Posts from entrepreneurship

A Range Not A Price

Entrepreneurs often struggle with how to signal their valuation expectations to investors.

Investors rightly want to know what the entrepreneur’s price expectations are before investing significant time on the opportunity.

But entrepreneurs don’t want to negotiate against themselves and certainly don’t want to undervalue themselves.

So what I always recommend to the entrepreneurs we work with and, frankly, anyone who asks is to “give a range, not a price.”

Let’s say you are raising a Series A round and have an aspirational valuation in mind of $30mm pre-money, raising $6mm.

But you know that is an aggressive valuation and you may have to accept something materially less in order to get a deal done.

Then I would tell investors “we want to raise $4mm to $6mm and don’t want to dilute more than 20% including any increases to the pool.”

An investor could read that as you would accept $4mm at $16mm pre-money but you have signaled that $30mm post-money is where you are aiming.

And, because you said “don’t want to dilute more than 20%”, you have left some room for your aspirational valuation of $30mm pre-money in which $6mm would dilute the company roughly 17%.

Try this the next time you are asked for a valuation from an investor. It works well.

Unrelenting Stress

I saw this Elon Musk tweet yesterday:

What he describes in that tweet is the life of an entrepreneur. And also, to some extent, the life of a VC who cares.

The unrelenting stress is the hardest of the three in my opinion.

Stress is part of life, we all have it.

But starting and running companies brings stress that seemingly never stops.

Managing that so that it doesn’t eat you up and mess up your relationships is super hard.

Some things that I have seen work well for people are regular (daily?) workouts, eating and drinking healthy, having a coach, and most of all, having a spouse who keeps it all in check.

There is no better work, from where I sit, but it comes at a cost, particularly if you let it.

Startup Churn

We encourage all of our portfolio companies to measure their churn rates by cohort. It is very revealing.

I saw this tweet by Liad this morning that shows startup churn by cohort.

I don’t know the source, but the data is sobering.

Some of the churn is companies getting sold. Some of the churn is companies getting profitable. But most of the churn is companies failing.

We have looked at our portfolio this way and our portfolio has performed much better than this. Some of that is selection. Some of that is support. And some of that is tenacity of the founders.

But, as Liad says in his tweet, startups are no cake walk.

Zemanta – From SeedCamp to Outbrain

In the summer of 2008, I attended the SeedCamp in London and the winner of that class was a company called Zemanta, out of Ljubljana Slovenia. I was taken with everything about Zemanta; a small team (three founders), out of a place that I had never been to and had barely heard of, winning the SeedCamp with a really smart blogging tool that I just had to have on my blog.

USV invested in a seed round that summer that was led by the SeedCamp folks and Eden Ventures. Zemanta was USV’s first European investment. Today, we have ten out of sixty-seven active portfolio companies (~15%) based in Europe.

The seed investment in Zemanta led to a nine year journey with Bostjan and Andraz, who founded Zemanta along with Ales.

The blogging tool is amazing. It recommends links and images in real time as you type into your blogging tool. I still have it running in my WordPress web application. It looks like this right now.

Zemanta sold the blogging tool to a company called Sovrn a while ago and refocused on the native advertising market. They understood how to place related content into a content feed as well as anyone and they decided to focus the company on that. Bostjan and Andraz recruited Todd to lead the new business opportunity. Over the course of the last three years, Zemanta DSP has become the leading buying tool for native advertising.

And the largest company in the native advertising market, Outbrain, became their largest customer. So a few months ago, Outbrain asked the Zemanta founders to join their team and help build some important new technology for Outbrain. After haggling for a few minutes, the deal was sealed and Outbrain now has an office and a team in Ljubljana.

Like every investment, Zemanta taught me a few important things. I learned how to work with founders from a different part of the world, I learned that Ljubljana is a lovely little city with wonderful cafes and restaurants along a gorgeous river, I learned that you can keep a company alive for almost a decade on less than five million dollars if you have a crack team of product managers, data scientists, and software engineers in a place that most people don’t know about, and I learned that tenacity wins, always.

I am pleased that Zemanta has found a home inside a larger company with a bigger opportunity, I am pleased that Ljubljana has a startup success it can point to, and I am pleased that USV is now a shareholder in Outbrain, an investment I mistakenly passed on a decade ago. But mostly I am pleased that Bostjan and Andraz, with a lot of help from Todd, were able to go all the way, from startup to exit, never losing that which makes them special. That’s a big win in my book.

Working Across Many Time Zones

I was in Europe for most of June and working on a lot of things with people in the bay area. The nine hours of time zone difference was challenging. I was doing a lot of calls in the evenings with people who were just waking up.

There were many times when I woke up in Europe to a brief window where I could talk to people in the bay area who were still working and had not wrapped things up for the day before.

Our portfolio at USV spans ten hours (Estonia to San Francisco/Los Angeles).

Being based in NYC helps a bit as we have longer overlaps between Europe and the Bay Area than those two locations have with each other.

But I continue to find working across many time zones challenging.

Yesterday I had a conference call between people in five time zones. Getting everyone to agree to the correct time was almost laughable.

I’ve learned to use the time zone feature in Google Calendar to make sure I’ve got the time right. That helps me a lot.

As the world becomes more globalized, we find that we can do business more easily across time zones. And so we do more business across time zones.

That in turn leads to longer days.

When I am in LA, I often wake at 5am to an inbox that is full and active.

When I am in Europe, I am often on conference calls on the way to dinner.

I suspect there is someone working at a USV portfolio company at every hour of every day.

And new technologies is pushing this trend even farther.

Traditional capital markets open and close. The NYSE will open for trading today at 9:30amET after being closed all day yesterday for the July 4th holiday.

But crypto traders can trade on GDAX 24/7 and do.

So the tech and startup business is quickly becoming a 24/7 affair.

It wasn’t that way at all when I got into the business in my mid 20s.

But thirty years later the pace and rhythm is very different.

Keeping up with that pace and rhythm can be exhausting if you let it be.

Video Of The Week: Purpose, Mission, Strategy

Last month my colleague Nick Grossman gave a really great talk at The Next Web in Amsterdam. In it, he talks about the importance of purpose, mission, and strategy and how to connect them in your company. And he shares a lot of great examples from our portfolio in his talk.

Flip

Last year our niece decided to move about half way through her lease and ended up having to Airbnb her apartment for six months until she got out of her lease.

This summer our daughter is at graduate school upstate and rented her apartment to her friend for the summer.

One of our analysts decided to move to Brooklyn and had to figure out what to do with her apartment in Manhattan.

This is how millennials live. They go from apartment to apartment, roommate to roommate, city to city, job to job.

But this is not how apartments are rented. The apartments are leased for one year, two years, three years, with upfront security deposits, brokers fees, and a bunch of other costs that make the “fluid” approach to living difficult.

Enter Flip.

Flip is “the easiest way to sublet or get out of your lease and it is 100% free to list”

So if you or someone you know is looking to move and wants help with a sublet or needs to get out of a lease, Flip is the place to go.

The Gotham Gal has been an investor in Flip since the very beginning. I have been watching the company grow and build out this market opportunity with interest.

Earlier this year, she introduced the Flip founders to my partner Andy and the result is that USV is now also an investor in Flip.

Andy explained why USV is so interested in Flip on the USV blog a couple of days ago.

It’s a great post and you should go read it, but my favorite part of the post is this word cloud, taken from Flip’s listings, that explains why people use Flip:

Finally, Flip is looking to hire some engineers. They have built everything with just four people. That’s bootstrapping. I love it. They plan to double the team to eight people with this new investment. So if you want to work with great people, building technology that helps people with important changes in their life, Flip would be the place to do both of those things.

Doing The Heavy Lifting

Most venture capital investments are made, over time, by syndicates. This means a group of venture capital firms develops around a company, usually built over multiples rounds. Some of the firms in the syndicate agree to (or require) having a partner from their firm join the Board of the company.

If you look at the roughly dozen boards I am on, most of them have multiple venture capitalists on them. Some also have independent directors, something I believe strongly in and have written about frequently.

Not all venture capital firms in your syndicate will be the same. Not all of the VCs on your board will be the same. Some will be challenging to deal with. Some will be unproductive and distracting. Some will be nice to have around but won’t do much. A few will roll up the sleeves and do the “heavy lifting.”

It is this latter group that is super valuable. You saw it in action last week when the partners of Benchmark apparently negotiated a change in leadership at Uber. That is hard, painful work. But someone has to do it. And I have seen the partners at Benchmark do it before. They don’t shy from the tough stuff. Nobody enjoys doing things like that, but they know when it is needed and they step up and do it.

I was talking to another VC I work with yesterday about a completely different situation. The company is doing great. We have some important decisions in front of us, all good choices to have to make, but selecting the right ones will matter a lot. This VC has been deeply engaged in the process, providing a lot of super valuable advice, and saying things that need to be said, even if they are not popular. I feel incredibly lucky to have someone like that in a syndicate with me. And I told him that yesterday.

You can put together a list of the top VCs by returns. That is done annually. It’s all nonsense. There are a ton of shitty VCs on that list. Returns matter, for sure. But what really matters is who shows up when the hard conversation has to be had. What really matters is who provides the right advice at a critical time. What really matters is who puts aside their own personal interests and does what is in the best interests of the company. What really matters is who steps into a vacuum and provides leadership when it is badly needed.

When you are picking investors, you should call around and check references. Ask about this stuff. Find out who does the heavy lifting and who goes along for the ride. Pick the one who does the heavy lifting. Because you will need it, frequently.