’t, particularly if you understand why the work that wasn’t great wasn’t great.
Jerry ended his amazing post with the observation that “I have to understand this viscerally if I’m going to be of service to my clients”. When your work is servicing entrepreneurs, it is actually pretty easy to “understand this viscerally”. Their failure is your failure. Their success is your success. Their work is your work. But it is not you.
There is a part of this interview that’s really great. About 3:40mins into this video Charlie Rose asked Lou about “work” and the next 2 1/2 minutes is a discussion about Andy Warhol, working hard, and being productive as the key to making an impact. I’ve found that to be true in my life as well.
I had to leave after lunch to meet some folks at my office, so I missed the “speed networking event”. The Gotham Gal said this in her opening talk – “last year we heard from the attendees that they wished they had met more people. so this year we are going to force you to meet more people. we will be doing a speed networking event this afternoon”. I wondered what that would be like.
Well this is what it was like.
I gather every five or ten minutes, they would instruct everyone to switch and a similar scene would unfold. Seems like a great way to get people to network.
Entrepreneur: I plan to launch a better streaming music service. It leverages the data on what you and your friends currently listen to, combines that with the schedule of new music launches and acts that are touring in your city in the coming months and creates playlists of music that you should be listening to in order to find new acts to listen to and go see live.
VC: Well since Spotify, Beats, and Apple have paid all the telcos so that their services are free on the mobile networks, we are concerned that new music services like yours will have a hard time getting new users to use them because the data plan is so expensive. We like you and the idea very much, but we are going to have to pass.
Entrepreneur: I plan to launch a service that curates the funniest videos from all across the internet and packages them up in a 30 minute daily video show that people will watch on their phones as they are commuting to work on the subway. It’s called SubHumor.
VC: Well since YouTube, Hulu, and Netflix have paid all the telcos so that their services are free via a sponsored data plan, I am worried that it will hard to get users to watch any videos on their phones that aren’t being served by YouTube, Hulu, or Netflix. We like you and your idea very much, but we are going to have to pass.
Entrepreneur: I plan to launch a photo sharing service where the faster your friends like the photos, the faster they disappear. It’s gamified social snapchat.
VC: Well since Facebook, Instagram, Twitter, and Snapchat have paid the telcos so the photos that are served up in their apps don’t use up any of the data plan, I worry that users won’t want to use any other photo sharing services since they will have to pay high data costs to use them. We love your idea and would have funded it right here in the meeting back in the good old days of the open internet, but we can’t do that anymore. We are passing.
This is Internet 3.0. With yesterday’s court ruling saying that the FCC can not implement the net neutrality rules they adopted a while back, this nightmare is a likely reality. Telcos will pick their preferred partners, subsidize the data costs for those apps, and make it much harder for new entrants to compete with the incumbents.
The fourth annual Womens Entrepreneur Festival starts this evening and continues all day tomorrow. The Gotham Gal and her friend Nancy Hechinger, who is on the faculty at NYU’s ITP program, are the founders and festival chairs.
The goal of the WE Festival is “to sow the seeds for a community of women entrepreneurs, to expose women who have not yet taken the entrepreneurial leap to women who have.” This year’s theme is “be bold” and we all know that being bold is a requirement for entrepreneurship (and life I would argue).
This year’s event, like the three before it, is sold out and has been for months. But, if you could not get in, can’t make it to NYC, or are just learning about it, you can watch the whole thing live or later on the livestream. The conference opens with a keynote this evening at 6pm eastern by Anne-Marie Slaughter who wrote one of the most talked about pieces on woman and work titled “Why Women Still Can’t Have It All“. You can watch it live or later here.
Though USV is allergic to sponsoring events, we make an exception for things that can move the needle where the needle needs to be moved and growing the community of women entrepreneurs is certainly in that camp. So USV is proud to be a sponsor of WE4 and the livestream.
I will be at Anne-Marie’s keynote and I will be at the WE Festival all day tomorrow. If you are going, I will see you there.