Posts from entrepreneurship

Telegraphing

I recall when my partner Brad and I were raising our first USV fund, back in 2003, and potential investors wondered about my blogging habit. They asked if I was making a mistake telegraphing our investment thesis for everyone to see, including our “competitors.”

We strongly defended the practice and explained that the benefits of telling the world what we were looking to invest in, and why, strongly outweighed any costs. We explained that telegraphing would bring entrepreneurs to us.

And that turned out to be the case. So many of our top-performing investments over the years came to us because of our telegraphing strategy. It is hard to know who is working on a problem you are interested in. But if you put the word out far and wide, they will find you.

I was reminded of those conversations almost twenty years ago now when I read this post on USV.com by Hanel outlining our interest in measuring carbon. She explains that we have made one investment in that area already and are looking to make more. And she explains why.

I am sure that Hanel has already heard from a bunch of founders working on measuring carbon and will hear from more in the coming weeks and months. That’s excellent and how it should work in our view.

#climate crisis#entrepreneurship#VC & Technology

The Bad Marriage Problem

Over the last 18 months, the early-stage financing market has seen dramatic changes characterized by these three things:

  • A shift from in-person fundraising to virtual fundraising
  • A reduction in financing process timelines from months to weeks
  • A continued increase in the amount of capital available for early stage companies

I believe that for the most part, these changes will be permanent.

And I believe that for the most part, these changes are good for early-stage company formation and innovation.

However, there will be some negative side effects from these changes and one that I worry about is the “bad marriage problem.” Unlike public markets, private market investments are held for many years, often a decade or more. If an investor and an entrepreneur find each other difficult to work with, there is no easy solution. There is no divorce court for startups. And so the result is likely to be entrepreneurs and investors getting stuck in bad marriages.

There are a few opportunities to address this issue. There is a vibrant secondary market for private investments and while it is mostly limited today to well-known later-stage companies, it could develop into a broader market as the capital seeking to get invested in early-stage innovation continues to grow unabated. It is unlikely that founders will be able to force investors out of their cap tables via the secondary markets, but a voluntary separation via the secondary market seems more likely to me.

I also think startup boards need to evolve. There should be many more independent directors and many fewer investor directors on startup boards. Investors should be more open to observer seats and founders should have more say in which investors sit on their boards. I am not arguing that founders should control their boards, but I am arguing that investors should not control the boards. I think independent control is the most sustainable solution.

We know that bad marriages are hurtful to everyone, not just the spouses. Companies that have dysfunctional founder/investor relationships suffer from them. And the shotgun marriage environment we are operating in right now (and for the foreseeable future) will likely create more of them. So we should be thinking about solutions to end these bad marriages and let everyone move on to better ones.

#entrepreneurship#VC & Technology

From The Lab To Your Home

My family has a history of irregular heartbeats, from PVCs to AFIBs. So when I saw my cardiologist recently, I asked him how I could track my beats. I have worn a Holter Monitor a few times and did not want to do that again unless it was absolutely necessary. He pointed me to this Kardia Mobile device which I purchased on Amazon a few weeks ago.

This Kardia Mobile 6L device is remarkable. It delivers a “6 lead” EKG reading into your smartphone by putting the device on your knee and pressing both thumbs on it. I realize that 6 leads is not the same as what you get with a Holter Monitor or an EKG in your doctor’s office. But it is really amazing because it is so easy to use in your own home. It is the size of an Apple TV remote, maybe even a tad smaller. I just email my cardiologist the result and he tells me what is going on without him having to take fifteen minutes or more to see me and without me having to visit his office.

This is just one example of the revolution underway in health care. Driven by advances in technology, a computer in everyone’s pocket, ongoing changes in the healthcare system accelerated by the pandemic, among other forcing functions, we are seeing more and more healthcare being accessed in our homes vs in the doctor’s office.

This does not mean that doctors are needed less. I think they are needed more. But they can focus their time and energy where it is most needed, in providing the care itself vs all of the other things that lead to the care.

This has the potential to both increase access to care and also reduce the cost of it. We will need other changes to the healthcare system for those things to be realized. We will need the healthcare system to move away from a business model based on the provision of care in favor of a business model based on outcomes. We will need the power of the payors to be reduced in favor of the power of the patients. Those changes must be driven by society/politics and they won’t come easy.

But the conditions are ripe for a reshaping of the healthcare system. Entrepreneurs (like the folks who made the Kardia Mobile device) and risk capital can and will be an important force in driving that change.

#entrepreneurship#hacking healthcare

Short and Sweet

This should be obvious to AVC readers but I am a fan of short and sweet. Why take two pages to say something you can say in one page? Why take two paragraphs to say something you can say in one paragraph?

This letter to potential investors from the CEO in the Duolingo S-1, which was flipped to the public yesterday, is a fantastic example of that.

Disclosure: USV is an investor in Duolingo and we stand to profit from their IPO. This is not in any way an endorsement of the offering. Investors should read the S-1 and make up their own mind about it.

#entrepreneurship

Startup CXO

On Monday, a copy of Startup CXO, my friend Matt Blumberg’s new book, arrived at the USV office. I picked it up to take a quick look and thought “this a heavy book!”

So I texted Matt, congratulated him on getting the book out, and then asked why it was so heavy. He replied “because it is 640 pages, there is a section on every C-level function in that book.”

That’s when I realized that Startup CXO is not really a book. It’s a “field manual” to scaling a leadership team and company. It is the kind of book you will keep by your desk and pull out from time to time to figure out how to approach an issue or to help one of your senior leaders figure out how to do that.

And in that context, it’s a very valuable resource for CEOs and leadership teams as they scale a company and find new challenges around every corner.

The book is now out in Kindle and Hardcover. I recommend the Hardcover so you can keep it handy and pull it out from time to time when you need a quick primer on something.

#Books#entrepreneurship#management

In-Person vs On-Screen

Last week I spent three hours with my six partners in a conference room talking through what we are investing in and why. It was a terrific session and I had more “ahas” in those three hours than I have had in many many months. There really is no substitute for sitting together with your colleagues working things out face to face.

This week our team met with a founder in Singapore via Zoom. It was midnight in Singapore and noon in NYC. In one hour we learned enough from the founder to be able to make a decision on whether or not to invest in the founder’s company.

In the last year, events like the latter one have been commonplace. Events like the former have been non-existent. And there are many in the tech sector and broader business sector (and other sectors too) that have come to believe that on-screen interactions will be the primary way we engage going forward.

For certain things, like raising capital and investing capital, on-screen works pretty well. Founders have figured out that they can raise capital from their kitchens, bedrooms, and offices in weeks vs roadshows that lasted months. I don’t think we will see founders going back on the road in any material way ever again. And founders in Singapore can access capital markets in NYC with ease. And investors in NYC can access investments in Singapore with ease. These are all important and disruptive changes to the startup, tech, and business sectors.

But in the last month, as I have been going into the USV offices most days, I have come to realize what we have been missing with the on-screen work model vs the in-person work model. Many things are more efficient on-screen but some things are way better in-person.

Understanding which is which and then figuring out how to continue to do the in-person things will be critical to leaders and teams navigating the new normal.

I got an email from a founder/CEO about six months ago saying that his company was going back to the office completely when the pandemic was over. I had not heard many CEOs taking that strong of a stance at that time. Since then, I have heard the same from a number of our portfolio company leaders. They are in the minority but they are not non-existent. When we survey our portfolio we find that about 20-25% will go back to full-time in the office work, another 20-25% have gone entirely remote, and the balance will try to figure out a hybrid model that makes sense for their company.

At USV, where we have landed for now, and maybe forever, is a bias to be in the office, particularly on the days we meet in person, but we are also way more open to on-screen work and we have an expectation that some team members will choose to work on-screen for multiple days a week, possibly the majority of days a week. We see that working parents benefit from the flexibility that on-screen work allows and younger team members benefit from the socialization and camaraderie that an office provides. We also see that those who commute long distances benefit significantly from being able to reduce the commuting load by working on-screen multiple days a week.

Our business has a natural rhythm of two days a week when we meet as a team; Monday and Thursdays. So those tend to be the days that team members try to be in the office and those are the days we do things like cater in lunch and maybe go out after work together. That allows us to retain the team dynamic and culture while being more open to on-screen work going forward.

We definitely have not figured this all out, but we are starting to see some patterns and some benefits of both work modes, and we are trying to navigate to a good middle ground.

Each company needs to figure this out in a way that works for their team and culture and I believe that there is no “right way” for everyone. But I also believe that in-person interactions remain critical to making better decisions, better products, better cultures, and better companies and so I would encourage everyone, including the fully remote teams, to figure out how to make in-person interactions happen on some regular cadence.

#entrepreneurship#management

The Bolster Board Diversity Survey

Last June, I wrote about board diversity and suggested some things we are doing and that you can do to diversity your board.

In the ten months that have passed since I wrote that I am pleased to say that we have seen a noticeable increase in board diversity in our portfolio. I have personally stepped off a few boards to make room for diverse board members and I am prepared to do more of that. A number of my partners have done the same. It is that important to me and USV.

But I can also tell you that the state of diversity in startup/growth company boards and our portfolio is still awful.

Our portfolio company Bolster connects fractional executives and board candidates to startup and growth companies. They have done some of the board searches for diverse candidates in our portfolio and they are going to do a lot more.

They have been surveying the startup and growth sector over the last few months to determine the state of diversity on boards. They published the results today. The numbers are embarrassing.

We can do better and we must do better.

Here is how:

1/ Make room on your board for independent directors at the very start and fill those seats with diverse candidates.

2/ Ask your investor directors to become observers to make room for independent diverse candidates.

3/ Prioritize this.

4/ Use Bolster or other service providers to surface great diverse board candidates.

There are so many qualified diverse candidates out there for you to bring onto your board. I have participated in many of the board searches in our portfolio in the last year and I am blown away by the diverse talent that is out there waiting to help you grow your company. You just need to make room for them and ask them to join your board.

Just do it.

#entrepreneurship#management#VC & Technology

The Vision Thing

A well-known entrepreneur turned VC, who will go unnamed because I am not sure he would want me to share this conversation publicly, once told me “if you remove a founder, you must sell the company within a couple of years or it will start to decline in value.”

I don’t entirely agree with that and my experience with it has been different, but it brings up an incredibly important topic about leadership.

I like to keep things simple and in my simple mind, leadership comes in two flavors, visionary leadership and operational leadership. Founders are almost always visionaries (if they aren’t, run in the opposite direction) and hired CEOs are almost always operators.

What this VC was saying is that once you replace visionary leadership with operational leadership, the Company will stop innovating and start to lose value. I agree completely that companies that stop innovating will start to lose value. What I don’t agree with and have seen first hand, is that you can have a team that can provide both operational and visionary leadership.

Leaders who can provide both operational and visionary leadership are a rare but special breed. When you find one, get on their bus and stay on it for as long as you can. It will be an incredible trip.

It is also the case that you can pair visionary leadership with operational leadership and I have seen that model work very well for long periods of time. Most commonly, the visionary leader is “in charge” and the operational leader runs the business on a day to day period. That can be an Executive Chairman (visionary) and a CEO (operator) or it can be a CEO (visionary) and President/COO (operator). Most commonly in this model, the visionary leader is the founder and the operator is a hired executive.

Small early-stage companies can succeed without operational leadership but not forever. That is why founders who are great visionaries but weak operationally can be very successful for a while at least. Once a company gets into the hundreds of employees and is headed to the thousands, it needs operational leadership and this is where many visionary founders struggle. And this is when operational leaders are hired and the work starts to find the right long-term sustainable operating model.

Some founders are this rare breed of visionaries who can operate too. Most are not. So this work to find the right pairing is critical and is a lot of the work that board members do with the founders and their leadership team in startups.

But going back to my friend and his advice that I started this post with, it is true that operational leadership alone will not get the job done. And it is also true that operational leaders will have a hard time getting “the vision thing” from below. It has to come from the top. Operational leadership, fortunately, does not.

#entrepreneurship#management

Entrepreneurship In Latin America

It is a little known part of my career, but for a brief period from 1997 to 2001, I was part of a small group of investors who helped to create a startup ecosystem in Latin America.

It all started with a company called StarMedia which created a Yahoo-like “portal” for Latin America. My partner Jerry Colonna and I met StarMedia in early 1997 and we brought it to our partners at Chase Capital Partners because we wanted to lead a Series A investment in it. In that Chase Capital Partners meeting was a woman named Susan Segal who ran Chase’s Latin American private equity investing. She pulled me over after the meeting and asked me if there were other startup companies like StarMedia in Latin America. I told her that there must be but I wouldn’t know how to find them. She said, “I can help with that.”

So began a five year investment partnership between Flatiron Partners (our VC firm) and Susan’s Latin American private equity business. Susan and her team worked their Latin American connections and they brought the deals to us and we vetted them for team, technology, market need, etc. We did something like a dozen investments together including MercadoLibre (one of the greatest Internet companies ever in any region), and Patagon.com (where I met the founders Wences Casares and Micky Malka).

But it was StarMedia where I learned the most. I made and lost more money personally (at that time in my career) on Starmedia. I have a StarMedia stock certificate in my office that I look right at that was made out to one of our family entities. It was once worth tens of millions of dollars and is now worthless and has been for decades. It takes messing up on that massive of a scale to learn some things.

StarMedia is also where I met my good friend Jerry who would have been 70 today. Jerry grew up in Mexico and moved in and out of Latin America and Silicon Valley with ease. He understood both places and helped to bring them together. I miss Jerry so much. He was a mentor, advisor, and coach to many of the earliest Latin American Internet entrpreneurs.

I was reminded of all of that history yesterday as our firm listened to a pitch by a Latin American team that is building a very exciting company. It reminded me that we seeded something twenty-five years ago that has gone on to become a vibrant startup ecosystem. Jerry, Susan, and I made a great team and we did something really important together.

#entrepreneurship#VC & Technology

Resilience

A friend and I dined last night at a restaurant that opened in our neighborhood last summer, in the middle of the pandemic. For the first six months of its existence, they could not welcome diners into the space that they had spent time and money creating. They carried on, figured out how to make money serving customers outside. As the NYC economy starts to recover, they are still standing. And they are now welcoming diners into the lovely space they created for them a year ago.

Resilience is an extremely valuable trait when you are starting and running a business. In a bull market that rewards other things, it is often overlooked. But I don’t overlook it.

A reporter asked me recently about a company that I am on the board of that has become very successful. I told the reporter that for years, the founder carried on while every competitor left the market in search of a viable business. The viable business arrived eventually and the founder was rewarded for his patience.

Sticking with something, even when the chips are down, is hard. Many people (most?) can’t do it. They are impatient. They want the easy money.

While the world has been going through a painful and deadly global pandemic, the tech sector has experienced a bull market of epic proportions that has lifted all boats and made some incredibly wealthy. But that bull market will eventually end and things will get harder for founders and CEOs and investors.

And that is when resilience will be in short supply. So look for it in founders now, when it is less necessary.

#entrepreneurship#VC & Technology