Posts from entrepreneurship

Investments That Don't Work

I woke up to a dream this morning where I was playing a game that was very similar to Turntable.fm, a failed effort to create a social music experience that had a moment back in 2011 and that I had invested in via USV. In the dream, someone had created a new version of the game that was basically identical to the original version. It was as fun to play it as it was to play Turntable back in the day. Then I found out that the creators of this new game had received venture capital funding and were going to turn it into a business. I met the founders and was happy for them. Then I woke up.

Investments that don’t work haunt me. It isn’t the losing money part. I have learned to live with that. It comes with the territory in VC. It’s the losing part that haunts me. The what could have been part. The “if only we had done it differently” part.

Good ideas will eventually be executed successfully. And investments that don’t work are often failures of execution. So it makes sense that someone could come along and make your idea work after you failed with it. It happens regularly in the startup world. And it can be painful to watch.

I’ve gone through a few periods of burnout in my career and it was usually brought on by a string of painful failures. I’ve watched others navigate that similarly. If you are heavily invested in something that doesn’t work, it hurts. And the more the investment is of yourself, your time, your enthusiasm, the worse it is.

I’ve gotten out of these periods of burnout by turning my attention to something else. Crypto was helpful for me back in 2013 and 2014 when I was going through one of those periods. It was something new that I could throw myself at, that was different, and that was working.

It’s that old adage about getting back on the horse that tossed you. I am not a horse rider, but I get the adage and agree with it. The best salve for failure is success. And you have to keep going to get there.

#entrepreneurship#VC & Technology

Financing Document Forms

Many founders want to do SAFE note financings for their early rounds to save time and money.

My response to that is “let’s do a priced round, we can use a standard financing form we both like, we won’t use a lawyer on our side, and we can close in a week.”

The key to being able to do that is the availability of standard financing forms. Many venture law firms and also the NVCA have published standard forms on the web.

Here are Cooley’s forms.

Here are Orrick’s forms.

Here are the Series Seed forms created by Fenwick.

Here are the NVCA forms.

Here is Gunderson’s document library.

I am not suggesting the founder go without a lawyer. I am suggesting that the founder and their lawyer pick a “standard form” to use to do the equity round, send it to us for our review, and if we are comfortable with it (they are all pretty much the same), then we will agree to sign it without negotiation and close within a week.

Typically the only thing we all have to agree on is what the cap table will look like before and after the financing so that the correct numbers are put into the documents. Everything else is pretty standard anyway.

There is this narrative that equity rounds are expensive and take a long time and that SAFE notes are quick and inexpensive. That is not right. We can do priced rounds as quickly and inexpensively as SAFE notes. And we do that regularly.

#entrepreneurship#VC & Technology

Independent Director Compensation

I got this question yesterday and answered via email and thought I’d share that discussion with all of you:

I enjoyed your article on Board Diversity (https://avc.com/2020/06/board-diversity/ ) and am planning to implement it at my company. I was hoping to get some guidance on the following:

* How would you define the role of the independent director / what is their job? 

* How would you compensate them for this job? 

I believe the role of the independent directors is to represent “the Company” in all board discussions. Founders and investors can and do think about what is best for the Company, but they also think about what is best for them. An independent director can and should represent the Company in Board discussions. Also, an independent director should have experience operating a business and should actively share that experience with the leadership team.

For compensation, I like the use an annual amount of $100,000. That is substantially less than public company directors make (which is more like $200,000 per year), but being a public company director is more time consuming and exposes a director to more liability. So I feel like $100,000 a year is reasonable compensation for a private company director. The spread between private company board compensation and public company board compensation narrows as a Company gets closer to being public.

Private company directors are usually compensated in stock, not cash.

I like to use the following approach for stock based compensation:

  • For companies valued below $40mm enterprise value, pay an independent director 0.25% of the Company per year served on the Board.
  • For companies valued above $40mm of enterprise value, pay an independent director a percentage of the Company per year served equal to ($100k/enterprise valuation). For example, if your Company is worth $100mm, then you would pay 0.1% per year served ($100k/$100mm).
  • It is typical to make a “front-loaded” grant of four years of value and vest it over four years. So in this second example, where the Company is worth $100mm, the independent director would be granted an option for 0.4% of the Company, worth $400k, and vest that over four years.
  • However, for very early stage companies where the annual grants are quite large (0.25% per year), it is more common to make those grants annually so that the dilution from these grants comes down as the Company’s value increases. That said, front-loaded four-year grants are made for directors of early-stage companies as well.

As I said in the blog post on Board Diversity linked to above, I believe getting independent directors on your board from the very start is a good move. It will make your Board meetings better and it will make your Company better. And make sure to strongly consider diverse candidates when you add independent directors to your Board.

#entrepreneurship

Entrepreneurship And The Climate Crisis

Vinod Khosla penned a fantastic blog post this week outlining how a few entrepreneurs have made a material impact on clean energy and reducing our collective carbon footprint in the last decade and how a few more can move the needle even further in the next one.

Vinod starts off with this statement:

12–15 entrepreneurs, driven by entrepreneurial energy and passion for a vision, and a little bit of luck, could change the climate crisis into societal transformation

This is music to our ears as USV has started to back climate-focused entrepreneurs. I hope that we can back one or two of these 12-15 innovators in the coming years. That would be great for society and great for USV too.

#climate crisis#entrepreneurship

When Do I Create A Board?

I’ve been asked this question a bunch in the last few weeks in response to my post about more diversity on Boards.

My answer to this question is simple.

A Company should have a Board the day it is formed. The Board should contain one Founder (or possibly two) and at least two independent Directors.

I know that many founders want to control their Boards for as long as possible. I would prefer to see a Founder give up control right away but place control in the hands of independent Directors they nominate. That way they can be comfortable that the independent Directors will have both their interests and the Company’s interests at heart.

This will also make it a lot less likely that the Investors will eventually control the Board as the Board will have institutionalized the notion of independent Directors early on and ideally they will remain the majority of the Board forever.

Finally, it’s a great idea to pick diverse candidates for those independent seats day one. Diversity means “not like us” so it could mean gender diversity, racial diversity, industry diversity, experience diversity, or ideally more than one of those things.

#entrepreneurship

Crawl, Walk, Run

I am a fan of the slow and steady approach to building a business. I call it “crawl, walk, run.”

I have seen many founders try the “run right away” approach and it is super hard to make that work.

An example of “run right away” would be to raise a $30mm seed round, hire a couple of hundred employees, and go for broke. That mostly results in being broke.

Of course, there are examples of founders who did that and succeeded. But they would be the exceptions that prove the rule.

Crawl, walk, run generally means start small, do one thing really well, then get a little bigger, do a few things really well, then get a little bigger and do a few more things really well.

Crawl, walk, run is more resilient. It allows for mistakes that aren’t fatal. It takes a bit longer to get to the finish line this way, but the probability of success is way higher with crawl, walk, run.

Crawl, walk, run is a mantra for doing a startup and I recommend it to everyone.

#entrepreneurship

Board Diversity

This is a topic of great importance and one that we in the tech/startup sector have not done a good job with. We wait until a company is ready to go public and then address it. While that is better than nothing, it is not good enough.

The board diversity problem is a symptom of a much broader problem around lack of diversity in founders that get funded and lack of diversity in VC firms. Most startup boards are made up of a few founders and a few VCs. No wonder you have no diversity on the board.

Here are some suggestions for addressing this situation. I am working on this in my portfolio and USV is working on this in our broader portfolio. We are not control investors so this is a process of advocacy and persistence. This post is a part of that effort.

1/ When a startup board is created, there should be two independent seats on it. Day one. I know that will mean that founders will be unable to control their boards early on but these “independent seats” can be nominated by the founders to allay those concerns. And founders should put diverse people (gender, race, life experience, etc) into these independent seats.

2/ VCs should accept observer seats instead of board seats when they invest in companies. Boards don’t need three or four VCs on them. One is often enough. Two maximum. Instead VCs should negotiate for an observer right and the ability to nominate an independent director. And they should nominate diverse people for those seats.

3/ There should be term limits on board seats. Nobody and no investor should have the right to sit on a board forever. I could argue that in some situations, the founder might be the exception to this statement. That does not mean a valued board member should step down. That valued board member can always be asked to serve another term. What term limits do is raise the question about whether a person is the ideal board member for the company for the next few years. Often the answer is no.

4/ We need more resources like The Board List, Athena Alliance, and ELC to surface great board candidates. One of the many problems with boards that aren’t diverse is that they are not well connected to diverse candidates.

5/ We must commit to addressing this issue and make it a priority. Board development in general is not a high priority for founders. They are rightly focused on their company, their products, their customers, and enormous challenges of building a business from scratch. But boards are important. They need to be a priority and a diverse board is a better board for everyone. So we need to increase our efforts here.

Ten years ago the the tech/startup/venture industries started to make gender balance a priority in management teams, boards, and the venture capital industry. While we are not where we need to be, we have made good progress. We can do the same with diversity across the board. We can use the same approaches and the same persistent approach to the issue.

I am committed to making this a priority with the founders and companies I work with and I hope that all of you will too.

#entrepreneurship#management#VC & Technology

Contact Tracing and Technology Conference

As I wrote about a few weeks ago, I am excited about the possibility that technology, particularly mobile computing technology, can supplement the work of manual contact tracing to keep us all safer until a permanent solution is found to this pandemic.

But there is a ton of confusion about what contact tracing is, what exposure alerting is, what the role of legacy contact tracing systems are, and what role new applications can play in this moment.

So I was thrilled that a group of organizations that operate at the intersection of public policy and tech innovation are putting on a series of online conferences on this topic.

The first one will be next Wednesday from 11am ET/8am PT until 2pm ET/11am PT and will focus on the consumer apps that are being built on top of the Google and Apple APIs. There will be demos of many of these new apps and a series of panel discussions. If you are interested in attending (attendance is unlimited), you can RSVP here.

There are four of these online events planned over the next two months (roughly every two weeks) and they will cover enterprise contact tracing applications, what is happening internationally, and more.

The organizations behind this series of online events are The COVID Tech Task Force, Harvard’s Berkman Klein Center, NYU’s Alliance for Public Interest Technology, TechCrunch, Betaworks Studios, and Hangar.

If you work in government and are involved in making tech decisions in this area, if you are interested in how tech can help address large scale public health issues, or if you are just curious about all of this, I hope you will attend. I plan to do that myself.

#Current Affairs#entrepreneurship#health care#mobile

Growth

One of the great joys of the work I do is I get to watch the leaders of our portfolio companies grow over time.

I’ve had a number of moments over the last few months where I got off a call or a meeting and thought to myself “wow, she’s a new person.”

Growing as a leader takes time, mistakes, failure, feedback, and a lot of work. You don’t magically show up as the CEO and you are good to go. It’s not like that at all. The authority to make the final call doesn’t mean that you are good at it and that people will line up behind your decisions.

It is a process and like all processes, it requires time and patience. But for those who are committed to personal growth, there is a path.

Two syndromes I see quite frequently are “deer in the headlights” and “I’ve got this.” They are both tell tale signs of a leader who isn’t there yet.

Deer in the headlights is pretty obvious to everyone. The leader just doesn’t seem steady and solid. You can see it in their eyes. I like to provide a leader with deer in the headlights syndrome a lot of support, advice, and constructive feedback. I have seen people go from deers in a headlight to strong decisive leaders in less than a year. It helps to have a gauntlet or two to have to run through. The greater the challenges the deer in the headlight faces, the more quickly they can emerge as a strong leader.

“I’ve got this” is more problematic. The leader acts like they know what they are doing, but they don’t. And everyone around them knows it except them. I like to provide a leader with “I’ve got this” syndrome with a lot of tough love but that is usually not enough. The answer to “I’ve got this” is usually failure of some sort, often a very significant one. The key is to be there for the failing leader in that moment and help them get through the failure and come out of it with self awareness and a desire to address the issues that have gotten in the way.

These are just two of the immature leader syndromes, but they are two very common ones I have seen.

I believe that most people have the capacity to be leaders if they want that for themselves. I also believe that leadership is a skill that you never stop learning. And I believe that it requires self awareness, courage, and deep empathy.

Sitting at a table and watching a skilled leader work is quite a sight to see. And watching someone grow into that person is one of the great joys of my work.

#entrepreneurship#life lessons#management