As a footnote, I wasn’t able to predict the COVID crisis, so my thoughts in this last piece are as evergreen as an oak tree is. Specifically, my lack of foresight on increasing startup valuations and the return of consumer social.
Despite that, the final 2 questions of the piece are still very much pertinent now.
For the most part, founders are pretty cognizant of this X-factor. B-schools train their MBAs to seek their “unfair advantange”. And a vast majority of pitch decks I’ve seen include that stereotypical competitor checklist/features chart. Where the pitching startup has collected all the checkmarks and their competitors have some lackluster permutation of the remaining features.
There’s nothing wrong with that slide in theory. Albeit for the most part, I gloss over that one, just due to its redundancy and the biases I usually find on it. But I’ve seen many a deck where, for the sake of filling up that checklist, founders fill the column with ‘unique’ features that don’t correlate to user experience or revenue. For example, features that only 5% of their users have ever used, with an incredibly low frequency of usage. Or on the more extreme end, their company mascot.
To track what features or product offerings are truly valuable to your business, I recommend using this matrix.
“The optimal strategy is to assume that everybody that is competing with you has found some unique insight as to why the market is addressable in their unique approach. And to assume that your competitors are all really smart – that they all know what they’re doing… Why did they pick it this way? And really picking it apart and trying to understand that product strategy is really important.”
So, I have something I need to confess. Another ‘secret’ of mine. There’s a follow-up question. After my initial ‘unique insight’ one, if I suspect the founder(s) have fallen in their own bubble. Not saying that they definitively have if I ask it, but to help me clear my own doubts.
“What are your competitors doing right?”
Or differently phrased, if you were put yourself in their shoes, what is something you now understand, that you, as a founder of [insert their own startup], did not understand?
In asking the combination of these two questions, I usually am able to get a better sense of a founder’s self-awareness, domain expertise, and open-mindedness.
I met a founder (let’s call him Stan) recently who was about to close on his first big executive hire into a team less than 10 strong. Naturally, I asked what the rest of his team thought of that person. Stan replied, “I haven’t asked them yet.”
So, I subsequently followed up, “Were they able to meet him?”
“He’s been by our office, and I’m sure he’s had the chance to chat with them already.”
When he said that, two things stuck out to me:
Stan’s use of “I’m sure…” implied neither that he was sure nor that he took care to verify.
He seemed to have skipped a fundamental step in building a team. And by transitive property, how it would define his team’s culture.
The Culinary Parallel
Synonymously, a day later, my friend asked me, “How do you come up with your ideas for flavor mad science?”
You’re probably here thinking: “What the hell does this have to do with team-building and culture?” But bear with me here. I swear there’s a parallel.
Although, like all of my ideas and insights, I can’t say any of my flavor experiments are truly original, I always start off at the drawing board with flavor maps. And, you guessed it! Not even the concept of flavor maps is original. A few years ago, an amazing chef taught me this very trick of how he concepts new recipes every season at his critically acclaimed restaurant.
So, what’s a flavor map?
The idea of a flavor map is to start with a core ingredient – the star of your dish. And then slowly add other flavors and elements onto your diagram one by one. The catch is that every new flavor you add has to pair well with every single other flavor on that diagram.
Two flavor maps where I used green tea as the (co-)core ingredient.
Personally, I just try to think of a dish that I enjoyed, or know many other people enjoy, as the basis for a drawing a line between a pair. The reason I do so is that many generations of experts before me have already done the legwork to make these flavors work. And I’m just iterating off of their discoveries.
The more scientific approach is through flavor networks – specifically food-pairing and food-bridging. In summary, food-pairings are when you combine two ingredients with the same flavor molecules, like cheese/bacon or asparagus/butter. The most bizarre one in a 2011 Harvard study is probably blue cheese/chocolate, which share 73 flavors. On the other hand, food-bridging is when you take two ingredients that don’t share any flavors, like apricots/whiskey, and bridge them with an ingredient that shares commonalities with both, like tomatoes.
Yong-yeol Ahn and his colleagues explore the nuances of flavors and recipes in their 2011 research, which you can find here. But if you want the abridged summary, there’s a great one on Frontiers. Yet, as one of the co-owners of a critically-acclaimed molecular gastronomic restaurant told me not too long ago, take the research with a grain of salt. Food science is still extremely nascent and lacks consistent data points, especially across cultures.
Looping Back
Just like a complete flavor map has all of its ingredients working in cohesion with one another, a strong team needs to hold the same level of trust and respect. I’m not advocating that you need to agree with everyone on your team. In fact, disagreement on warranted grounds is better. But to be a well-oiled machine, a team can only be agile if you reduce the unnecessary friction that may exist now or arise in the future.
Although it is important that every team member can ‘food-pair’ with every other member, what I believe is more important is to have a fair mitigation system to ‘food-bridge’ all current and future disagreements. A system to resolve disputes and to prioritize tasks at hand. To have not only trust in each other, but also in the system design.
The cherry on top
Of course, I don’t know if Stan just forgot to set up times for his team to meet with the potential hire between his various tasks of running a business. Or if he had something he wanted to hide from his team. Regardless, his decision, or I guess, lack thereof to do so, would be detrimental to the delicate string of trust that connected his team to him.
To his and every other founders’ credit, there are often matters that seem obvious to an observer, but less so, when one has skin in the game – some degree of emotional attachment. And the deeper one is in the weeds, the harder it may be to follow rational behavior. Loosely analogized to the boiling frog problem. That said, some actions are excusable. These can often be caught by either a mentor or a close friend/family member. But there are a handful that aren’t. The same can be said on a macroscopic perspective as well. Between friendships. Lovers. Coworkers. You name it.
And, luckily for Stan, this falls under the former.
#unfiltered is a series where I share my raw thoughts and unfiltered commentary about anything and everything. It’s not designed to go down smoothly like the best cup of cappuccino you’ve ever had (although here‘s where I found mine), more like the lonely coffee bean still struggling to find its identity (which also may one day find its way into a more thesis-driven blogpost).Who knows? The possibilities are endless.
Stay up to date with the weekly cup of cognitive adventures inside venture capital and startups!
Product-market fit is fluid. Just because you’ve attained it once doesn’t mean you’ll have it forever. The market is constantly changing. And that means the intersection where supply meets demand will always be changing as well. That said, regardless of how and where you move to, you’ll always have a subset of your customers who aren’t happy. Who might miss the old ways. Who might wish for something else entirely.
To put it into perspective, I’m going to quote Casey Winters (his blog), the current Chief Product Officer at Eventbrite:
“Product-market fit isn’t when your customers stop complaining, it’s when they stop leaving.”
Retention and its Touch Points
If you run a business, you’re going to have a leaky funnel. Your job is to minimize the leaks. Double down on not just adoption, but especially retention. What does that mean? Engagement and the often, overlooked category, for many early-stage teams, re-engaging those that have become inactive over a set period of time. Whether 30 days or 7 days. It depends on what solution your product is providing for the market and how frequently you normally expect them to use the product. For example, for most consumer apps, as investors, we expect a minimum of usage for 3 days out of the 7 calendar days a week. So I characterize inactivity aggressively as after a month of inactivity.
In the past few months, since the health and economic crisis began, the conversation has shifted from ‘growth at all costs’ to profitability. And similarly, from an overemphasis on adoption to a better understanding of retention.
Speaking of retention, 2 days ago, the afore-mentioned Casey Winters and Lenny Rachitsky published their homework on the the dichotomy between good and great retention, which you can find here and here, respectively. Their research provides some useful touch points about “golden” numbers from some of the smartest people in the industry. Of course, as their research suggests, everyone’s “golden” number is different. At different points in time.
So, how are you tracking how lovable your product is?
One of my favorite ways to track what keeps users coming back for more is the Depth vs. Breadth graph. Plotting how long people use certain features and how often they click into it. You can easily substitute length of time (depth) with the number of actions taken for each product feature you have. Or as you grow into having multiple product offerings, this graph works just as well.
Below are just a few examples of breadth and depth metrics:
Breadth
Depth
# of logins/week
# actions/session
Session count
Session time length
D1/D2/D7/D30 sessions
# concurrent devices logged in
Platform-specific sessions
DAU/MAU
# paid users/ # total
The above graph should also help you better optimize your features/offerings. For instance, let’s say you’re a startup in your growth stages. Going by Reid Hoffman‘s rule of thumb for budgeting, spend:
70% on your ‘popular‘ product offerings,
20% on your ‘niche‘ product offerings,
And 10% exploring your any hidden gems in your ‘broad‘ quadrant.
In closing
If you have your finger on the pulse about what your customers love about you at all times, you’ll be able to create a more robust product. As a final note, I want to add that while this piece has been dedicated to what your customers love, please always keep in mind what they hate as well. And why they hate what they hate. Who knows? You might discover a larger secret there.
Last week I spent some time with my friend, who joined me in my recent social experiment, brainstorming and iterating on feedback. Specifically, how I could host better transitions between presentations. She left me with one final resonating note. “Maybe you would’ve liked a creative writing class.”
I’ve never taken any creative writing courses. I thought those courses were designed for aspiring writers. And given my career track, I never gave it a second thought. Well, until now. I recently finished a brilliant fictional masterpiece, Mistborn: The Final Empire written by #1 New York Times bestselling author, Brandon Sanderson. So, that’s where I began my creative journey.
In my homework, I came across his YouTube channel. One of his lectures for his 2020 BYU writing students particularly stood out. In it, he shares his very own Sanderson’s Laws.
The three laws that govern his scope of worldbuilding are as follows:
Your ability to solve problems with magic in a satisfying way is directly proportional to how well the reader understands said magic.
Flaws/limitations are more interesting than powers.
Before adding something new to your magic (setting), see if you can instead expand what you have.
Outside of his own books, Sanderson goes in much more depth, citing examples from Lord of the Rings, Star Wars, and more. So, if you have the time, I highly recommend taking one and one-fifth of an hour to hear his free class. Or if you’re more of a reader, he shares his thesis on his First Law, Second Law, and Third Law on his website.
But for the purpose of this post, the short form of the 3 laws suffices.
The First Law
Your ability to solve problems with magic in a satisfying way is directly proportional to how well the reader understands said magic.
The same is true in the world of entrepreneurship. Your ability to successfully fundraise is directly proportional to how well the investor understands your venture. Or more aptly put, how well you can explain the problem you are trying to solve. This is especially true for the 2 ends of the spectrum: deep tech/frontier tech startups and low-tech, or robust anti-fragile products/business models. Often times, the defensibility of your product comes down to how well people can understand what pain points you’re trying to solve. You may have the best product on the market, but if no one understands why it exists, it’s effectively non-existent.
Though not every investor will agree with me on this, I believe that too many founders jump straight into their product/solution at the beginning of their pitch deck. While it is important for a founder to concisely explain their product, I’m way more fascinated with the problem in the market and ‘why now?’.
You’re telling a story in your pitch. And before you jump into the plot (the product itself), I’d love to learn more about the setting and the characters involved (the underlying assumptions and trends, as well as the team behind the product). As my own NTY investment thesis goes (why Now, why This, why You, although not in that particular order), I’m particularly fascinated about the ‘why now’ and ‘why you’ before the ‘why this’. And if I can’t understand that, then it’s a NTY – or in millennial texting terms, no thank you.
My favorite proxy is if you can explain your product well to either a 7-year old, or someone who knows close to nothing about your industry. Brownie points if they’re excited about it too after your pitch. How contagious is your obsession?
The Second Law
Flaws/limitations are more interesting than powers.
Investors invest in superheroes. The underdogs. The gems still in the rough. And especially now, at the advent of another recession and the COVID crisis, the question is:
How much can you do with what little you have?
And, can you make the aggressive decisions to do so?
I realize that this is no easy ask of entrepreneurs. But when you’re strapped for cash, talent, solid pipelines, are you a hustler or are you not? Can you sell your business regardless? To investors? New team members? Clients/paying users?
On the flip side, sometimes you know what you need to do, but just don’t have the conviction to do so, especially for aggressive decisions. You may not want to lay off your passionate team members. Or, let go of that really great deal of a lease you got last year. You may not want to cut the budget in half. But you need to. If you need to extend what little you have to another 12-18 months, you’ve got to read why you should cut now and not later. Whether we like it or not, we’re heading into some rough patches. So brace yourselves.
But as an investor once said to me:
“Companies are built in the downturns; returns are realized in the upturns.”
The Third Law
Before adding something new to your magic (setting), see if you can instead expand what you have.
And finally consider:
Can you reach profitability with what you have without taking additional injections of capital?
Can you extend your runway by cutting your budget now?
But if you need capital to continue, do you need venture capital funding? I’m of the belief, that 90% of businesses out there aren’t fit for the aggressive venture capital model.
How scrappy are you? How creatively can you find solutions to your most pressing problems? And maybe in that pressure, you may find something that the market has never seen before.
In closing
Like a captivating fantastical story, your startup, your team, your investors, and especially you yourself, need that compelling narrative. The hardest moments in building a business is when there’s no hope in sight – when you’re on the third leg of the race. In times of trial, you need to convince yourself, before you can convince others. To all founders out there, godspeed!
And as Sanderson’s Zeroth Law goes:
Always err on the side of what’s awesome.
If you’re interested in the world of creative writing or drawing parallels where I could not, check out Brandon Sanderson’s completely (and surprisingly) free series of lectures on his YouTube channel.
Are these jellyfish friendly or not? Will they “bite”?
As colorful and as beautiful jellyfish are, we are still scared of the possible danger that each possess. So, most of us only admire them from afar. And for many of us who have seen some, we’ve watched them float gracefully in dark blue aqueous solutions across a sometimes distorted film of glass. These beautiful mysteries of the deep blue.
To Touch the Jellyfish
Much like my fascination every time my parents brought me to the aquarium as a kid, I’ve been fascinated with the people around me. Especially about the thin, sometimes distorted, film between these exceptionally fascinating souls and me. The distortion created as a function of society’s, as well as their own, efforts.
Exactly a year and two months ago, I embarked on a journey to host small-scale social experiments, like:
Hidden Questions. A game where no one else knows the question, except for the person answering it. And where the person answering has the choice of sharing the question that inspired the answer or taking it to the grave by taking a shot of hot sauce (about a 700,000 on the Scoville scale, for reference) or a variable number of Beanboozled beans.
Brunches with Strangers. Quite literally, Saturday brunches with strangers. Hosting a cast of people from all walks of life. Like founders, street artists, astrophysicists, concept artists, athletes, criminal investigators, filmmakers, college drop-outs, and much more.
The Curious Case of Aliases. Where players (strangers to each other) under aliases guess each other’s hobbies, occupations, deepest fears, etc. after only playing in a 30-minute game session. For instance, skribbl.io. Cards Against Humanity. Codenames. And Mafia.
And, the most recent addition to my small Rolodex of social experiments, Improv Presentations. A TED talk-like night where people present someone else’s creatively esoteric slide decks, with no context as to what’s in the deck until they’re on “stage”. To the postmortem dismay of my cheeks and core, we saw everything from how to survive a cat-pocalypse to how to master the art of DM’ing using military tactics to how to be a good plant parent.
The Thesis, The Questions
As COVID would have it, the lack of in-person interaction and self-quarantine inspired the last two. Yet, all of which with the same thesis: helping make the world feel a little smaller, a little closer, and a whole lot more interesting. Starting not with the people who bathe in the limelight, but with the people directly around me.
Why is it so hard to be candid with strangers? And sometimes, even harder with family and friends?
Do we need alcohol, drugs, crazy incidents, violence, a lack of sleep, or stress to truly be ourselves?
Though not all-encompassing, people seem to be naturally curious about things, events, status, money, and gossip. Why aren’t people more curious about people – well, as just themselves? Like me, you’ve probably posed and have gotten the question: “How are you?” or “How are you doing?”. And likely, with more times than one is willing to admit, we didn’t really care about what the answer might be. Often times, since we know we’re just going to get a “Good” or “OK” in response.
If you want to have some fun, I highly recommend the next time someone asks you that, say “Terrible”. And watch the computer chip in their brain malfunction for a quick second.
What did I learn?
I won’t claim I found the universal truth or a holistic answer to any of those questions I posed above. Because I haven’t. After all, someone I really respect once told me:
“50% of what you know is true. 50% is false. The problem is you don’t know which half is which.”
So, in my life, my goals are two-fold:
Build a system to help me discern my two halves of knowledge.
Expand the total capacity of what I know.
I will share more on this blog as I am able to draw more lines of regression myself.
But in the context of this post, through social experiments, I’ve discovered that people yearn for psychological safety. Not only does Google’s Project Aristotle share its effectiveness in the workplace, it’s equally, if not more true, outside of it as well. The reason that it’s sometimes easier to share your thoughts and struggles with strangers is that strangers often won’t judge you to the same extent as friends and family do. Frankly, they don’t have much context to judge you from – implicitly and explicitly.
People want fairness. Not in the sense of you get 1 cookie, so I should get 1 too. But a fair system to be judged by. That I will get the same benefit of doubt as you will give to anyone and everyone else. When we all get drunk together, we will all be drunk and we will all relieve ourselves of any filters we may previously have. And though everyone’s drunk personality is different, and frankly everyone will still be judged… For that moment, that night, everyone’s on the same playing field.
The Applications
Let’s take most recent experiment with improv presentations as an example. The initial idea was that everyone should present their own slide decks. As serious or as silly as they might be. But some of my friends were hesitant. In their words, they felt they needed to “impress” or “have better public speaking skills”. Some simply said that they didn’t think they’d “be as good as others”.
Before our first “TED Talks@Home”, I shifted it altogether where we’d all be presenting each other’s presentation. All of us would have no context as to what we’re presenting until we get on “stage”. Whether we were experts on a specific topic or in comedy or deck-making, we’re all jumping into a bottomless pool together. After our second virtual improv night, this past weekend, between muted giggles and visual laughs, one of the presenters told me that it wasn’t as bad as she thought it would be, and that she’d want to do it again.
Luckily, it seems more than 60% of my friends, colleagues, and acquaintances come back to participate in more brunches or game sessions or improv nights. 1 in 4 guests have proactively started friendships outside of the experiments. And about 5% have introduced their new friends to their friend circles. A small handful have also been inspired to start their own. So, maybe I’m doing something right.
Building Communities
The same (psychological safety and fair system) holds true for building communities, creating your corporate culture, and finding and keeping your friend group and your significant other. Although in the context of building communities, but applicable elsewhere as well, I forget who told me this once:
“A strong community has both value and values.”
– The person who told me this, please come claim this quote
Value is why people initially come out to join a community and admittedly, reach out to be a friend. Whether it’s because of who you know or what you can offer or how you can help them pass the time, it’s the truth. Values are why they stay. And safety happens to be one of those values.
In closing
As always, my findings aren’t meant to be prescriptive. But merely act as a guide – another tool in your toolkit – so that you are better equipped for future endeavors.
Like with people, when one day I get to touch a jellyfish, I don’t care about being stung. But I do want to know where I can touch where I won’t be stung. And subsequently, where I will touch where I know I will be stung. The difference between going in blind and not is that when I get stung, I am prepared to be.
#unfiltered is a series where I share my raw thoughts and unfiltered commentary about anything and everything. It’s not designed to go down smoothly like the best cup of cappuccino you’ve ever had (although here‘s where I found mine), more like the lonely coffee bean still struggling to find its identity (which also may one day find its way into a more thesis-driven blogpost).Who knows? The possibilities are endless.
Stay up to date with the weekly cup of cognitive adventures inside venture capital and startups!
As much as investors love founders with passion (or obsession) and grit, they also want to invest in founders who have the capacity to grow as individuals as much as their startup grows. And that boils down to how curious and open-minded they are. In other words, how coachable are they? In the past 2 weeks, I’ve had the fortuity to talk to 2 brilliant angel investors – each with their own respective formula for measuring founder coachability.
Formula #1: Assessing Peer Coachability
Last year, I shared a post about the importance of all three levels of mentorship – peer, tactical, and veteran. With the most underappreciated one being peer mentorship. For the sake of this post, let’s call the first angel, Marie. Similarly, Marie finds that peer coachability acts as a useful proxy for founder coachability. And she approaches peer coachability in a very unique way:
What do you and you co-founder(s) fundamentally disagree on?
Following that question, usually 1 of 3 scenarios ensue:
The co-founders can state what they disagree on. And by follow-up question, share how they resolved that disagreement, then how that applies to their framework for resolving future disagreements.
They figure it out on the spot. Better sooner than later.
They say, “Nothing.” And quite possibly, the worst answer they could provide. ‘Cause that means they just don’t understand each other well enough. It’s highly unlikely that given how complex human beings are, that there can be two ambitious individuals who have the exact same outlook on life. Even twins have variations in their perspectives.
Knowing what co-founders disagree on assesses not only how well founders know each other, but also, how they’ve learned from each point of friction. Whether intentionally or not, they become each other’s coaches and push each other forward.
Formula #2: Assessing VC-Founder Coachability
Jerry, on the other hand, tests the waters by offering a controversial opinion about building a business or an insight into the industry, but one he has conviction and experience in. Then, he waits to see how the founder responds. The founder(s) can either:
Disagree, and subsequently walk through where the dissent starts and offer a sequence of data and analyses as to why he/she believes in such a way.
Agree, but still offer how he/she reached the same conclusion.
In either case, Jerry is looking for how mentally acute a founder is and how much room for discussion there is between them. On the other hand, the strike-outs regress to 2 categories:
Disagree, and spend time trying to convince Jerry why he is wrong, rather than working to persuade Jerry to possibly see a bigger picture he might not have considered before. And sometimes, this bigger scope includes a marriage of Jerry and the founder(s) insights.
Agree or disagree, but unfortunately, is unable to substantially back up their claim. Becoming a yes-man/woman in the former, or an argumentative troll in the latter.
The Mentorship Parallel
Unsurprisingly, just like how VCs use these methods to assess founder coachability, I’ve seen mentors use similar methods to assess potential mentees. Many aspiring mentees seek mentorship for its namesake – that metaphoric badge of honor. Not too far from the apple tree when people start a business or come to Silicon Valley to be called a CEO or for their company to be ‘venture-backed’. A category of folks we designate as “wantrapreneurs”.
And unfortunately, many aspiring mentees find bragging rights to be the mentee of [insert accomplished individual’s name]. Yet they don’t actually mean to learn anything meaningful, much less accept constructive criticism. Realistically, no mentor wants to go through that mess. “If you want for my advice, you better take it seriously,” as my first mentor once told me.
In closing
A great VC’s goal is to be the best dollar on your cap table, but they can’t be that Washington if you don’t let them be one. And though it doesn’t call for your investors or board members to micromanage, it does mean you are expected to be candid in both receiving and using (or not using) feedback.
Three moons ago, I jumped on a call with a founder who was in the throes of fundraising and had half of his round “committed”. And yes, he used air quotes. So, as any natural inquisitive, I got curious as to what he meant by “committed”. Turns out, he could only get those term sheets if he either found a lead or could raise the other half successfully first. Unfortunately, he’s not the only one out there. These kinds of conversations with investors have been the case, even before COVID. But it’s become more prevalent as many investors are more cautious with their cash. And frankly, a way of de-risking yourself is to not take the risk until someone else does.
I will say there are many funds out there where as part of the fund’s thesis, they just don’t lead rounds. But your first partner… you want them to have conviction.
Just like, no diet is going to stop me from having my mint chocolate chip with Girl Scout Thin Mints, served on a sugar cone. I’m salivating just thinking about it, as the heat wave is about to hit the Bay. An investor who has conviction will not let smaller discrepancies, including, but not limited to:
Crowded cap table,
No CTO,
College/high school dropout,
Lower than expected MRR or ARR,
No ex-[insert big tech company] team members,
Or, no senior/experienced team members,
… stop them from opening their checkbook. And just like I’ll find ways to hedge my diet outlier, through exercise or eating more veggies, an investor will find ways to hedge their bets, through their network (hiring, advisors, co-investors, downstream investors), resources, and experience.
So, what is that telltale sign of a lack of conviction?
I will preface by first saying, that the more you put yourself in front of investors, the more you’ll be able to develop an intuition of who’s likely to be onboard and who’s likely not to. For example, taking longer than 24 hours to respond to your thank you/next steps email after that pitch meeting. Or, on the other end, calling someone “you have to meet” mid-meeting and putting you on the line.
It seems obvious in retrospect, but once upon a time, when I was fundraising, I just didn’t let myself believe it was true. That investors just won’t have conviction when they ask:
Who else is interested?
A close cousin includes “Who else have you talked to?” (And what did they say?). If their decision is contingent – either consciously or subconsciously – with benchmarking their decision on who else is going to participate (or lead), you’re not talking to a lead (investor). And that initial hesitation, if allowed manifest further, won’t do you much good in the longer run, especially when things get bumpy for the company. Robert De Niro once said, in the 1998 Ronin film,
“Whenever there is any doubt, there is no doubt.”
You want investors who have conviction in your business – in you. Who’ll believe in you through thick and thin. After all, it’s a long-term marriage. Admittedly, it takes time and diligence to understand what kind of investor they are.
In closing
Like all matters, there are always other confounding and hidden variables. And though no “sign” is your silver bullet for understanding an investor’s conviction. Hopefully, this is another tool you can use from your multi-faceted toolkit.
From spending time with some of the smartest folks on both sides of the table and from personal observations, even if it’s anecdotal, the sample size should be significant enough to put weight behind the hypothesis. And, if I ever find myself wanting to ask that question, I aim to be candid, and tell founders that I’m not interested.
The other day, I jumped on a call with a friend who was going through a speed bump in his relationship. Though I’m no behavioral scientist nor expert in all matters regarding relationships, I’ve been privy to cousin cases between other couples, dorm-mates and roommates, as well as startup teams. And like most people out there, I’ve been through my fair share as well.
From my own experience, as well as from being a fly on the wall to others’, a large portion of the drama starts with the time spent dancing around the elephant in the room. And the longer a pair (or more) dances, the worse it gets. At the same time, it’s easier said than done. Rationally, we know that we should start with the truth. But frankly, it’s hard for many of us, myself included, to speak the truth when we need to. And in my hesitation, I usually regress to thinking: “Maybe it’ll get better over time. Maybe he/she will just forget about it. Maybe someone else will solve it in my place.”
Though I’ve gotten better at getting straight to the point, I’ve, by no means, mastered my approach.
“The truth has legs. It’s the only thing that will be left standing at the end of the day… And since that’s where we’re going to end up, why don’t we just start with it?”
The Boiling Frog Problem
As all drama goes, we end up beating ourselves and others up in the process. Yet, when the dust settles, we still come back to the one left standing. There’s a similar concept that I learned in a college business course called the boiling frog problem.
If you put a frog in boiling water right away, it’ll jump out. But if you put the frog in lukewarm water and slowly heat it up, it won’t notice until it’s too late. And for the sake of the analogy, end up dying in the latter case.
The emotional turmoil we go through in our daily lives is no exception. It’s much easier to address the problem from the get-go, then let it rot you inside out. To put it into perspective, let’s say you address the problem at the beginning. There are only two outcomes possible:
It’s not as bad as you expected, and you’re able to resolve it easily.
It’s just as bad as you thought it’d be (as your mind regresses to the worst case possible). And well, you get burnt, as expected. But you will come out as a stronger person than when you went in. A phoenix reborn.
In closing
In tricky times, many of our relationships have been put on the rocks. The important part isn’t the conflict itself, but how we resolve the conflict. A frame of mind where there is no blame to dish out, but taking mutual responsibility to come out stronger in finding the resolution. Mike Maples Jr, co-founder of Floodgate, one of the most successful VC firms in the Valley, once said:
“Ego is about who’s right. Truth is about what’s right.”
It’s been a trying time for founders to fundraise in these turbulent times. On one end, you have investors who took a U-turn on plans to invest this year. On the other, you have investors still deploying or looking to deploy capital. The latter further breaks down into: (a) investors who are taking more calculated bets – raising the bar for the kind of startup that gets the capital, and (b) investors who find the opportunity to invest in the down markets. The latter cohort of the latter cohort seems to hold truer at and prior to the pre-seed stages among microfunds and angel groups.
The Tightening of the Market
Disregarding the investors who aren’t deploying capital anymore, it’s been harder than ever to raise. Here’s why:
Anecdotally, more startups are looking to fundraise. Many have pushed up their fundraising schedules.
The standard is much higher now than before. And that includes a stronger consideration for the problem you’re addressing. Is it anti-fragile? Is it recession-proof? If your numbers are down now, will they eventually ‘flip’ back on track post-quarantine?
Valuations are taking a hit. Where before your startup may have been overvalued (especially in Silicon Valley), many startups are facing “more realistic” round sizes. And flat or down rounds are more prevalent.
When investors can’t meet founders in-person, they’re resorting to data, data, data. Investors no longer have the luxury to benchmark a gut check over Zoom/email, as they would have in noticing micro-gestures and other situational context clues. Anecdotally, investors are spending much more time and putting much more weight on diligence than before.
And, that’s why founders, more than ever, should (re)consider fundraising strategies. This was something that I learned when I was on the operating side and at one point, working on the fundraising front for Localwise.
Much like when high school students apply for college, founders should have a three-tiered list – SMR, as I like to call it:
Safety,
Meet,
And, reach.
Safety
Safety investors are those that are definitely going to take the meeting. And will most likely invest in you (i.e. at the idea stage, this mostly comprises of family, friends, and colleagues, maybe even early fans via crowdfunding). Admittedly, they can only contribute small sums of money. Each check also carry little to no strategic weight on the cap table.
Meet
Meet investors are investors that will most likely take the first meeting, but you’ll need to do a little leg work to get them to invest. Many of these will most likely stick to being participants than leads in any round. They carry some strategic weight on the cap table – in the capacity of their network, their brand, or advice.
Reach
Your reach investors will be your greatest sponsors. The people who have the highest potential to get you hitting the ground running. These folks usually have crowded inboxes already. And you’ll need to figure out how to best reach them. Unless they reach out to you, you will most likely fall just short of their gold standard. But once you stget these onboard, your relationship will set you up for reaching your next milestone better than any other individual partnership. At the same time, they will be the ones who are most likely going to have true conviction behind your product, your market insight, and your team. They typically lead rounds, and carry great strategic value to your startup (i.e. top tier investors, SMEs, product leaders in your respective vertical). For lack of better words, your ‘dream girl’ or ‘guy’.
Your Priorities
When pitching (and practicing your pitch), go for a bottom-up approach. Safety, then meet, then finally reach. And ideally, by the time you’re pitching to your ‘dream girl’ or ‘guy’, you’d have refined your pitch that best fits their palate.
When prioritizing time and effort, go top-down. Since you have limited bandwidth, spend the most time doing diligence on your reach investors. Then meet. And if you still have time, safety.
Diligence and Reaching Out
During your diligence process, look at their team, their individual and collective experience. Is their partnership, especially the checkwriters, diverse? Were they former operators? Or career VCs? And based on what they have, what do you, as a founder, need the most right now? Also, to better understand the marriage you’ll be getting in to, talk to their portfolio startups and investors that have worked with them before. Pay special attention to the the venture bets that didn’t work out. Was there a break up? If there was, what was it like? How did the investor help them navigate tough times?
It’s easy to be positive and cohesive when things are working out, but how does that investor react when things aren’t going as expected?
After talking to the (ex-)portfolio founders, if you feel like they have a good grasp on what you’re working on and are excited for you, ask them for an intro. Focus on those founders who have gone through the idea maze in your respective vertical, or an adjacent one. If you’re defining a new vertical, or that investor has just never invested in your vertical, but has expressed public interest of pursuing investments in yours, ask founders who have the same or a similar business model to yours. After all, that’s going to be the kind of solid warm intro you want.
In Closing
Though there are other ways to get in front of investors (some more questionable and/or gutsy than others), including, but not limited to:
Warm intros from friend/mutualLinkedIn connection,
Cold email/DM,
Reaching out to a more junior team member (scout/analyst/associate/principal),
Presenting at accelerator/incubator Demo Days,
Presenting at a hot conference, like TC Disrupt or SXSW,
Volunteering at the same non-profit as them,
Auditing their lecture at Stanford,
Or, squeezing into their elevator (although most VC offices are pretty lateral)…
… anecdotally, it seems many founders overlook the means of getting an intro from a VC’s portfolio.
Last Friday, I jumped on a call with my wickedly-creative founder friend. Given his cognitive flexibility, our conversations usually span a multitude of topics. And our Friday call was no exception – from product design to community management to de-stressors. Then, finally, marriage counseling and its applications in managing team dynamics.
Empirically, I focused my attention on co-founder dynamics when sharing an exercise I learned in my expedition to find the curiously passionate and the passionately curious. But I realize now that there are so many direct parallels on a broader scale to teams at large. From none other than a marriage counselor.
I want to preface that this exercise isn’t designed to be universal. And there’s a good chance it may not be useful for the situation you’re in or have been in. But nevertheless, hopefully, it can be another tool in your toolkit. So, if ever, when you do feel the need, it’s something that you can pull from your arsenal.
The Exercise
Start every day gauging your individual gross energy level (i.e. motivation, excitement, emotional state) on a percentage scale with your partner(s)*.
* Yes, this was shared to me from a perspective that was inclusive of various forms of romantic relationships, including polyamory. Though I find it to be equally useful, when used among multiple co-founders/team members.
To put it into perspective, I usually sit around a 60-70%. When I’m inspired, motivated, or feel I can take on the world, I’m at 90-110%. Although extremely rare, when I’m down (i.e. sick, depressed, sad, unmotivated, stressed, in emotional turmoil, burnt out, or when I just want to regress to my shell), I’m usually at a 10-20%.
Assess if you and your partner(s)’ collective energy level add up to 100% or more.
If one of you is feeling down, can (the rest of) you make up for that energy deficiency?
If I’m feeling 10%, and I just find it hard to get shit done, can my partner make up that 90% and help us as a team champion the day?
And let the person hovering 10% take the day off.
If the collective energy just isn’t there, then the team falls on 2 types of contingency plans.
Can you design a system (or if you already have a system in place) where all of you don’t have to put in 100%, but can still get things done?
Maybe this is the day to clean your house. Or wash the car.
For founding teams, maybe this is the day the whole team just does data entry.
For content creators, I hear this is the day to go through fan mail.
Take the day off. Yes, the full day. And, no halfies. As great philosopher, Ron Swanson, once said:
“Never half-ass two things; whole ass one thing.”
Go take a day trip into the wilderness. Play video games. Read a fiction book. Draw. People-watch in a cafe (well, after the quarantine). Netflix-binge. Go tackle something on your bucket list.
And cap the downside – the potentiality of a slippery slope. I usually cap it at 3 days. Any longer, the counselor recommended seeing a relationship specialist.
Relationship counselor, if romantic.
Therapist/psychologist, if emotional.
Executive coach, if pertinent to co-founders.
Organizational therapist/psychologist, if pertinent to team.
What I didn’t realize until the Call
It seems obvious in retrospect, but it didn’t click until my buddy and I were thinking aloud. Subsequently, we realized how pertinent that exercise can be in understanding team workflows, as well as knowing when to double down and when to backpedal. Productivity has taken a sharp decline in this pandemic. For many, they’ve felt busier and working longer than before. The lack of diverse human interactions – for both extroverts and introverts – is really taking a toll. After all, we’re a social species. For managers, co-workers, and lateral teams, this exercise can be a way you can proactively assess your team’s morale and mental health. Assess early and optimize flexibly.
