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#unfiltered #42 The Miracle that Catalyzes the Hero’s Journey

In the venture world, the word timing is thrown around in a very canonical way. Many investors and founders mythologize the concept of timing around a business. While there is some science and data that might be able to point in the general direction, success is a lagging indicator of timing. And arguably, the only way anyone can really determine if the timing is right or not is in hindsight. Investors that said they knew the exact timing of the market may just be attributing their success to survivorship bias.

To analogize it, it’s the same as knowing when to invest in the market or in a particular stock. Everyone wants to buy at the lowest, sell at the highest. Your ROI is positively correlated with the sell price, and negatively correlated with the buy price. But when is the lowest? No one really knows for certain. We can guesstimate a timeframe with reasonable confidence, but that’s the best we can do. The same is true for measuring timing in the market. Yet there is one thing that I’ve come to learn in my years in the venture world that’s as close as you can get to the “true” timing of the market. A miracle.

Let me explain.

One miracle

Every startup needs one miracle to succeed. One. No more. No less. Elad Gil said in an interview with James Currier at nfx, “Every startup needs to have a single miracle… If your startup needs zero miracles to work, it probably isn’t a defensible startup. If your startup needs multiple miracles, it probably isn’t going to work.” He further elaborates, “If you have more than one, you have compounding small odds and that means you’re very, very likely to fail.”

Before that miracle, if you’re truly creating a revolutionary business, by definition, you’re in the non-consensus. You have more non-believers than you do believers. If it were an obvious business, then everyone would do it. If everyone does it, economically-speaking, the ROI is low. In a situation, where every kid sells lemonade with the exact same recipe by the street corner, everyone is fighting for the exact same customers. Eventually, it’ll lead to a race to the bottom.

That single miracle is going to be that trial by fire. The true test of grit and founder obsession. That trial, whenever it is, predictable or not, determines if your product will stay a niche idea (and possible fizzle into obscurity) or a business that will change the world. For you and your business, that miracle could have been catalyzed by the pandemic, the GME short squeeze, ’08 recession (if you’re an older business), the inauguration, or something yet to come. The question is: How do you respond in the face of adversity?

Why is that miracle important?

Tim Ferriss once said, “Your superpower is very often right next to your wound, like your biggest wound. […] They’re often two sides of the same coin.” If you can survive and conquer that trial, the miracle – your superpower – becomes one of your strongest moats. The lessons you learned, the trust you (re)built, and the legacy you begin to construct. Those lessons – those earned secrets – while not impervious, will ideally be incredibly hard to obtain for others without walking through fire. A metamorphic journey from a vulnerable caterpillar to a beautiful monarch. What Joseph Campbell calls the “hero’s journey“.

And in the longer time horizon, that you are no longer just the protagonist of that miracle, but that you are also a producer of miracles for others. You are then capable of minting miracles systematically. Be it your customers, your team members, and your investors.

Why #unfiltered?

You might be wondering why I tagged this essay as #unfiltered. Frankly, it’s a new unrefined hypothesis that I’ve been playing around with. While it’s been inspired by others, I believe there’s more nuance I still need to uncover as well. That I’ll need to test a bit more to see if it can be a more robust thesis.

Going forward, I will continue to ask founders questions like:

  • What is the origin story of this idea?
  • If you were to fail in 18 months, what would be the most likely reason why?
  • Conversely, if you were to wildly succeed in that same time frame, what would be the biggest contributor?
  • Why are you a different person today than when you started this business? Who/what catalyzed this/these change(s)?
    • Examples of who: customers, team, partners, investors
    • Examples of what: black swan events, market trends, socio-economic habits, new technologies, an inflection point in your life when you faced impossible odds, failures, etc.

But I’ll be particularly looking for the earned secret among a miracle of adversity. Simply put, I’m looking to hear this song play in the background. The beginning of a mythical legend in the making.

Cover photo by Jon Ander on Unsplash

#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 well as cataloging the history of tomorrow through the bookmarks of yesterday!

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Should you get an MBA as a founder?

library, should i get an mba, entrepreneurship

Over the years, the silver screen sure has mythologized the dropout founder – from Steve Jobs to Bill Gates to Mark Zuckerberg. While students who choose to dropout will continue to wow the world, and I believe it (otherwise, I wouldn’t be working with Danielle and Mike at 1517 Fund, if I didn’t), reality isn’t nearly as black and white. A Quora user requested my answer to this question recently. Why do business schools not make world class entrepreneurs? It presumed that great academic institutions, mainly B-schools, were no longer capable of minting world-class founders. Admittedly, it’s neither the first, nor will it be the last time I see or hear of it.

The MBA grads

I met a Fortune 100 executive last year who said that it was because of her Wharton MBA, that she catapulted her career in artificial intelligence and machine learning. Specifically, it was because of the research she did with her professor, Adam Grant, that led to opportunities and introductions down the road. On the same token, David Rogier of MasterClass met his first investor at the Stanford GSB. In fact, it was his business professor who wrote that first check, just under $500K.

Business schools are amazing institutions of learning, but admittedly most people go for the network and the brand. On the same note, I would never go as far as to say that business schools don’t mint world-class entrepreneurs. If we’re going by pure valuation, there’s a study that found a quarter of 2019’s top 50 highest valued startups had MBAs as founders.

And here are a few more founder names among many, not even including some of the most recognizable CEO names, like Satya Nadella (Microsoft), Tim Cook (Apple) and more.

  • Tony Xu and Evan Moore of Doordash
  • Michael Bloomberg of Bloomberg
  • Steve Hafner of Kayak
  • Aneel Bhusri and Dave Duffield of Workday
  • Jeremy Stoppelman of Yelp
  • Mark Pincus of Zynga

Having grit and having a business degree don’t have to be mutually exclusive. I work with founders who come from all manners of educational backgrounds: high school dropouts, college dropouts, BA/BSs, MBAs, PhDs, MDs, JDs, home schooled, and self-taught. At the end of the day, it doesn’t matter what kind of education someone has. What matters is what they do with the education.

What an Ivy League dean once told me

Back when I toured the US to decide which school to SIR (statement of intent to register) to, I met the dean of an Ivy League school. I thought he was going to spend our 20 minutes trying to convince me to come to his school. But he didn’t. Instead he said, “David, it doesn’t matter which school you choose to go to. While I would be honored to have you attend ours, what matters is what you do while you’re in school. You could choose to just take classes here or you could go to a CC, but choose to be a member of 5 clubs, 3 of which you take leadership positions in. And if I were to look at you in four years, I’d be prouder of the latter person you chose to become.”

Capping the risks you could take

When I graduated from Berkeley, I also came out with a certificate in entrepreneurship and technology. While I still believe to this day that no class can really teach one to be entrepreneurial, I learned quite a bit of the institutionalization around entrepreneurship – what exists in the ecosystem, some of the risks involved and how to hedge those bets. Yet, my greatest lessons on entrepreneurship didn’t came from a textbook. But rather, the risks I took outside the classroom. Because each time I made one, I internalized it.

To do great things, you have to first dream big and act on those big dreams. By definition, big dreams entail high degrees of risk. High risk, high reward. And with risk, you’ll make mistakes. So one of the rules I live by is that I will force myself to make mistakes – many mistakes – more than I can count. But my goal is to make each mistake at most once. Jeff Bezos once said, “If you can’t tolerate critics, don’t do anything new or interesting.”

Equally so, there’s a joke that Andy Rachleff, founder of Wealthfront and Benchmark, shares with the class he teaches at the Stanford GSB. While it pertains to VCs, I find it analogous to founders and mistakes, “What do you call a venture capitalist who’s never lost money on an investment?”

“Unemployed.”

But, what institutionalized academia does help you with is provide you a platform to make mistakes. Without the downside. Capped downsides, but it’s up to you, the student, to realize what could be the uncapped upside. Last month I chatted with a VC, who works at a top 10 firm. Our conversation eventually spiraled into her MBA at the Stanford GSB. There she took on projects that put her on the streets talking and building products for potential customers. Her professors taught her the hustle, but it was up to her to apply her learnings. While she chose the VC path after, her experience led her to become a trusted advisor to founders while she was still in school.

In closing

Similarly, world-class entrepreneurs aren’t decided by which school they go to, or lack thereof, but how and why they choose to spend the days, weeks, and years of the short time they have on Earth. And where they practice their entrepreneurial traits.

I would be pretentious to say that you should get an MBA if you want to be founder. Or that you should dropout if you want to be one. If we’re to look at the cards on the table, MBAs are expensive. A $200K investment. Almost half of what might be your pre-seed round. But I can’t tell you if it’s a great investment or not, nor should I. For an MBA, or for that matter, any higher education. I pose the two extremes – MBA (or a PhD too) and a dropout – as I presume most of our calculi’ fall somewhere in-between. Instead, I can merely pair with you with the variables and possible parameters that may be helpful towards your decision. So, I’ll pose a question: Are there rewards you seek in the process rather than just in the outcome (of an MBA/higher education)?

In other words, are there skills, relationships, gratitude, entertainment, and/or peace of mind you build in the journey that transcend the outcome of your decision on the future of your education?

Photo by Patrick Robert Doyle on Unsplash

Stay up to date with the weekly cup of cognitive adventures inside venture capital and startups, as well as cataloging the history of tomorrow through the bookmarks of yesterday!

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Don’t Drop the Ball After the First Shot – Following Up Cold Emails

If you’re a regular on this blog, you’re probably no stranger to my essays on cold emails – whether it’s my cold outreach mental model or lessons from replying to spam emails or how I write longer cold emails as opposed to shorter. Yet, I recently realized I’ve shared my thoughts on the pre-game and the game itself, but I’ve yet to write on the post-game. So this essay is dedicated to exactly that. What do you do after you send that initial cold email?

The short answer: If you want to stand out, always follow up. To quote my good friend, Christen on her TikTok, where she shares amazing soundbites of career advice and networking.

The longer answer

I met a founder once who emailed an executive at Disney every business day for almost one year, minus ten days. The caveat is at the top of every daily email he wrote, “If you want me to stop, I will.” Almost a year after he began, the executive took the meeting. And Disney is now one of this startup’s biggest customers.

I met another founder a few years ago, who retweeted tweets from a Forbes’ Midas 100 VC every week for three months, while including his own constructive commentary each time. So, when this founder began his fundraise three months later, this VC set up a meeting with that founder within two hours of the cold email, first thanking the founder for his thoughts over the past few months.

Garry Tan and Apoorva Mehta have both shared this story publicly. Apoorva, founder of Instacart, back in 2012, wanted to apply to Y Combinator. Unfortunately, he was applying two months late. So he reached out to all the YC alum he knew to get intros to the YC partners. He just needed one to be interested. But after every single one said no, Garry, then a partner at YC, wrote: “You could submit a late application, but it will be nearly impossible to get you in now.”

For Apoorva, that meant “it was possible.” He sent an application and a video in, but Garry responded with another “no” several days later. But instead of pushing with another email and another application, Apoorva decided to send Garry a 6-pack of beer delivered by Instacart. So that Garry could try out the product firsthand. 21st Amendment’s Back in Black, to be specific. In the end, without any precedent, Instacart was accepted. And the rest is history.

So, what is the common thread here?

As my friend once told me, “It’s not hard to be persistent. Most people can easily be. But most people aren’t persistent AND considerate.” Persistence is keeping your promises to yourself. Being considerate is respecting and keeping your promises to others – explicit and implicit. Explicitly, if you say you’re going to do something, do it. Implicitly, understand the social context, their schedule, their cognitive load. One of the lines I always add at the bottom (or sometimes at the top) of my cold outreaches:

“If you’re too busy, I completely understand.”

Or the variation I shared in my cold email “template”:

“I know you get a hundred emails a day, and if you don’t have any time to respond, I completely understand.”

To take that one step further, sometimes you’re reasonably confident they won’t have time to respond. Big life or career events may make it hard for them to respond, like:

  • New baby/paternity/maternity leave
  • New publication
  • Recently did a (podcast) interview
  • Released some version of viral content (i.e. YouTube video, TikTok, Clubhouse, Twitter, etc.)
  • Founder raising a new round
  • Upcoming product launch they’re a key player in
  • VC raising a new fund
  • Shit hit the fan
  • Anything else the press is actively writing about

If that is your assumption, I add in one more line:

“If you don’t have time to respond, I’ll follow up one week [or whatever other timeframe] from today.”

And once you’ve said it, do it. To save you the time to draft up a follow up email a week later, a hack I use is to just write that follow up email as soon as you send the first email. Then schedule it to send a week from the day you sent the first. Make sure that each follow-up email isn’t the exact same. Show updates on what you learned, found, or thought about, as well as additional value to the person you’re reaching out to. While this hack is the bare minimum of what you can do to follow up, this should never be the ceiling. 9 out of 10 times I find myself going back, cancelling the send, updating the email with my learnings, then re-scheduling it.

Follow up at least twice after you send the initial cold email. But be understanding of their circumstances. And of course, never overstay your welcome. Understand the difference between a soft “no” and a hard “no”. In the circumstances of a soft “no”, recognize the variables that led to it. And reach back out when those variables are not in play, or to your best guess.

In closing

I met a brilliant founder years ago who, at the time, scaled his business to 100 employees, and he told me something that resonates with me till this day. “You can only learn from experience, but it doesn’t necessarily have to be yours.” Though I learned of his saying a few years after, it summarizes why I started my 6-year at least once a week cold outreach streak. To learn vicariously through others’ experiences. And if that was and is the impetus, it’d be a shame if I didn’t see it through to the best of my ability. ‘Cause if I was gonna give up after just sending one email, why start?

As Ron Swanson once said, “Never half-ass two things; whole-ass one thing.” So if you’re gonna start with the first email, you might as well send the next two. If the first shot doesn’t swish, catch the rebound and shoot again. Persistence. And ideally rebound thoughtfully.

Photo by William Topa on Unsplash

Stay up to date with the weekly cup of cognitive adventures inside venture capital and startups, as well as cataloging the history of tomorrow through the bookmarks of yesterday!

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Should you take VC money or just money money?

Not too long ago, I came across a question on Quora that I had to double click on: Why should founders care about VC brand? Money is money, isn’t it? While the question itself seemed to have a come from a less-informed perspective, I found it to be a useful exercise to once again go through the checklist of founder-investor fit.

Money, frankly, is just money. A Benjamin will look the same and work the same as any other Benjamin out there. Assuming you don’t need anything else other than money, I’d recommend other sources of funding other than venture funding, i.e.:

  • (Equity) crowdfunding,
  • Rev share,
  • Angels – high net-worth individuals who write checks in the 1000s to 10s of 1000s of dollars;
    • Also worth looking into, but are representative of the VC model, are super angels and solo capitalists. Many of whom might be leading their own rolling funds (more context) now;
  • SBA Loans;
  • Friends/family – small sums of money, unless your dad is Chamath Palihapitiya;
  • ICO;
  • Government (public) and private grants – really small sums of money, but money nonetheless;
  • Accelerators/incubators – less upfront capital. But the partnerships they have with other startup services save you a lot of money (i.e. AWS, Adobe Suite, etc.);
  • Selling domain names (yes, I have a friend who initially funded his business by doing that, but other than that, I’m kidding);
  • And I’m sure I missed some others out there.

On the other hand, most founders who raise VC funding want something more than just monetary capital, including, but not limited to:

  • Mentorship/advisorship –
    • Ex-operators who can give you tactical advice,
    • Former founders who can empathize with you,
    • VCs who can check your blind side and had previous portfolio founders who have gone through what you’re going through now,
    • People who have access to resources that will aid you on the founding journey (ideally not distract you),
    • And frankly, people who’ll be there for you when you have to make the tough calls,
    • Highly recommend Harry Hurst’s tweet about the CS:H ratio (check size: helpfulness, which I elaborate on here) as a mental model to figure out which VCs depending on fund size/check size can help you the founder the most at the stage you’re at.
  • Network – downstream investors, sales pipeline, potential hires (eng, executives, growth, product, marketing, etc)
  • Brand/PR –
    • If you’re trying to fill up a round, a brand name investor can easily help you fill in the rest of the round with their network and their participation alone. They’ll also help you raise downstream capital – directly or indirectly.
    • It’ll be easier to find customers. With a brand name VC, you also get quite a bit of media attention from Forbes, TC, NY Times, and so on. Customers are more likely to trust you knowing that you’re backed by a recognizable brand, especially the folks on the other side of the chasm on the adoption curve.
    • It’ll be easier to hire world-class talent. Your business, in their mind, is less likely to go out of business tomorrow. And while you’re not looking for candidates who seek stability, it does give the candidates you do want to hire a peace of mind and confidence that you have external validation.

There’s a saying that the difference between a hallucination and a vision is that other people can see the latter. It’s really a chicken and egg problem. I’m not saying a VC’s brand will guarantee the success of your startup, but I do believe it will help, with the underlying assumption that you pick the right VC. Whereas it used to be a differentiator a decade ago, all VCs these days say they’re founder-first or founder-friendly. But unfortunately not all are. They might be if things are going well. But the true tells are what happens when things don’t go well. Here are some of my favorite questions to ask portfolio founders before you work with a VC. And how to find founder-investor fit.

Photo by Luca Bravo on Unsplash

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#unfiltered #41 Pondering Purpose and Passion – Notes from Naval Ravikant on Clubhouse

fire, passion, purpose

I’ve been a long time fan of Naval Ravikant, so when he went on Clubhouse recently to share his thoughts, despite not having an iPhone (I know ?), I had to find a way to tune in. While Clubhouse is designed to be the ephemeral demystification of the broader world, there are a rarified few conversations I believe are and should be evergreen. Naval’s happens to be one of them. Whether Clubhouse itself compiles these knowledge banks or through some third-party service, we already have listeners and Clubhouse users recording these conversations. A temporary hack that paves the way for a broader solution.

Over the weekend, I found Naval’s definition of purpose to be one of the best I’ve heard to date:

“You have to live up to your own moral code. Your life is an eternal single-player game. You’re not competing against anybody else; you’re competing against yourself. You set your own desires and your goals. You have your own perspective. You have your own morality. And you have to live up to it.

“There is no standard meaning or purpose. If there was a single purpose or meaning for all of us, then we’d all be slaves to that single purpose. We’d all be robots – every one of us fighting each other in conflict to get to that one purpose. And there’s not even a single purpose for you necessarily, other than the one that you create. So, you get to create your meaning and purpose. You get to craft your own story here. […]

“It is a race, but you’re just running against yourself. You pick the finish line; you pick the goal line; you pick the meaning; you pick the purpose. So you can pick a meaning or purpose that is antithetical to happiness, or one that aligns with it.”

A month ago, my friend and I watched Pixar’s Soul. In it, the writers illustrated a powerful lesson on life’s inspiration. As Jerry enlightens Joe, that distilling your whole life into a singular purpose is “so basic”, Joe enlightens Soul 22, “your spark isn’t your purpose. The last box fills in when you’re ready to come live.” To live means to enjoy and savor every minute, every second, the entire 24-hour day, all 365 days of the year, and every year we are alive and breathing. Not just, and I’m generalizing here, the 40-100-hour workweeks. Joy and purpose, after all, was never meant to measured as a unit of time alone.

Many of us live life looking for our purpose in life – a singular destination. A singular raison d’être. We compartmentalize our entire lives into self-prescribed labels. In high school, it was either by our grades or our extracurriculars. In college, by our majors. In our adult life, by our job title. I can’t speak for everyone, but I’m willing to bet that most, if not all people, are more robust than just their full-time roles make them out to be. Just like I’m more than a VC Scout. That’s why I’m so fascinated by polymaths in our society.

In opening our minds to a world beyond a single degree of freedom, we give ourselves more surface area to find inspiration and happiness. As Tim Ferriss once said, “It is not that beauty is hard to find; it’s that it is easy to overlook.”

Equally so, his rhetoric on passion is equally as provocative. Or specifically, the relationship between your passion/obsession (more on obsession here and here) and domain expertise. The latter, as Naval calls it, “specific knowledge”:

“How do you gain specific knowledge? It’s almost a catch 22. Specific knowledge is built up by you through your passions. So, when they say follow your passion, it’s kind of what they mean. It doesn’t always lead to money, but it can. Because if you’re obsessive about something and learning it for your own genuine intellectual curiosity – not to get a degree, not to make money, not to impress your friends – you’re going to end being better at it than anybody else. So, I really believe that you should only read and engage in activities that you genuinely enjoy. And you should cultivate your intellectual obsessions without any goal that you may be surprised when you look back and connect the dots later that one of them developed into a goal. One of the hallmarks of specific knowledge is that it will feel like play to you, but it will look like work to others. So, anything that fits that model, you should develop. […]

“You get what you want out of life. You just have to want it badly enough. If it’s your all-consuming desire, you will get it. You will create the path to the destination no matter what it takes.”

Naval’s encyclopedic answers asked underscored once again a question I ask myself when I am the most lost:

What would I do if, at the end of the day, I would be only one applauding myself?

Photo by Almos Bechtold on Unsplash

#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 well as cataloging the history of tomorrow through the bookmarks of yesterday!

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#unfiltered #40 Questions That Hone Your Emotional Fitness

As I’m gearing up for a few projects, I spent the last few weeks pondering on a number of questions. And to stress test those questions, I spent the greater half of that time asking the people around me. But in the process of doing so, I found 10 of the above questions sponsored the most self-inquiry within myself and others.

The Questions

Elad Gil, legendary angel investor, said in an interview late last year that “every startup needs to have a single miracle… If your startup needs zero miracles to work, it probably isn’t a defensible startup. If your startup needs multiple miracles, it probably isn’t going to work.” Was there a defining miracle, when preparation met opportunity, that got you to where you are today?

Similarly: Life is some percent skill and effort and some percent of luck. How much has luck contributed to get you to where you are today?

In 2005, a Yahoo! Exec once told the Alexis Ohanian, founder of Reddit, that they were a “rounding error” which Alexis then framed on the company wall as motivation. Have there been chapters of your life that were defined by strong opposition – externally or internally – and your ambition to prove them wrong?

Pat Riley, Hall of Famer basketball coach, wrote in his book, The Winner Within, “You don’t wanna be the best at what you do; you wanna be the only one who does what you do.” What skills, experience, or mental models do you have where you are the only person – or in extremely rarified air – who can do what you do?

Quoting Jerry Colonna in his book Reboot, how are you complicit in creating the conditions you say you don’t want?

Norman Vincent Peale, author of the bestseller, The Power of Positive Thinking, once said, “Shoot for the moon. Even if you miss, you’ll land among the stars.” Entrepreneurs are people who pursue impossible odds and enjoy the journey of shooting for the moon to become world-class athletes. Telling them no is like telling a 7-year old they can’t become an NBA All-Star. Odds are they’re not going to succeed, but the process of pursuing that goal makes it worthwhile. And in doing so, they become a stronger, more resilient individual than never trying to pursue it in the first place. In your life, what have you done or would you do regardless of the outcome of the pursuit?

Andy Rachleff, founder of Wealthfront and Benchmark, once said in an interview: “If we’re batting a thousand or close to a thousand, we’ve done a really poor job.” If your probability of success is really high, the likelihood of a big win is extremely low. To win and not just focus on not losing, you have to take big risks. And as per the definition of risk, you’re more likely to fail. Have you had a failure in your life that contributed the most to where you are today?

On the same token, have there been alleged setbacks turned out to be a blessings in disguise? Or, were there “misfortunes” that turned out to be fortunes?

Let’s say life is a game blackjack. If the first card you drew represents your journey prior to 2020 – face up – and the second card exemplifies your life from 2020 till now – face down, which two cards did you draw? And would you continue “hitting” knowing the hand you’re dealt?

I saw in a Quora thread once, “When you are happy you enjoy the music, but when you are sad you understand the lyrics.” When you were in your lowest of lows, were there words, phrases, or lessons that had profoundly new meaning to them?

Desmond Tutu, who won the Nobel Peace Prize in 1984, once said, “My humanity is bound up in yours, for we can only be human together.” So, to borrow his words, what are the common themes between moments you’ve given up your humanity, either individually or collectively?

What is the narrative that you find most compelling when your inner weather is the most turbulent?

Photo by Johannes Plenio on Unsplash

#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 well as cataloging the history of tomorrow through the bookmarks of yesterday!

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One of the Toughest Job Requirements to be a VC

I passed on a deal.

Every time I think it’s easier to say “pass on the good to make space for the great”, the world says you’re wrong. Last week, once again, I realized how hard it was to say “No”.

We’d been chatting for a few months now. They were raising a pre-seed. And they checked most of the boxes I look for in an epic founding team:

  • Spent time in the idea maze and deep domain expertise,
  • Had a unique insight which led to innovation in their business model,
    • Because I didn’t know their market well enough, I hesitate to say if this was an earned secret or just a lesser-known fact that an outsider would never hear about. The difference between, what Kanyi Maqubela at Kindred Ventures, a mystery and a secret.
  • Consistently followed through with their promises and commitments (to me),
  • Dreamed big – big TAM, big vision,
  • Hustled to build relationships with some of the largest enterprise customers in their sector (though, yet to close any contracts),
  • Onboarded some incredible talent,
    • As I heard on my buddy’s podcast recently, “you can only learn from experience, but it doesn’t have to be yours.

I’ve written more here about what I look for.

Over the past few months, I asked for more time in hopes to find something more. Admittedly, I could think of a million excuses. And I have. I could have said:

  • They’re too early, since I rarely do pre-seed deals these days.
  • Or it’s the lack of traction.
  • Maybe that they could be more articulate about their go-to-market and product-market fit.
  • Maybe it’s the fact that at an early stage, that they have both a CEO and president. In other words, competing personalities in leadership.
  • Surprisingly large team for pre-seed startup.
  • Or, simply, I don’t know their space well enough, albeit adjacent to mine.

The more I thought about it, the more I realized I was just making excuses. I could circumvent most of these “reasons” with just a little effort on my part. And the fact that I was introduced to them by someone I really respect in the industry didn’t make it any easier. In fact, that alone was one of the strongest driving forces for me to want this deal to work out. The truth is, I just wasn’t excited about the product. And I had been spending time – arguably wasting theirs – trying to find my excitement. But I couldn’t, no matter how hard I tried.

I know it may be completely self-serving here. Call it immaturity or naivete. As a scout, I live by a self-imposed rule that every deal I refer, I want to be their greatest champion – their greatest evangelist – when I do so. In other words, if I had the capital, I would invest in each and every one I refer. On the same token, every deal I refer is just the start of an exciting long-term relationship. Post-referral, during diligence, post-investment and even if the deal doesn’t close. But for this startup, I just felt myself dragging my feet through knee-deep water just to meet with them over time.

Thinking I was in over my head, I hit up two mentors of mine in the space to give me the reality check I thought I needed. I thought and was, borderline, hoping they’d say, “You’re a sucker to bring personal emotions into an investment.” Or “Suck it up. Stop being a millennial/snowflake.” But neither did. I also told another friend last night and she replied, “It’s what makes you human. And I think people need to know about this side of VC.”

So, I’m writing this now in hopes that it will contextualize some of the decisions we make on this side of the table. I made the decision with the expectation that I’d be forgotten or passed on by them when they raise a future round. If they ask me again, it’ll be an honor and a privilege. And maybe my disposition will change in 1-2 years’ time. But it’s naive of me to expect that. Nevertheless, I still wish them the absolute best, and I hope they become the rock-star success they set out to be.

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How to Find Product-Market Fit From Your Pricing Strategy

bread, value-based pricing, saas, revenue model, startup pricing strategy

As part of my work, I talk to many seed-stage SaaS founders. At the seed, most of these founders are thinking about how to get to product-market fit. The one in zero to one. They’re launching their product with a select few companies to really nail their pain points. And often times, pricing and the business model take a backseat when they offer their customers the product for free or at an extreme discount. While investors don’t expect founders to nail pricing at the seed, it’s useful to start thinking about your revenue model early on. After all, pricing is both an art and a science. And with the right pricing structure, it can also be your proxy for assessing product-market fit. Here’s how.

As a quick roadmap:

  1. How to use the pricing thermometer to understand value-based pricing
  2. The difference between buyers and customers
  3. What is your value metric? And why does it matter?
  4. How pricing influences positioning
  5. How to approach building a tiered plan, with a mini case study on Pulley
  6. Net dollar retention, what product-market fit looks like in dollars
  7. The SaaS version of engagement metrics

The pricing thermometer

Every product manager out there knows that customers don’t always know what they want, so asking them for a solution rarely nets valuable feedback. Rather, start with the problem. What are their frustrations? What sucks? What’s the last product they bought to attempt to alleviate their problem? Subsequently, what’d they like about that product? What didn’t they like?

There are two perspectives you can use to approach pricing: cost-plus and value-based. Cost-plus pricing is pricing based on selling the product at a given markup from its unit cost. The biggest mistake founders often make here is underestimating how much it costs to produce a product.

On the other hand, there’s value-based pricing. An approach where you determine the economic value of the service you are providing and give it to your customers for a bargain. Superhuman, for instance, prices the fastest email experience at $30/month. Or in a different light, a dollar a day. If you are saving more than a dollar of economic value a day by responding to emails faster than ever, then the product is worth it. The biggest pitfall here is that founders often don’t fully understand the value they’re bringing to their customers, which is a result of:

  1. They don’t understand your value,
  2. Or you can’t convince them of the value you think you offer.

To visualize both of these approaches better, let’s use the pricing thermometer, as YC calls it.

value based pricing

The greater the gap between two nodes (i.e. value and price, or price and cost), the greater the incentive. If you’re selling at a price far greater than its unit cost, you are far more motivated to sell your product. On the flip side, if your product is priced far below the value and benefits you provide, a customer is more motivated to purchase your product.

Buyers vs Customers

To take it a step further, if you’re planning to scale your startup, what you’re looking for our customers, not buyers. Buyers are people who purchase your product once, and never again. They learned from their mistake. Your product either didn’t deliver the value you promised or the value they thought you would deliver. Customers are repeat purchasers. Why? Because they love your product. It addresses your customers’ needs (and ideally more) again and again. Your customers’ satisfaction is evergreen, rather than ephemeral.

When you only have buyers, you have to push your product to others. It’s the epitome of a door-to-door salesperson. Think Yellow Pages.

When you have customers, you feel the pull. Customers are drawn to you. They come back willingly on their own two feet. As Calvin French-Owen, co-founder of Segment, once said: “The biggest difference between our ideas pre-PMF vs. when we found it was this feeling of pull. Before we had any sort of fit, it always felt like we had to push our ideas on other people. We had to nag people to use the product.”

value-based pricing

Value-based pricing is playing to win. Cost-plus pricing is playing to not lose. While the latter is convenient strategy when you’re a local business not looking to scale (i.e. coffee shop, local diner, local auto parts store, etc.), it’s incredibly difficult to scale with, especially as customer needs evolve. As you scale, your customers might include anyone from Microsoft who wants you to bring a sales engineer to integrate your product to a 5-person startup team who’s just testing your product out. With cost-plus pricing, you’ll be forced to determine price points on a case-by-case scenario. With value-based pricing, you can systemize dynamic pricing based on evolving customer needs. As their value received goes up, the price does too.

As the name suggests, to generate pull, we have to start from value. In this case, your value metric.

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v25.0

Life is not measured by the number of breaths you take but by the moments that take your breath away. – Maya Angelou

Year 24 was a mediocre year. I was too ambitious, having made my birthday resolution public for the first time the year before. Not in the sense I tried to bite off more than I could chew. But in the sense, I lost focus. In trying to focus on everything, I focused on nothing. In my pursuit of hitting all the marks, I became mediocre at all of them.

Don’t get me wrong. Despite the pandemic, which may have hindered some of my goals, namely:

  • Getting two startups from 0 to 1 in a year,
  • And sleeping earlier,

… I did “succeed” in all of my other endeavors. Frankly, some hit, some missed. Nevertheless, I didn’t become stellar in any one of them. Looking back, I’m almost embarrassed to say any of my resolutions were defining of my 24th year being alive on this planet.

So, no concrete compartmentalized goals this year. I will be living day-to-day with one goal in mind: I have to seriously impress myself at least twice this year. While I may not have “actionable” goals to head towards this year, in order to impress myself, I have to, what some might call, “risk it for the biscuit.” I have to take leaps of faith. I have to be willing to try and fail and try and fail. Because without trying and taking risks, I know for a fact, I can and will never impress myself.

Of course this goal is subject to change, although I imagine not by much. The past year has taught me how unpredictable our future is. Who am I to predict what I will do the rest of this year when even the best fortune tellers and professional investors cannot forecast with certainty what will happen next week. Be it $GME or the pandemic, I’m sure life will constantly throw us curveballs we will never be able to forecast. But that’s exactly why living is fun. The future is not the present we are gifted, but one we chase not knowing what’ll come of it. And the gift is in the adventure.

I quoted James Stockdale – for which the Stockdale paradox is named after – in a post last year, “You must never confuse faith that you will prevail in the end – which you can never afford to lose – with the discipline to confront the most brutal facts of your current reality, whatever they may be.”

To confront myself and the most brutal facts of today, I will take the risks that will mold who I am tomorrow. The discipline of saying yes. It’s not about my batting average, but about the magnitude of the home runs I can get.

I’m confident that this year, I will continue many of the habits I picked up in the past year – writing weekly, exploring creative projects regularly, etc. But I won’t hold myself to promises that’ll lead me to mediocre, or at best, good, results. But rather, like in venture, I have to be willing to pass on the ‘good’ to make way for the ‘great’.

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The Smoke Signals of a Great Startup From the Lens of the Pitch Deck

best startup pitch deck

Founders often ask me, what slides on my pitch deck do I have to make sure I get right? The short answer, all of them. Then again, if you’re focusing on all of them, you’re focusing on none of them. So I’ll break it down by fundraising stages:

  1. Pre-seed/seed (might as well include angels here too)
  2. Series A/B

Since I spend almost no time in the later stages, I’ll refrain from extrapolating from any anecdotes there.

If you’re using DocSend, you already have the numbers for your deck viewership in front of you. As DocSend’s CEO Russ Heddleston said in his interview with Jason Calacanis, VCs often spend ~3.5 minutes on your deck. Though I’ve never timed myself, it seems to be in the same ballpark for myself as well. After all, it’s the deck that gets the meeting, not the deck that determines if you get funding or not.

Nevertheless, I hope the below contextualizes the time spent beyond the numbers, and what goes on in an investor’s head when we’re skimming through.

Pre-seed/seed

Team

  1. What is the biggest risk this business is taking on?
  2. Is the person who can address the biggest risk of this business on this slide?
    • And does this person have decision-making power?

Let’s say your biggest risk is that you’re creating a market where there isn’t one. Do you have that marketing/positioning specialist – either yourself or on your team – to tackle this problem? As much as I love techies, three CS PhDs are going to give me doubts.

Similarly, the biggest risk for a hypothetical enterprise SaaS business is often a sales risk. Then I need proof either via your network/experience or LOIs (letters of intent) that you have corporations who will buy your product.

Or if it’s a tech risk, I’ll be hesitant if I see two MBAs pursuing this. Even if their first hire is an ML engineer, who owns 2% of the business. Because it doesn’t sound like the one person who can solve the biggest risk for the business has been given the trust to make the decisions that will move the needle.

This might be a bit controversial, but having talked with several VCs, I know I’m not alone here. I don’t care about quantity – number of years in the industry or at X company. Maybe a little more if you were a founding team member who helped scale a startup to $100M ARR. I do care for quality – your earned secret, which bleeds into the next slide.

Solution/product

The million-dollar question here is: What do you know that makes money that everyone else is overlooking, underestimating, or just totally missed? If you’re a frequent reader of this blog, you’ll be no stranger to this question. I’ve talked about it here and here, just to name a few.

Or in other words, having spent time in the idea maze, what is your earned secret? Here are two more ways of looking at it is:

  1. Is there an inflection point you found, as Mike Maples Jr. of Floodgate calls it, in the socio-economic/technological trends that makes the future you speak of more probable?
  2. Is it a process/mental model that you’ve built over X years in the industry that grafts extremely well to an adjacent or a broader industry?

I believe that’s what’ll greatly increase the chances of your startup winning. Or at least hold your incumbents at bay until you reach product-market fit. If you’re able to find the first insight, then you’ll be able to find the second. And by pattern recognition, you’ll be able to find the third, fourth, and fifth in extreme velocity. It’s what we, on the VC side, call insight development. And your product/solution is the culmination of everything you and your team has learned faster and better than your competitors.

Of course, your product still has to address your customers’ greatest pain points. You don’t have to be the best at everything, but you have to be the best (or the only) one who can solve your customers’ greatest frustration. So VCs, in studying how you plot out the user journey, look for: do you actually solve what you claim this massive problem in the market is?

Series A/B

Traction

  • What are your unit economics? I’m looking for something along the lines of LTV:CAC ~3-5x.
  • Who’s paying?
    • For enterprise, which big logo is your customer? And who are your 5-7 referenceable customers?
    • For consumer:
      • If it’s freemium, what percent of premium users do you have? I’m looking for at least a 3-5% here.
      • If your platform is free, how are people paying with their time? DAU/MAU>25-30%? Is your virality coefficient k>1? 30- and 90-day retention cohorts > 20%, ideally 40%.
  • What does your conversion funnel look like? What part of the funnel are you really winning? Subsequently, what might you need more work on?

The competition

95 out of every 100 decks, I see two kinds of competitor slides:

  • 2×2 matrix/Cartesian graph, where the respective startup is on the upper right hand corner
  • The checklist, where the respective startup has all the boxes checked and their competitors have some percentage of the boxes checked

Neither are inherently wrong in nature, but they give rise to two different sets of questions.

The former, the graph, often leads to the trap of including vanity competitors. For the sake of populating the graph, founders include the logos of companies who hypothetically could be their competitors, but when it comes down to reality, they never or rarely compete on a deal with their target user/customer. April Dunford, author of Obviously Awesome, calls these “theoretical competitors.”

A simple heuristic is if you jumped on a call with a customer right now and ask: “What would you use currently if our solution did not exist?”, would the names of the competitors you listed actually pop up during the call? Or with a potential customer, what did they use before you arrived? For enterprise software, Dunford says that startups usually lose 25% of their customers when the answer to the above question is “nothing”. When your greatest incumbent is a habitual cycle deeply engrained in your user’s behavior, you need to either reposition your solution, or find ways to educate the market and greatly reduce the friction it takes to go from 0 to 60.

The latter, the checklist, usually sponsors a second kind of trap – vanity features. Founders often list a whole table’s worth of “awesome features” that their competitors don’t have, but many of which may not resolve a customer’s frustration. And on the one that does, their competitors have already taken significant market share. The key question here: Do all features listed resolve a fundamental problem your customers/users have? Which are necessary, which are nice-to-have’s? Are you winning on the features that solve fundamental problems?

The question I ask, as it pertains to competition, in the first or second meeting is: What are your competitors doing right? If you were to put yourself in your competitor’s shoes, what did they ace and what can you learn from the success of their experiment?

Financial projections

  1. What are you basing the numbers off of?
  2. What are your underlying assumptions?

How fast do you claim you can double the business growth? Is it reasonable? If we’re calculating bottom-up, can you actually sell the number of units/subscriptions you claim to? What partnerships/distribution channels are you already in advanced talks with? Anything further than 2 years out, for the most part, VCs dismiss. The future is highly unpredictable. And the further out it is, the less likely you’re able to predict that.

I also say financial projections for Series A/B decks is because only with traction can you reasonably predict what the 12-month forward revenue is going to look like. Maybe 18 months, depending on your pending contracts as well. In the pre-seed/seed, when you’re still testing out the product with small set of beta users, it’s hard to predict. And pre-seed/seed decks that have projections without much traction are often heavily scrutinized than their counterparts that don’t have that slide.

In closing

Of course, that doesn’t mean you should neglect any slide on your deck. Rather, the above is just a lens for you to see which slides an investor might allocate special attention to. If you can answer the above questions well in your pitch deck, then you’re one step closer to a winning strategy not only in fundraising, but in building a company that will change the world.

Photo by Ricardo Gomez Angel on Unsplash

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