The Role Of Personal Chemistry In Investment Selection
My friend Matt Blumberg and I are co-teaching a class at Princeton in a few weeks. The subject of the class is the VC/entrepreneur relationship. As part of doing this class, Matt and I are doing two posts each in a point/counterpoint model. Today is the first of these two co-posts about the selection process. Next thursday will be the second. Matt's post on today's topic is here and should be read directly before or after this post.
From the outside, most people think that VCs are just looking for the best ideas that will generate the biggest companies. And that is true. We want to invest in big ideas, big markets, and big outcomes. That is a necessary part of our investment selection process, but not sufficient to get us to pull the trigger. We also want to invest in people and teams where we feel a personal chemistry.
Venture capital investing is not like angel investing or public stock investing. We don’t make a lot of small bets (angel investing) and we can’t easily get in and out of our positions (public market investing). We make big concentrated bets in a handful of carefully selected companies and hold these positions for between five and ten years on average. We sit on the boards of these companies and become business partners with the founders and management teams. We don’t run the companies but we have a meaningful amount of influence and impact on them.
For this model to work, VCs need good personal chemistry with the founders and management team. They need to like and respect us. And we need to like and respect them. The way investors choose teams to back and the way entrepreneurs pick VCs to take money from is very much like the way you recruit and hire a team. Or the way you date before getting married. It’s a process and the more facetime you can spend together before making the decision and the more asking around you do, the better decision you will make.
There are four phases to this process.
- The first impression – That can be in a minute or an hour. It’s the first meeting. You walk away from that meeting and you think “I really liked that person” or “That person is awful.” Both the entrepreneur and VC will have an opinion coming out of the first meeting.
- Subsequent meetings – If the first meeting went well enough, both sides are inclined to take a follow-up meeting or in all likelihood a series of follow-up meetings. This is where the first impressions are confirmed and validated or where they are determined to have been incorrect. This is also where others are brought into the process. In our firm, all the partners will meet the entrepreneur and, ideally, key members of the team as part of our investment process.
- Reference checking – This is not about calling the references someone gives you. This is about triangulating between who you know well enough that they will tell you the truth and who has worked closely with a person. I like to call people who have worked with a person in a bad situation. When they tell you “she was the only person who really shined in that moment” you know you’ve got a winner. When they tell you “he created that situation and was painful to deal with” you know you don’t. You cannot take all the references you get as gospel because some people just don’t work well together. But if you call enough references, a picture will emerge with consistency and that is likely to the truth.
- The negotiation – It is important that some stress is injected into this process to determine how well both parties work through a tense situation with some conflict. Because a five to ten year relationship between an entrepreneur and a VC will almost certainly include some difficult moments. Being able to work through those difficult moments constructively is the hallmark of a good VC/entrepreneur relationship. The negotiation of the investment deal is a good way to introduce that tension and both sides should pay a lot of attention to the little things that are said and done in the negotiation. It is a rehearsal for the main event.
If you find working with an entrepreneur difficult, you should not invest in his or her company. If you find working with a VC difficult, you should not take their money, no matter how good a deal they are offering you or how strong their reputation is. Personal chemistry is exactly that, a connection between two people. We all know that some people work well together and others don’t. Pairing the right people together to get something done is the central act of good business people. And it is the central act of venture capital investing.
Awesome post.How much does the chemistry influence the 4-th phase … VC’s might have got trained to handle the 4-th phase with a ‘concrete heart’ ….but IMHO the first time entrepreneur may be influenced by the chemistry and with the “muscle heart” may tend to give-up more..
On a lighter note …VC’s live a Scotty Wolfe’s (Glynn Wolfe) lifeEntreprenuers live a monogamous life.
Bang on. I know you said it at the end quickly, but the reverse is equally important for the entrepreneur. “If you find working with a VC difficult, you should not take their money, no matter how good a deal they are offering you or how strong their reputation is.” Money quote.So, I would advise against shotgun relationships with the VC, where the VC seems to like what you have, and wants to invest no matter what, or because there is another investor they’d like to be co-investing with. These are the wrong reasons.
This ties in well with Matt Blumberg’s post today, which looks at it from the side of the entrepreneur.Selecting Your Investorshttp://www.onlyonceblog.com…
They were intended intentionally written together. I added an explanation of that to the start of my post
I love that pairing, where you expose both sides of the same issue.Is this something you plan on doing more of, because I can see other topics where that would make sense.
agreed. That premise is what Mark Suster’s whole blog is built on. There are other great topics where two different perspectives would be great..
i have a tiny little book on my desk, with three dimensional pop-up pages to illustrate the typical personal qualities of my star sign;foresighttenacityharmonygenerositydependability
#4 is right on.Business is all decisions and negotiations. Negotiating your deal is the best way to get a sense of the person working before the fact.
Amen to that. With hiring, too.
Note to recruiters here that when it comes to negotiations, you often need to get out of the way!Sure they are pros but for myself, and it sounds like you, this is one of the most revealing parts of the recruiting process.I’ve walked away, not because the terms couldn’t be gotten but because the process was just off.
100% in agreement.
If phases One, Two and Four go well and meet the VC’s expectations, does Three-Reference checking-kill the deal for first time entrepreneurs with whom the VC can’t “triangulate” for an A round?Is this also true for most angel investors you know or angel investments you make?
Sometimes, negotiations can be a bit too much stress testing, especially the local Middle Eastern version of it… Maybe a survival weekend with VC+entrepreneur on their own in the desert is a more time efficient way to test decision making under stress 🙂
“A shit vc from a great firm is still a shit VC” I loved that quote from your blog http://fredwilson.vc/ sums it up perfectly!
How have you injected stress into the negotiation process? That point needs some more illumination; conversely, on exits, who does most of the negotiation? The attorney/bank representing the company or the VC?
It is interesting to read how personal chemistry plays an even more important role in VC than it does in angel investing. Still all four points are still important for angel investors.
I think that’s because in many cases the VCs go deeper than angels and are more involved.
Divorce too, I would imagine
Fred – Have you ever had bad first impression that was turned around in a subsequent meeting? Others?
Long night. Slightly hungover.
Bottom line in life – everything in life – is relationships. Happiness and success are due to relationships, not money, possessions, intelligence, good looks, just relationships. Yeah, deal terms matter. But relationships are the framework for everything.Thanks for writing this Fred. Spot on.
.Money cannot buy happiness but it is instrumental in renting it.JLM.
Yeah, but who’s the landlord in that situation?
.Not sure but I will gladly accept the rental payments and ensure they get where they are supposed to go?JLM.
I saw some things I will never be able toexplain: When I was a B-school prof,I got some consulting and friendship froma US family of finance — well known name.There were two marriages, apparently justperfect, bride, groom, storybook, plenty ofmoney, …. Way too soon both marriageswent into the dumpster just as if some master engineer designed the marriagesfor just that end. One groom cried in hispillow for a year. From the previousgeneration there were three familiesinvolved, all at least well off, all intact,all apparently just fine. Still, all to thedumpster. I don’t get it; I just don’t getit.In the past, humans and families justmust have often gone through “hell andback” and come out okay, yet thosestorybook situations pitched over at Mach 1 straight into the ground.
money, possessions, intelligence, good looksBy having those things you are exposed to way more “relationships”.Particularly money. Money buys nice things and people want to be around nice things. And as a result relationships develop.I remember when I was younger and would drive around on my (small) boat in the back bay seeing these older men on their large expensive bayside properties (with swimming pools) surrounded by tons of young people and their peers living it up. It was easy to get people to surround them (and have relationships) because they provided enjoyment and entertainment to those sycophants. Everybody wants to be your friend.Had the same man been living in a house elsewhere the chance of getting all those people to want to be around him would be close to nil. Especially the young people.A bit later I got a larger (small) boat. And all the sudden people came out of the woodwork and would call me up and say “hey what are you doing this weekend we thought we could come down and go out on the boat!!!”. I mean this happened constantly. It was totally obvious as well. Or they wanted to stay at our place. All the sudden everybody became more friendly. And they had no shame at all.I remember one relative just showed up at the dock one day unannounced ready to go out for the day without even calling in advance.
Interesting and odd behavior.
It’s interesting but I don’t find it odd at all. I think it’s entirely common.When I was much younger my first wife was a member of a jewish women’s group. One of the women in the group was married to a young guy that had “hit it big” on something. They lived in a “mansion”. The woman (a member of this women’s group) invited everyone to their house for a meeting. My wife begged me to go (I had no interest at all but finally agreed).The meeting was on a Sunday. The husband sat in his living room watching a football game (with some of his friends) and there must of been every single husband of the groups women in attendance. It was a packed house. The husband ignored everyone but his friends. The husbands just milled about eating the food. I’m guessing they came to try and connect with this guy. It was pretty funny actually.Nobody ever came to these meetings when they were held elsewhere. But this meeting was special because of the venue.You’re not doubting that people go to charity events not just to help but to rub elbows, are you? And that at those events they meet and enjoy the company of others of a certain status level, right?
wouldn’t it be great to have a blog app that indicates whena person has read a post (when they haven’t left a comment). so useful in so many ways. how to target an audience within an audience.
There’s an app for that. Tracks and shares what you read.
Name of the app? What if you read on desktop?
If I could remember, I’d share. Might be a browser plugin. Sorry I’m not much help here.
does disqus have that sort of thing?
No, we don’t have an app or feature that does what you described.
[Insert NSA joke here.]
.Do not knock the NSA. Last week my hard drive crashed and I lost all my email. The NSA was able to provide a complete backup.They read a text message I had written and volunteered the backup.JLM.
haha. Indeed they did 🙂
Fred, and any other VCs in the community – have you ever screened someone for potential investment without their knowledge? I don’t mean “checked out their company”, I mean actually investigated the principal(s) before (or if al all) making first contact.
Do you feel that this aspect of personal relationships is especially true at the Seed / Series A stage VCs, and not so much later stage VCs where its mostly about the money and scale? Since a company is mostly shaped into the company it becomes, in terms of culture, values, business model, product and team between the Angel and Series B, this is the critical 4-5 years where the relationships matter.Hence, a caveat to this could be that you need to pick your Angels (Maybe now with Syndicates, not so much), and then Your Seed Stage / Series A VCs who put in between $500k and $6M into the company and grow it to a stage it can really take off..Post that, more than relationships, you’d need forbearance, and the data speaks louder then I suppose.Thanks,Pranay
.In 33 years of CEOing and having raised over $1B, the ultimate distillation of tuition and wisdom is this:”The single most important decision you will ever make is with whom to do business.”JLM
A slightly different lense “With whom you dont do business”.
.Yes, indeed. Well played.JLM.
JLM – you’re killing it today!
.I’m going to put you down as a definite maybe, OK?JLM.
Ha! LOL… yes. Emphasis on the “definite” part. 🙂
.I caution against the notion of artificially injecting stress into any process.When you introduce a faux emotion, you get a faux reaction.I have always been quite brave under fire when I knew they were shooting blanks. Bit more reserved when the real thing.As a substitute, I recommend the use of your powers of observation. See how the guy keeps his horse, how neat he keeps laundry on the line and whether his fences are painted.OK, those were stolen from a letter I read from a famous Texas banker written in the late 1800s. I found it in the basement of this building and his name was Col Littlefield. He built the building.What is missing in the discussion is the sense of divining a person’s character and traits. Character is only revealed under pressure and with a bit of friction. Some folks become diamonds and some are still lumps of coal.JLM.
+100 on Pressure-Friction-Diamond-Coal.Oh Yes…it really pisses off you …when you see the Coal whom you thought to be a…Diamond.
“Character is only revealed under pressure and with a bit of friction.”I don’t agree with the use of the word “only” in that sentence.Character is revealed when you break bread with clients, make pancakes with your kids, or how you catch the ball and take it down the field.(yeah, these don’t need to be read literally, but you can).
.No, I am going to have to violently disagree with you on this one.Yes, you are right that those are examples of opportunities to reveal character after a fashion but you need the pressure and heat of crisis to know what a man is made of.I have seen men so brave in times of stress as to wonder if I am even a man myself seeing their example and absolutely no evidence of that same deep pool of character absent the stress.I have known men so apparently blessed with good judgment and character wilt under the pressure of crisis or worse reveal a crack so profound in their souls as to damn them forever.Mix in a bit of money and a darkened room late at night and I have seen good people summon their demons and become persons so evil as to question every judgment you have ever made about them.So, yes, the pressure and friction is necessary to scrape free the surface and inspect the man beneath.JLM.
Agree…It’s how good you are on a bad day that matters.
.Brilliant comment. Agree more with you more than you do with yourself.Well played.It is what we do when nobody is watching that is important. But you already knew that.JLM.
grace under pressure.
And pressure is the norm.
Sounds like you could write a chilling novel. Thanks for adding depth to your point.
.Uhhh, it would unfortunately be a history as it is all true.Live long enough…..JLM.
but you need the pressure and heat of crisis to know what a man is made of.I’m reminded of what Donald Rumsfeld did at the Pentagon on 9/11 where he totally froze up and started to try and help people on the lawn instead of taking command of the situation on a larger scale.Obviously it was such a shock to him that he descended into the low hanging fruit of an automatic reaction that, quite frankly, didn’t make any sense given who he was or what he really needed to be doing.That said I don’t know how much time he spent on the lawn (to be fair) but I remember when seeing it on the documentaries thinking that he was having some sort of a nervous breakdown as a result of the events that day.
.I do not remember seeing Rumsfeld on 9-11 but I damn sure remember Al Haig taking charge when Reagan got shot.We all did not know how seriously Reagan had been wounded, it was pretty damn serious. Another inch and he was dead.Ah, but Al Haig was in charge and that made me feel better. That West Point trade school training took over and Al took the reins.Could not fault him for action though a quick read of the Constitution might have been in order.JLM.
Rumsfeld:http://www.motherjones.com/…I actually saw video of him (just found the above for you to read glad to see it wasn’t only my take).Agree on Haig and it was good that he stepped up to the plate (even at his own embarrassment at the hands of the talking heads).
We used to watch incredible financial meltdowns in the pit all the time. Some guys became absolute pricks and started stealing trades and doing nefarious stuff when losing money. Others played by the book. Volatile markets and a string of bad days would show the true mettle of a person. If they were honest then, you could trust them.It was okay to get pissed over losing money-it was another thing to cheat to get it back.
.I knew Haig on active duty when he was the NATO Commander.A lot of folks do not know that he was one of the most highly decorated military officers ever — DSC in Viet Nam, SS x 2, BS w V in Korea and all for valor.Every kind of staff medal imaginable.There was much talk as to how a guy gets two Silver Stars and a Bronze Star w V while serving as a General’s aide (Ned Almond, VMI grad) but oh well.He spoke a number of languages and I observed him carrying on a conversation in at least three different languages simultaneously.The other thing about Haig is that he never resigned from the Army for much of the time he was in the White House, a real oddity.JLM.
That last sentence made my day.
Wow. Got to keep that in a placeeasy to find. People and Personality101 — the Good, the Bad, and the Ugly.I suspected some of that but maybe no morethan 2%. That’s much more extreme thanI would have believed.
Great Point. Another related point is what I call “spring training”. Some players can play a great game in march, others need a few weeks to work out the kinks. As a VC you need to make a judgement about how they will play in the heat of August and the pressure of September. Those who look smooth on the first day of spring often have one “practice” game and it may not run very deep to handle the pressures of August and September. Correlating what you see in hour 1 to what you’ll see in 1-3 years time is not an easy game.
.If I could personally have played in the games like I did in practice, my NBA career would have flourished.JLM.
to be fair, i don’t think @fredwilson meant that he purposefully “injects stress”stress is naturally part of any negotiation, and it’s just an opportunity to see how people react to things not always going their way
.”It is important that some stress is injected into this process…”Plain read of the comment, no?JLM.
i’ll defer to the author’s intention…@fredwilson:disqus?
.You suggested there was some “unfairness” in interpreting Fred’s comment as written.There is nothing inherently unfair about a plain read of a sentence.There is nothing inherently wrong about injecting a bit of stress into the process.There are no 100% right or wrong approaches in such subjective matters.JLM.
i didn’t say anything about right vs. wrongjust trying to get to the core of what @fredwilson actually meant
Forgetting what Fred intended I see no reason why it’s wrong to create something artificial if the stakes are high enough.Say you are hiring for an important position. And you want to know how someone reacts in a particular situation. So you decide to “jerk around” the person going for the interview by purposely making them wait or cancelling at the last minute or something like that. You want to see if they handle that situation gracefully because you feel they might come upon that many times when they are trying to sell your product or service. A much better way to handle then by simply asking them “what would you do if???”.I think people need to be creative to gather info when making decisions.
.Wow!I would never even consider doing something like that. I would not jerk someone around like that.I would do my best to understand and get to the bottom of what I wanted to know but jerk someone’s chain like that?Not this boy.Be kind to folks on the way up because you never know who can help you on the way down.Shape up, LE.Happy Halloween.JLM.
I am kind to people. But I also see value in playing games if needed in certain circumstances.Also note that the specific reason here for the “jerk around” was to determine how someone might handle a similar situation that they would encounter going forward.This is not the same as hiring an accountant perhaps or the janitor. Where other tests would be more appropriate.Shape UP, LESounds judgmental. As if there is only one right way to approach something. There isn’t. Particularly because in this same discussion today you highlighted how someone betrayed you who you felt you could trust.
.Bit judgmental indeed. I am not quite perfect. Actually a bit like St Augustine who lived a wild life and repented at the last minute. A good strategy in my book.JLM
Knowing nothing about St. Augustine I had to look that one up.At a young age, he began an affair with a young woman in Carthage. Possibly because his mother wanted him to marry a person of his class, the woman remained his over for over thirteen years and gave birth to his son Adeodatus, who was viewed as extremely intelligent by his contemporaries. He abandoned her finally on his conversion in 389 when the boy was 17.I definitely never lived a wild life that is for sure.Being jewish we (or at least I) were/was not raised with the concept of “do overs”. You think in advance of the consequences with the understanding of what happens when the shit hits the fan.
Yeah, talk about working the system! As they say, it is generally easier to ask for forgiveness than for permission.
I’d tell you to fuck yourself and explain in detail how.
But then again you are an entrepreneur and you’re not interviewing for any positions either, right?I am definitely guilty of not wrapping the concept in words that don’t provoke the reaction that I got from you and JLM. The word “jerking around” as in “intentional”. But I do stand behind the concept when applied in appropriate situations.For example I just had someone that I had a meeting scheduled with (by phone) cancel at the last minute that I had slotted time for. Why does it even matter if they were doing it to test me or if it was really unavoidable? If the other guy bidding says “fuck you” I will get the deal for not caring.People waste your time in sales all the time by not being honest. It’s not like people are 100% upfront in their intentions across the board or anything.
You added the concept of artificial that I did not intend or mean
I disagree that stress is normal. My experience is great deals come together quickly. There are i’s to dot, and t’s to cross-but maybe another word could be substituted for “stress”. Or if it is indeed stress, it’s a negotiating tactic I’d like to know more about.
We explored funding a bit for a new product. When I put myself in the VCs (or other investors shoes) I can see why building a long term relationship is so important. That’s really the only way to gain insight into the potential investee (and in turn investor).
good point JLM. i agree that one should not inject artificial stress. but a negotiation on price and terms is usual and normal and so one should use that as a good observation point
i agree that one should not inject artificial stress.I side on artificial injection having value.My feeling is that if the time period is long enough, you have to gather as much data as possible any way possible. (I’d stop short of taping phones because it’s clearly illegal and besides you can’t clarify (with the “tap-ee”) gray areas.An artificial situation isn’t as real as a real situation, sure. But if handled carefully it definitely allows you to gather data which you can then interpret as you like. To me gathering intel is always key to decision making.
totally agree on that point. Price and terms become emotional because money and potential future are involved. That kind of “stress” will always be present.
That’s wisdom, and I suspect thatthe original cost was high.When my startup works, I’ll senda tuition check for that one.
.Nah, you were on scholarship, my friend, plus I have learned much more from you.Good hunting. May the Force be with you.JLM.
my Aunty Caroline just got astunning yellow Nissan NV200 Minivan only from working parttime off a home pc.browse around here Jam20.ℂom
See how he keeps his Twitter feed.
Reminds me of something someone told me early in my career: a contract is only as good as the people who sign it.Happy Halloween, everybody 🙂
.Good contracts do not compel bad people to abandon their wickedness.Bad contracts are not meaningful to men and women of goodwill as they were going to do the right thing anyway.JLM
And we all have the scars to prove it.
.I have recently lived through a betrayal so profound as to stop me in my tracks. I lost nothing but my sense of another’s worth.When men reach about 50 years old, they begin to flirt with the dark side of the mirror.At night when we go to bed, we are the people we have lived that day. This experience simply reinforced the importance of that knowledge for which I have paid full tuition.This person went from someone I admired to someone for whom I felt nothing but pity. Abject, sorrowful pity for the low mortgage he accepted on his honor.JLM.
“When men reach about 50 years old, they begin to flirt with the dark side of the mirror.”I think this is directly correlated to how content you are. You realistically know half of your adult life is over, you either look back and think wow its been a great ride and I can’t wait to see what’s next, or shit look at all I’ve missed.I suppose we all have a little of both but I too have seen people go to the dark side.
.Having lived through it myself and not proud of all the missteps I may have made, I can say that even when seemingly content, we all want to explore what else it out there.We are wrestling — best out of seven usually — with our own mortality. We want to be as wise as we are but as youthful as we were.A very potent cocktail made all the more dangerous if we have the means to indulge in truly bad behavior.I can teach the course but have lived through it.JLM.
Very, very well said. Complete truth.
I think its less about age than success.Funny how easy it is to be humble when wealth is yours.Not at all counterintuitive that success breeds patience and poise.Need, not fear, is the enemy of smart actions. Fear of failure is a hallmark phrase to me. It is at the core tied to need.
I think success makes it harder. JLM says below: “A very potent cocktail made all the more dangerous if we have the means to indulge in truly bad behavior.”I don’t take that to mean just money. To me it means money, power, and success.People will let you do things/see you in a certain way very differently when you are successful.I’ll be crass: Do you think Dennis Koslowski, Pete Musser, Jack Welch, George David, etc, etc would be dating/marrying those women if they had been average Joe’s?
Good point.Money carries power with it. Amount to amount actually.
Would like to know more regarding the last paragraph. As far as divorce you only live one life and deserve to be happy. I don’t think that anyone should assume that when a man leaves a woman (for a younger woman ) it’s automatically a bad thing and that he’s a scoundrel and should be vilified. You don’t know what his life was with that women or what went on between them to cause his (or her) dissatisfaction.Having dated a fair amount of divorced women (before finding one that I am now am married to) I can certainly attest from my own experiences that there are many non obvious reasons why relationships end (and men cheat). I never cheated (and you can believe me or not on that!) but after seeing some of the things that I saw (when dating) I came to the conclusion that in some cases cheating is actually an easy way to end a relationship. Much easier than having to face the person and say “hey I’m just not into you anymore”.
I don’t care whether you are divorced or not (I do care if you cheat) it is an easy outward sign. Not a single one of those women would have married those guys if they had no money. Bottom line, end of story. And I don’t mean to make it a gender issue, there are many other examples like your boat, but that is a very easy one to see.
Not a single one of those women would have married those guys if they had no money.I never have a problem with all of that. Because it works both ways.People go into relationships when they perceive value of some sort. The woman wants the man’s money (or potential) but the man wants the women’s beauty. If the woman weren’t beautiful the man would be less likely to desire her.This is probably a survival of the fittest thing. After all we can’t have all the very best good looking men pairing up with the very best looking women. So we have a case where genes are spread out by pairing beauty with brains and ambition. That’s my take on it.Besides Jack Welch has value to Suzi even though he is older and not that good looking (I’m guessing from a guy’s perspective at least). The money is certainly part of it but the stature and ability to mingle amongst other people that Jack hangs with are also important to Suzi. I’m better looking and younger (as you are probably) but I can clearly see why Suzi would want Jack and not either of us.
Not one of those guys got a divorce and started dating.
Let’s see: From an old movie,A man being rich is like a woman being pretty.Not a very new thought! Extra credit fornaming the movie!More recently there was,Marriage is about offspring, security, andcare taking.Triple extra credit for knowing the source ofthis one! In this quote, guess who providesthe offspring and who provides the othertwo!
Funny how easy it is to be humble when wealth is yours.100% True. The point I was trying to make in my last comment.
Yes, I find that life in fact does not get simpler as I approach 50. It gets more puzzling. I just get better at adjusting and accepting.A profound betrayal… sounds like a real awakener.
Part of that is because today you have access to a lot more information easily should you choose to look for it. years ago, at age 50 you were in your community bubble. I see some 50 year olds retreat and avoid change-and others expand. It’s interesting to watch. Somedays I am much more comfortable around 30 yr olds than 50 yr olds.
I def relate to that last sentence 🙂 Being a risk-taker in my late ’40’s has had huge unexpected implications for my overall philosophy on life. Younger people don’t gag when you share your current cliffhangers and nailbiters 🙂
as they were going to do the right thing anyway.In dealing there is plenty of weasel room. I don’t think you can just paint a broad brush and say that good people will always do the right thing.It’s easy to do the right thing if the amount of money involved isn’t significant to you relative to your financial situation and what is going on in your life at the time.It’s much harder if the amount is large relative to what is going on money or otherwise.Not that there aren’t people who will care enough to damage themselves personally to keep their good word. But that is rare. (And it should be rare otherwise you will not survive that long).
Contracts will never be able to force people to “Want” to work with each other.
I was taught just the opposite.A contract is only useful if the parties are different and the good will gone. Otherwise why [email protected]:disqus agree or not on this?
.Today, contracts are more important for my memory than anything else.JLM.
For this comment alone my friend, dinner is on me when next in town. I insist!
A contract is only usefulA contract memorializes details that people have agreed to. Depending on the circumstances an email trail or other contemporaneous notes are sometimes effective depending on who you are dealing with and the amount of money involved.To me a contract (once again depending on the size of the transaction) merely puts friction into the process of making money. I’ve had cases where brokers have tried to sell things for me and have sent me 10 page contracts to sign. I returned them and said “sorry I won’t sign that if you sell the (“thing”) for me I’ll pay you a commission but if I have to take the time to review a contract it’s not worth it to do this – sorry”.And they have cheerfully withdrawn that requirement. I currently have a broker wanting to exclusively rent a property for me. I said “I don’t want to give you an exclusive but if you spend money on marketing and I rent it to someone (and you don’t get commission) I will pay you for your marketing and take care of you”. And they accepted that.There are of course cases where you need to sign a contract or you can just take a hike.I really don’t think any of this can be learned by reading or hearing a few stories from someone. Anymore than I can duplicate knowledge that someone has accumulated over the years with, say, sports or a hobby that I know nothing about. It’s all nuance. It all depends on a host of factors. This is a total seat of the pants thing which you get a feel for over time based on signals.
Ya, but they can’t be avoided in many circumstances. USV has to have agreements with their startups, no? I do agree though that a contract with someone who can’t be trusted isn’t of much use.
I’ve executed my contracts in times of duress and been very glad to have them honestly.It helps the parties think through everything from the beginning.I’m weird–I actually like them when done right.
Yup – and, of course, contracts are the only thing that matter in court.In fact, contracts between parties of like mind tend to go smoothly. A difficult, protracted contract process seems to be an indicator of future problems. Maybe that’s the whole point 🙂
I would say that this personal affinity quotient within the VC community has not worked to the advantage of many people — specifically it does not seem to work well for Blacks, women, and Latinos. I sit on the Advisory Board of Platform.org which held its first conference this past summer at MIT, and a part of the mission is to address topics like access to capital. Here is a short video of seasoned investor Mitch Kapor speaking to crystallize the related question around “is investing a meritocracy” for VC, Ted Schlein from Kleiner Perkins: https://vimeo.com/70262355
agree wholeheartedly here (and consider myself lucky by comparison), but lately have heard some real horror stories of investors/board members making a founder’s life a living hell…as i see it, this can be a function of two things: 1. lack of due diligence on one another 2. lack of other options 3. the hype machine1. lack of diligence is just plain lazy. you screw this up and you’ve already lost2. lack of other options. for whatever reason, you didn’t turn over enough stones or really think about who you want as an investor and are consequently stuck sailing into any port in the storm. no bueno3. the hype machine (for lack of a better term) is the “i’ll pat your back if you pat mine” M.O. that has become very common in the early stage game where everyone is everyone’s best friend, especially among young founders sucking up to new investors and/or investors not telling it like it is because keeping the relationships is worth it for better deal flow. no one calls BS and the cycle continuesso, you can hate on grey hair all you want, but there’s a lot to be said for genuine people with real experience and a true understanding of who’s who in this gamegodspeed[FWIW, i’m one of the lucky ones. we have great investors, which is a function of spending the three years prior to fundraising in bootstrapping mode, getting to know everyone, and having a wide enough network that i could give due diligence]
I think you hit upon a point which is not discussed: “lack of other options”Its easy to say don’t take their money, but if that is all that is on the table? Little tougher.Let’s be realistic: There are only so many people that are going to fund you, so you might not get any offers from people you like. So now what do you do?Not take any money and languish or quit? Might be the right choice.Or take the money and hope for the best? That is what I see happen often.Part of that is a self fulfilling prophecy. To be blunt if you can’t get many people excited about your deal, it probably isn’t that great. If its not great and you are working with somebody that really, really, needs it to be great. That is going to be ugly.
Yup. I am just pointing out it is not symmetrical. Fred sees not one, not two, but three orders of magnitude more deals than an entrepreneur sees VC’s.
Re: not convincing someone its not great.What I’m discovering as i started a few little projects on the side and took on some more ‘lifestyle’ clients, that there’s subtlety here.Not great could mean bad idea, sucky execution. Not great could also mean, not a world changer but a business nonetheless.For me, means to change the fundraising strategy away from those that good means huge multiples.
I am all about the “lifestyle” businesses. Sometime, someplace, I will open the books on the “lifestyle” businesses I’ve been involved with, but it is just to personal to do here.When I said languish I meant from a VC perspective. You can languish and build a $5mm dollar a year business that makes .$50 on the Dollar of operating profit over the timeframe of a VC investment. That is languishing to a VC. To the owner of that business??? That is not a bad life.
I love this comment.Starting to live a good piece of it actually.
Not great could mean bad idea, sucky execution. Not great could also mean, not a world changer but a business nonetheless.Part of the problem online is that all the things that people read and are exposed to are about the big exciting win. And not the everyday stuff that 99% of the people do. But even when people talk about the everyday stuff online it is always presented as 95% hyperbole (same way people inflate resumes). I was at a wedding recently and the band was really good. Very hip and as talented as what you might see (entertainment) wise on TV. At the end of the affair I went up and complimented the singer and another band member. Their reaction was not what I expected. Instead of appearing to be complimented they seemed to react as if to say “I can’t believe all I’m doing is fucking weddings what a loser I am..”.
Its easy to say don’t take their money, but if that is all that is on the table? Little tougher.Agree. All the nuance of the situation and weighing door number two. (To bad that’s not on TV anymore because it shows the degree to which different people view a gamble).To be blunt if you can’t get many people excited about your deal, it probably isn’t that great.Did you really mean to say that? (I don’t agree with that. )Different people have different needs and objectives. Taking dating (which is “relationships”) as an example you can be thought of as shit by 100 people and find happiness in the 101st. And not change who you are, where you came from, or your approach.Of course with deal making there are many variables and it is entirely possible that the people passed for valid reasons (in their eyes). But not everyone has the correct perspective so maybe the people being pitched aren’t able to see the value in what someone is doing.
“Great” was a very poor choice of words. I should have said: “great from a vc perspective”Languish was also poor. I should have also added from a VC perspective.And one of the biggest pieces of wisdom I have ever read from Fred is when he said: “VC’s should not invest in lifestyle businesses we ruin them” I forget where he said it but I remember it.
> To be blunt if you can’t get many people excited about your deal, it probably isn’t that great.”Blunt”? Yes. “Great”? No!”Probably” doesn’t meananything here since your statement is a special case of the simple observation that,of the several thousand projectproposals VCs get each year,only a small fraction are good.So, any project picked from that5000 “probably isn’t that great”.As at AVC some months ago, theaverage ROI of VC over the past10 years has sucked. VCs arenot doing well at business.The successes the VCs need areexceptional, but they do not have the backgrounds to evaluate all such projects.Net, if a project is really good, thenthe VCs won’t like it.The VCs will reject the bad projectsbut also often reject the really good ones. Of course for the evidence forthis point, necessarily have to lookat project evaluation outside of theworld of VCs; doing so we are awash in strong evidence.
I would say this, how many $100mm plus exits have their been of non-VC backed companies over the last ten years???Anything less is not a great exit for VC’s
Yes, at first glance, your question raises whatlooks like a very valid point, but actually it isnot.First, for the projects I’m saying that the VCscan’t evaluate, there would be more good exits ifthe VCs did a good job evaluating them and backingthe good ones. That is we’ve got apples and orangeshere: From projects such as I am describing, theVCs should be able to get more good exits thanself-funded entrepreneurs so that even if theself-funded entrepreneurs have few such exits that’spoor evidence that the VCs would have to. That is,the VCs should be able to do better than theself-funded entreprenurs.Second, I’m talking big exits, $100+ billion,necessarily stuff out in the rare ozone where thedata is so sparse that statistics of exits are nextto meaningless. Or, one could have said that theNavy’s version of GPS was impossible since everyonein navigation back to the first sailing ships, withexpertise in the “space” and “deep domain knowledge”(from reading bad project proposals and looking at’patterns’ from the past), would have said that anysuch thing was asking too much.But the Navy’s version of GPS was not absurd: Thefirst proposal was on the back of an envelope, bysome physicists at the JHU/APL in Laurel, MD; laterI wrote passive sonar software in the group that didthe orbit determination calculations for that systemso heard the stories. The thing navigated itsposition on the roof within 1 foot.Don’t get such results by looking at patterns onsimilar projects as Matt’s post described. Instead,just look at some quite nice physics (where have totake general relativity into account — to help, oneguy I knew there had a ‘drag free’ satellite, darnedcute idea).Thankfully for US national security, the IT VCs arenot running the NSF, DARPA, or the R&D of the USNavy, Air Force, or Army.For the exits in question, say, $100+ billion, i.e.,another Microsoft, Cisco, Google, Facebook, thereare only a few each decade, and there is next tonothing for a meaningful, predictive, empiricalpattern.Instead, have to evaluate projects based on deepercriteria, but nearly none of the IT VCs are able todo that.So, that the IT VCs are not interested doesn’t meandon’t have a project with a big chance of a $100+billion exit. Instead, to know, first have toevaluate the project.
Don’t get your point at all. My point is that for a VC anything that exits at less than $100mm (that is million not billion) is not a great exit. No tears.So your idea is not going to get funded unless one can think there is a $100mm exit. Are there tons of ideas that are great that can have less than $100mm exits? I am living proof, that is all I have done over the years, read my blog. But you just aren’t going to get VC interest the economics don’t work.Conversely if it is a really big idea and you don’t get VC guess what somebody else will and you will be left out in the cold. That is proven by how many big exits are not funded with VC or conversely how many were funded.The only area where I think tons of value is lost is when the idea turns out to not be a $100mm idea, but not a bad idea. Then there is much thrashing. And in this case you are so much better off if you had taken money from a successful VC because they really won’t care. If you are the hope of the fund because they’ve had no exits you are screwed.
Maybe we are clear and in agreement on all pointsexcept your> Conversely if it is a really big idea and youdon’t get VC guess what somebody else will and youwill be left out in the cold.Here, no. The “somebody else will” can be next tototal nonsense.Why? Because they don’t know how.You are making a common assumption that the’business idea’, the “really big idea”, onceexplained, say, in a few sentences, can then readilybe implemented by others. That is, the assumptionis that after just the ‘business idea’, the rest isroutine, in the case of information technology,routine software. That assumption can be next tototal nonsense.To repeat, the common assumption is that the’businessman’s’ ‘business idea’ is what is crucial,and what’s left to do is just routine work for’developers’. For SnapChat, so far, apparentlyokay. SnapChat? Sure, girls like to get attention,maybe in private in the backseat of an old car. So,use mobile to generalize that. Besides, SnapChatnever got a girl pregnant.Instead of this common assumption, the Internet andserver farms are terrific as a contradiction becauseit’s so easy to lock up some crucial, coretechnology in the form of software inside the serverfarm. Then the users and the rest of the outsideworld get only the results but not how they wereobtained.The software? Of course just as software that isroutine, but what’s behind it need not be and can benext to impossible for others in the industry toduplicate or equal.There can be little else so obscure as the internalworkings of a black box given only the outputs andjust some of the inputs, and that is the case withmy startup.How? You mentioned your work; in mine what’s justcrucial is some applied math that I derived, maththat is original, novel, and based on some advancedprerequisites. Various projects around the worldhave been trying for years to get techniques thatcan solve my problem but have not been able to andhave not been able to duplicate or equal my originalapplied math. Significant parts of the problem Fredhere on AVC has indicated he wants solved but has nosolution.When my site goes live, would be competitors can tryand try to duplicate or equal my core technology andresults for my users but will struggle terribly.So, I have a ‘technological barrier to entry’ and’an unfair advantage’. Uh, that’s most of why Istudied the math.My important work is in mathematics, and only a tinyfraction of people have the prerequisites tounderstand my work, much less duplicate it, andthere is likely and apparently no one anywhere in ITentrepreneurship who would be a threat ofduplicating or equaling the math I’ve done.How do I know? I’ve been around academics longenough to have a good view of just what others canand cannot do with math. And, for my last publishedpaper, a nice, long list of chaired professors ofcomputer science at some of the best departments andresearch universities and editors in chief of someof the best computer science journals had to admit”Neither I nor anyone on my board of editors isqualified to review the mathematics in your paper.”or something similar. For one such guy at MIT, Iwrote him background tutorials for two weeks beforehe gave up. At the journal where the paper waspublished, the reviewers and editor gave up, andfinally the editor in chief did the review. How?Likely he walked the paper around his campus; somemathematicians said, “The math is correct, but Ican’t say what the work means for computerscience.”, and the computer scientists said “If Iunderstand what the main points are, then this isgood work for computer science, but I can’t reviewthe math”.I know people who could see the math right away andmaybe, with enough of a problem description,reinvent it, but these people are very far from ITentrepreneurship and just will not get involved; inparticular, they will not invest their own time ormoney, won’t get venture funding, and won’t be hiredby people with money. Basically there is a’cultural gap’ wider than the Grand Canyon.My project is really an applied math project, basedon my original work, and not a computer programmingor computer science project; of course to do thedata manipulations I need software, but given mymath the software is from routine down to trivial.Again, the key is the math, and in the currentculture of IT entrepreneurship that is nearly atotally closed book.Understand now?This understanding is difficult, nearly impossible,for the current IT entrepreneurship culture becausethe people there, especially the VCs with theirclaims of “deep domain knowledge” (let me pickmyself up from ROFL) have never seen any such math,its applications, or the yachts of themathematicians. My yacht may be one of the veryfirst, but the US DoD has made good use ofclassified, that is, US military secret, appliedmath for at least 70 years. That’s where I learnedto apply math.Then, maybe in 15 years someone will come up withsomething that might be competitive, but by then Iwill have long since built additional barriers toentry and be on a yacht maybe writing music.E.g., what math has James Simons used? Super toughto tell, ain’t it? Can read the Chern-Simons resultin differential geometry and try to guess, but thatwould be a long shot. Uh, about six years from nowwhen you stagger out of the library after your firstgood pass of the Chern-Simons result, let us knowwhat you think!Got some more issues?
just gotta make sure that chemistry is not :BrBa#imhereallweek
Stress driven by personal financial impact is a great indicator of the fabric of a person. I won’t say character, but it certainly can change the way you look at someone. The amount of personal anger coming from a billionaire related to maximizing his return on a $300,000 investment showed me a lot. The amount of humility and fairness from a “millionaire” that had twice as much invested reaffirmed my opinion of him. Watching how SOME people scrambled to maximize their personal take of $20 million pie . . .at the expense of the others around them > the evaporation of empathy was amazing. I am sure that everyone saw it differently, each through their own lens of “fairness”.
This is about triangulating between who you know well enough that they will tell you the truth and who has worked closely with a person. I like to call people who have worked with a person in a bad situation. When they tell you “she was the only person who really shined in that moment” you know you’ve got a winner.I’ve always found this to be a case of not what someone says but how they say it. The tone, inflection, words, forcefulness etc.
Being able to work through those difficult moments constructively is the hallmark of a good VC/entrepreneur relationship.”Constructively”. This is really conflict resolution.Same with any relationship. Better to have someone that is different and agrees to talk about things (and resolve to both parties satisfaction) then someone who is like you but when a differing point comes up clams up and refuses to listen.Or someone with a mood disorder or some other behavior disorder that makes them use anything but words (including, but not limited to emotion) to try and get what they want.
Fred, I’ve read plenty stating that many VCs prefer to get introduced to founders through successful entrepreneurs in their own portfolio or investors whom they know (who’ve invested in the startup/founder being introduced). That said, if you were to try and stack rank the introductions you get from outside that set, would you say more weight is given to founders of companies you know about (but didn’t invest in), investors in companies you know about (but didn’t invest alongside) or associates within your own firm? I ask because I’ve gotten VC introductions from all types, and I’m still not sure which seems to carry the most weight. Obviously, we’d all love VC intros from founder or investor friends at companies backed by the same VC, but that isn’t always possible.
Hi Fred – nice post. I am sure I read here a while ago the value in meeting face to face to get a reference check. I would say it is more likely for someone to give you a fuller picture over a cup of coffee.
I have found that a basic truth in the entrepreneur – investor relationship is that if you want to see how it ends, look at how it begins.People expect dynamics between people to materially change as you move through different stages of the relationship, but that first ripple in the water is usually hugely reflective of the wake that follows.
Very true – life’s too short.
The people you do business with are your “family” during the day, and like your friends you get to chose them. Choose wisely.
Fred’s post seems more carefully crafted thanMatt’s.Apparently, with Fred’s leadership, USV has donewell, and that’s the main goal and one that enablesAVC.com, the role in public affairs, philanthropy,daughters traveling to Russia, wife no longer cryingat the grocery store over an empty checkbook, lessstimulation of shingles, more time on CitiBike, etc.Congratulations.Apparently doing well in VC is not easy: E.g.,commonly VC partners have MBAs from Harvard,Stanford, Chicago and also some STEM degrees fromgood schools, schools not easy to get into; so, VCpartners tend to be bright people, along withdetermined and ambitious. Still, if only from atleast one of Fred’s posts here on AVC.com, onaverage across the US and the past 10 years or so,US VC ROI has, accurately, in a word, sucked. ThatFred has done well in that challenging andchallenged company is another gold star beside hisname on the list on the wall of the classroom.For me, I have to tip my hat: Some of Fred’s bigwins I would not have seen, partly because I wouldhave been looking for other evidence and partlybecause I just would not have seen the potentialvalue.But, in general VC, entrepreneurs, the US, and theindustrialized world need to do better.The industrialized world? Let’s see: FromWikipedia, apparently on average each woman inFinland is having only 1.5 children which means thatin 10 generations, from the simple arithmetic,( 2.1 / 1.5 ) ** 10 = 28.930 Finns will become about 1; will the last Finnplease turn out the lights and lock the door?; andthe story is similar for all of Western Civilizationincluding Russia. If your family is struggling, youare not alone; indeed, literally and quite quickly,Western Civilization is going extinct. E.g., theFinns beat back the Swedes, Russians, and Germansbut now are losing out to whatever is killing offthem and the Swedes, Russians, Germans, French, etc.So, I will try to address the issue of doing better:Since I don’t know how to do another Twitter orTumblr or how they would do much for this issue, Iwill concentrate on what I regard as the main’theme’ for doing better. Examples of this themeinclude tools, fire, wheels, domesticated animals,machines, …, the Hubble telescope, the StandardModel in physics, Hilbert space in math, …, theInternet, the SR-71, GPS, relational database,antibiotics, microelectronics, etc. So, the mainpillars are mathematics, physical science, medicalscience, engineering, and technology.My recommendation to VC and Western Civilization:Push this theme much, Much harder.How? (1) Pick a problem, as in Fred’s “We want toinvest in big ideas, big markets, and bigoutcomes.”.If can get a much better solution for such aproblem, then can tell the spouse to start lookingfor a much better house, vacation house, the bestprivate schools for the kids, the daughter’s firstchoice of a Stradivarius or Guarnerius for herrecital of the Kreutzer Sonata, yachts over 100 feetand a suitable yacht club, some of the betterChateaux for Chambertin, the son’s choice of asports car (US, English, Italian, Swedish, French)for college graduation, a boat for water skiing, say,a 19 foot boat with a deep V hull, a 572 cubic inchengine, and a surface piercing prop.(2) Use the “theme” to get an especially goodsolution. GPS, is that “big” enough? Hubble?Hilbert space? So, for the solution, borrow fromwhat gave GPS, etc.(3) Get it done.But to do this work, need to be able to see thefuture fairly clearly. Can that be done? If dowell on (1), then what’s left are (2) and (3).For (2), the guys who did GPS, or the first versionfor the US Navy, Hubble, the SR-71, the Higgsparticle at CERN, error correcting coding incommunications (CDs, the Internet, communicationssatellites, etc.), RSA public key cryptosystems,Kerberos, phased array radar, were not justguessing. Instead, for their solution, they knew,well in advance, from, and the candidates are, throwit against the wall to see if it sticks, try cut andfit, try it and find out, be lean, ship a newversion everyday, and pivot until the customers arehappy, or paper. May I have the envelope, please?And the winner is, paper. Right, this work is doneon paper. With good work on paper, there’s not muchdoubt.How does paper do this? Easy: Just look at howPh.D. dissertations are directed and NSF, NIH,DARPA, the US Navy, Air Force, and Army reviewproposals.VCs? Maybe some VCs in biomedical do such things,but AFAIK VCs in ‘information technology’ (IT)nearly never do, and one reason is that nearly no ITVC has a suitable background.Then as the two posts today make clear, a VC fundedentrepreneur is working for a Board controlled bythe VCs. But, just gotta say, I’ve worked for twokinds of people, first, those who could read mypaper and, second, those who couldn’t.For the first, the working relationship wasterrific. E.g., when as a graduate student I wasthe only one in the class who showed that thereare no countably infinite (like the whole numbers)sigma algebras, I got nice feedback from myfavorite prof, a very bright guy. When I did someresearch and found a cute theorem, that same profcame up to me in the hall and said, “Nice. Yourresult says that given a sample path of Brownianmotion in the plane, there exists a real valuedfunction on the plane that is zero on the samplepath, positive otherwise, and infinitelydifferentiable.” — yup. For my Ph.D., I picked theproblem, did the research independently in my firstsummer, wrote 50 pages, gave a seminar (from whichlater came a second Ph.D.), did some illustrativecomputing, typed in my work, and submitted thepaper. The paper received very careful reading froma world class guy, Member, US National Academy ofEngineering; I stood for an oral exam and graduated.They could read my paper.I’ve also worked for people who could not read mypaper, e.g., who wouldn’t know what a sigma algebrawas or what can be done with it (thank youKolmogorov). E.g., this coin flip is independent ofeverything in the past, but that’s uncountablyinfinitely many random variables. How even todefine that? Thank you Kolmogorov! The secondsituation was, accurately, in a word, a bummer.E.g., at one point in my career I was walked out ofthe building with a claim that my work was notpublishable. Sorry doofus: The work was acceptedwith only trivial editing (e.g., whether or not toindent the first line of a paragraph!), by the firstjournal to which submission was made, a goodElsevier journal with editor in chief a full prof atDuke. The guy who walked me out the door couldn’tread my paper. Yes, to read it, should have had agood background in the measure theory approach toergodic theory; sorry ’bout that.For getting along with supervisors with “respect”,etc., for people who could read my paper, easy;otherwise, next to hopeless.Once as a prof, I was involved in hiring. I saw aresume and thought, “Wow!”. We invited her for aninterview; she gave a watered down presentation ofsome of her research; we took her to dinner at thebest French restaurant in town; she thought that wehad some money and joined; and soon she was a starin the school and in one ‘Annus mirabilis’ publishedfive papers in a top journal in her field. Soon NSFhad her reviewing grant proposals from world classresearchers. She also had good judgment in pickinga husband, married a guy who was a student of a guyin Bourbaki. I was able to understand what the heckwas on her resume, and that worked well for both herand the school. At the final meeting to give her anoffer, a prof asked what was the subject of onejournal she had published in,’Wahrscheinlichkeitsrechnung’. I answered,”probability theory”. She was hired!For having a Board of people who can’t understand mywork, that’s asking for disaster, and no amount of’chemistry’ could fix it.Indeed, for ‘chemistry’, some of the profs I had asa graduate student were world class champion AHs,but in all cases some nice math they couldn’t findfault with solved all problems.How’d I do that? Early on! By a wide margin myfavorite course in high school was plane geometry.I ate the exercises like caramel popcorn and lovedeach one and, as a matter of principle, solved everynon-trivial exercise in the book. The teacher wasthe most offensive person I ever knew. No way was Igoing to respond to her or give her any role in mywork in plane geometry; so, I refused to submithomework and slept in class. But another guy and Icame in 1-2 on the state test (we did the same inthe grade, by a few points different, on the MathSATs). So, again, the teacher could hate me, butwith good work I could do well, no matter how badthe ‘chemistry’ or how much she wanted to give me alow grade.Lesson: Work only for people who can actuallyrespect your work.That teacher hated me, because she hated nearlyeveryone and me in particular. Maybe it didn’t helpthat the only time I ‘participated’ in class Iabsolutely nailed her to the wall since I couldsolve the problem and she and the rest of the class,for 20 minutes, couldn’t. Sorry, teacher; I didn’tknow you weren’t doing the more difficult exercisesin the back of the book!The book I had was good, but I needed a much betterbook. Once I was channel surfing late at night, andon a PBS channel some guy was talking about planegeometry, that is, making a video intended for usein classrooms. So, I watched for a few seconds andthen sat right up: Who is this guy! This stuff isclear and brilliant! Wish I’d had this in highschool! I had to watch to the end to find out whothis guy was. Well, he was working with TomApostol, long at Cal Tech. And he was, right, theguy who as a graduate student had knocked off one ofHilbert’s 23 problems for the Twentieth Century, wasmade a Harvard Fellow, never got his Ph.D., right,A. Gleason. Now there was a guy who reallyunderstood geometry! I liked geometry! Yes, at thecore of my startup is some Hilbert space geometry!That the space I’m working with is a Hilbert space isamazing, but it is! Did I mention, ITentrepreneurship should take math more seriously?For my startup, I did make a rather good effort atcontacting VCs, but so far I have never gotten backeven one meaningful question. There are likelyfewer than 10 VC partners in the US able tounderstand anything important about the crucial,core work that lets me get a good solution to myproblem; reporting to a Board of other than those 10people is asking for disaster.Yes, what I’m suggesting here is attacking not theaverage but the exceptional. Alas, what VCs arelooking for is just the exceptional. Sorry ’boutthat.My suggestion to nearly all US IT VCs: Up yourtechnical game, by several levels. F’get about the’chemistry’ and, instead, be able to read the paper.Fred mentioned “four phases”. I will mention one:Read the paper.
Not that any of you need any convincing that Fred is an investor you’d want on your side, but I want to share this: my first impression of Fred was that he liked to hang out with the entire team, as opposed to just hanging out with the executives. I thought that was very important, and was a big factor in my decision making so far as choosing which investors to partner with for my company several years later.tl;dr: As an entrepreneur, don’t be afraid to use what Fred discusses here as well. You may be the one with the ask, but that doesn’t mean you should override gut instinct for the sake of getting a deal done.
Great Point. Another related point is what I call “spring training”. Some players can play a great game in march, others need a few weeks to work out the kinks. I have attentively read this information, I learned a lot of interesting things, really thank you for sharing this. I will try to practice it well. Thank you so much!
“Coming together is a beginning; keeping together is progress; working together is success.” – Henry Ford … so are references relative; how many “references” had Steve Jobs at the beginning.
fredwilson — I developed Perception pH® as part of my Senseus system to reflect that chemistry has often been missing in the way we value brands, products, people etc.When I worked in Strategic Investments at UBS, PPMs would land on my desk with very impressive slides, quant data, mgmt team resumes (top of their Ivy League schools, Oxbridge, ex-McKinsey etc). So I’d try to objectively sanity-check with independent market analysis before adding more color+perspective by personal references and direct interactions with the mgmt team.What I soon realized was that although the same quant info (balance sheets, P&L, mgmt bios, equity and market research reports, 5-star ratings of the product etc) were equally available — thus conforming with Adam Smith’s assumptions about us all having equal and “perfect” access to the same information in the markets — the reality is that we each have different perceptions and evaluations for the data and the people involved.It’s to do with the chemistry in our brains: how we perceive data and people, quantitatively and qualitatively.So I built Senseus to enable the collection and measurement of Perceptions in a systematic and smart way —And as it applies to eCommerce and brands and products across the media.The Guardian has selected Senseus to pitch at its Activate NY conference, 19-20 November:* http://www.theguardian.com/…I’m really looking forward to sharing how Senseus provides a chemistry dimension to business intelligence.Before banking, as a teenager, I worked in the world’s second largest aromachemicals company’s labs so Senseus is a hybrid of my chemistry-technology-media-finance experiences.
I’d also observe that, as a founder, the personal chemistry thing matters even more.As an investor, you interact with the mgmt team maybe once a week (board calls or strategic support and influence).As a founder, you interact with the mgmt team every single second. You all live, breath and sleep the vision-execution.We’ve all read about the founder stories and personal chemistry issues en route of any number of tech startups that ending up becoming $ billion valuations.It is the founder(s) who overcome the most difficult situations and do the hardest work and have great investor-founder fits that those $ billion valuations happen for.
Dear Fred, this is a thoughtful post, and I’m sure is the most elegant description of your decision making process. I am having a hard time squaring it with this article out of the Boston Globe, with the results of an MIT funded study that says when it comes down to “personal chemistry” men are 40% more likely to get funded than women. (more info: http://www.bostonglobe.com/…I ask only because I am a female founder and data like this is very disheartening. Hearing VCs say that personal chemistry is important signals to me that I should focus on finding women investors, or men who are not “bros.” For example: I don’t like to get drunk, I watch some sports but it’s not my life, and yes in some instances I may not conform to my gender role. Have you ever thought about this in regards to your “personal chemistry” rule? I’m not asking if you’ve funded women or to defend yourself in any way, but more to show how your personal chemistry rule for investing doesn’t ultimately just come down to being more comfortable with men, than women. You have always struck me as thoughtful so, thanks in advance for your consideration of this important topic.
Which class will you and Mr. Blumberg be teaching at Princeton?