Tag: dana kanze

Posted on

DGQ 17: What is your greatest strength that you are most worried about not coming across during an interview setting?

camera, interview, question

A while back, I stumbled across this question by Siqi Chen while doomscrolling through Twitter, and I couldn’t help but do a double take on it. It’s something I often worry that I miss when founders or GPs pitch me, but also when I host fireside chats. I worry in my myopia with hitting an agenda of questions, I may miss the most important part about the person sitting across from me. In any interview setting, interviewers always have a pre-destination in mind. And often it’s the onus of the interviewee to alter that flow if a dam is restricting the power of the torrent. In other words, your strength. It’s why I ask, “Are there any questions you have yet to be asked, but wish someone were to ask you?” But I like Siqi’s way of asking it a lot more.

Take ambition as a strength, for example. Really hard to tell by just looking at a resume, especially one who says they are and someone who actually is.

At the same time, there’s a beautiful line that the late Ingvar Kamprad, best known for founding IKEA, once wrote. “Making mistakes is the privilege of the active — of those who can correct their mistakes and put them right.” And that’s okay, in fact heavily encouraged for anyone who has ambitions. Because in order to achieve the extraordinary, you cannot pursue the ordinary. You have to tread where no one has treaded before. And a lagging indicator of that is the number of mistakes and scar tissue you’ve collected over the years. So, in an interview, to best illustrate your ambition, you have to talk about the lessons you’ve learned to get here. The greater the mistake, the more risk you took. And often times, the greater the ambition.

Kevin Kelly also said recently, “I’d like to give a little story of a car, and you need to have brakes on the car to steer the car. But the engine is actually the more important element, and so there are people and there are organizations, and there are methods that are going to be doing the braking, and I think they’re essential. I want brakes in the car, but I just feel that the brake can overwhelm and cause stagnation, and that we also wanted to remember to focus on making the engine even stronger, and so I emphasized the engine.”

In an interview, it’s the difference between promotion and prevention questions. As Dana Kanze once shared, ““A promotion focus is concerned with gains and emphasizes hopes, accomplishments, and advancement needs, while a prevention focus is concern with losses and emphasizes safety, responsibility, and security needs.” As such, in an interview, you want to channel your energy to being asked at least one promotion question that highlights your strength.

Conversely, as I’m writing this right after reading Chris Neumann‘s most recent post on fake FOMO, creating a fake sense of urgency is one of the best ways to ensure your greatest strength won’t come out during the interview.

Today’s just a short blogpost. Just to say I’m a fan of Siqi, one of the greatest masters of storytelling, and this question. In case, you’re looking for more Siqi content, check out here and here.

Photo by Sam McGhee on Unsplash

The DGQ series is a series dedicated to my process of question discovery and execution. When curiosity is the why, DGQ is the how. It’s an inside scoop of what goes on in my noggin’. My hope is that it offers some illumination to you, my readers, so you can tackle the world and build relationships with my best tools at your disposal. It also happens to stand for damn good questions, or dumb and garbled questions. I’ll let you decide which it falls under.

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!

The views expressed on this blogpost are for informational purposes only. None of the views expressed herein constitute legal, investment, business, or tax advice. Any allusions or references to funds or companies are for illustrative purposes only, and should not be relied upon as investment recommendations. Consult a professional investment advisor prior to making any investment decisions.

Posted on

Three Types of Risk An Early-Stage Investor Takes

risk

From market risk to product risk to execution risk, I’ve written many a time the types of risks a founder takes, including here, here, and here. As well as shared that the first and foremost question founders need to answer is: What is the biggest risk of this business? Subsequently, is the person who can solve the biggest risk of this business in the room (or on the team slide)?

Over the weekend, I heard an incredible breakdown of the other side of the table. Rather than the founder, the three types of risks an investor takes. The same of which need to be addressed for LPs to invest. From Kanyi Maqubela on Venture Unlocked.

  1. Market risk as a function of ownership
  2. Judgment risk
  3. Win rate risk

Market risk as a function of ownership

If you’re investing in an consensus market – be it hot, growing, and is garnering a lot of attention, you don’t need a huge percentage. I mentioned before that every year there are only 20 companies that matter. And the goal of a great VC is to get into one of these 20 companies. Ownership doesn’t matter. Even 1% of a $10B outcome is a solid $100 million.

On the other hand, if you’re in a small or non-consensus market, you need a meaningful ownership to justify your bets. For the same $100 million return, you need to maintain 10% at the time of a unicorn exit.

Going back to economics 101, revenue is price multiplied by quantity. Revenue in this case is your returns, your DPI, or your TVPI. Price is the valuation of the business. Quantity is how much you own in that business. Valuation, as a function of market size, and percent ownership are inversely proportional to reach the same returns. The smaller the market, the more ownership matters. The bigger the market, the less it matters.

Judgment risk

At the top of the funnel, the job of any investor is to pick or to get picked. I’ll take the latter first. Getting picked is often far less risky. But far harder to get allocations for, especially if you’re a fund that has ownership targets, vis a vis the market risk above. At the same time, the larger your check size, the harder it is to squeeze into the round.

To generate alphas from picking, there are two ways:

  1. Get in early.
  2. Go to where everyone else said it’ll rain, but it didn’t. Do the opposite of what people do. That said, being in the non-consensus means you’ll strike out a lot and it’ll be hard to find support.

The question to ask yourself here is: What do you know that other investors are overlooking, underestimating, or altogether not seeing? And how did you reach that conclusion as a function of your experience and analysis?

As Kanyi said on the podcast, “We think we’ve got unusually good judgment and nobody else likes this, but we like it for reasons that are unfair.” The unfair part is key.

Win rate risk

Win rate risk breaks down to what unique advantage you, as an investor, bring to the table that will help the company win. In simpler terms, what is your value add? Of the businesses you say “yes” to, can you increase the number of those who win? As an early-stage investor – angel or VC, there are four main ways an investor can help founders:

  1. Access to downstream capital or capital from strategic investors
  2. Access to talent – How can you increase the output of the business?
  3. Sales pipeline – How can you help grow revenue directly?
  4. Strategy – Do you have unique insight into the industry, business model, product, GTM, or team management that will meaningfully move the business forward?

In closing

If you’re an investor, I hope you found the above as useful of a reframing as I did. If you’re a founder reading this, I often find it useful to stand in the shoes of your investors. And in understanding how your investors think, you can better formulate your pitch that’ll align your collective incentives.

The conversation around risk management, at the end of the day, is a conversation of prevention. A realm of prevention while useful to hedge your bets is a strategy to not lose. It’ll help your LPs find comfort in investing dollars into you. But to truly stand as a signal above the rest and to win, you have to look where other investors aren’t. The non-obvious. Specifically the non-obvious that’ll become obvious one day. And you have to do so consistently.

Photo by Matthew Sleeper 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!

Posted on

Where Does Implicit Gender Bias In The Startup World Come From

Last Thursday, I had an extremely thought-provoking conversation with an attorney-turned-investor. Out of the incredible array of topics our open-ended exploration on the topic of diversity – geographically and demographically – led us to, there was one thing in particular that I had to double click on.

She shared, “Men typically get asked promotion questions. ‘What does your upside look like?’ Whereas women and other underrepresented founders get asked prevention questions. ‘How do you prevent your startup from going out of business?’ And promotion questions begets more promotion questions. Similarly, prevention questions leads to more prevention questions. Founders who are typically asked prevention questions raise less capital than those who are asked promotion questions.”

I found that inextricably fascinating. I’ve never thought about investing through those lens before. It makes complete sense. The more an investor asks how are you not going to fail, the more they has convinced themselves this won’t be a good investment. On the flip side, the more an investor asks how awesome will you be, the more they’ve convinced themselves that this will be an investment worth their time.

And subsequently, I ended up reexamining the way I ask questions. I’ve never tracked the way I ask questions by demographic. But I fear that I may, in the past, have done something along the same veins.

When we closed out our conversation, she left me with one name: Dana Kanze. And well, if you know me, I had to look into her.

Lack of Venture Dollars

Dana Kanze is an assistant professor of organizational behavior over at London Business School. She wrote a paper titled We Ask Men to Win and Women Not to Lose: Closing the Gender Gap in Startup Funding back in 2018 that won her the Academy of Management Journal’s Best Article of the Year award, which she inevitably did a TED talk on that I highly recommend checking out.

She cites in that research that “although women found 38% of US companies, they only get 2% of the venture funding.” While that metric is a few years old, recent trends echo the same notion. Despite the increase in conversations to include diversity at the table, in board rooms and as decision makers, Crunchbase found in a study back in August that women still only get 2.2% of venture funding, which is actually lower than any of the previous five years.

Source: Crunchbase

And despite larger round sizes, we don’t see a rise in round sizes to female-only and mixed-gender teams either.

Source: Crunchbase

Cynthia Franklin, director of entrepreneurship at Berkley’s Innovation Labs at NYU, did say, “The bets are being made, but they’re smaller.” Which accounts for the fact that 61% of total funding for female founders happens at the early stages. Frankly, it might be too early to tell. Nevertheless, Dana has a point.

Why female founders raise less capital

Originating from E. Tory Higgins‘ regulatory focus, Dana shares the bifurcation of questions that male and female founders get. Promotion and prevention questions, respectively. “A promotion focus is concerned with gains and emphasizes hopes, accomplishments, and advancement needs, while a prevention focus is concern with losses and emphasizes safety, responsibility, and security needs.”

After analyzing nearly 2,000 questions and answers asked at TechCrunch Disrupt to presenting founders, she found that investors often ask male founders promotion questions. And investors ask female founders prevention questions. Specifically, 67% of questions to males were promotion questions. And 66% to females were prevention ones.

Yet I found one notion Dana shared particularly fascinating. “All VCs displayed the same implicit gender bias manifested in the regulatory focus of the questions they posed to male versus female candidates.” That both female and male investors had the exact same implicit cognitive biases against females.

Promotion questions beget promotion answers, which beget more promotion questions, reinforcing favorable opinions. It becomes a virtuous feedback loop, which culminates often times in a “yes”. On the other hand, prevention questions beget prevention answers. Which leads to more prevention questions. This, subsequently, leads founders down a negative feedback loop, reinforcing loss-correlated opinions. When it came down to it, “startups who were asked predominantly promotion questions went on to raise seven times as much funding as those asked prevention questions.”

The silver lining, as Dana shares, is that if founders respond to prevention questions with promotion answers, they raise 14 times more funding than those who answer prevention with prevention. The lesson is reframe your answers positively, betting on the long term potential and vision. Or in Alex Sok‘s words, focus on a strategy to win rather than a strategy not to lose.

In closing

Investors invest in lines, not dots. And often times, VCs don’t realize they’re spending more time analyzing the y-intercept than the slope. And that mentality actualizes in the form of questions founders get.

As a founder, understand your investor intention – subconscious and conscious. Playing off of Matt Lerner‘s language/market fit, find your fundraising language/investor fit. Once you understand their intention, capture their attention. In a saturated market of information, attention is your audience’s scarcest resource. Frame the dialogue with a promotion focus to get your investors over the activation energy to book the next meeting.

As an investor, pay attention to your cognitive biases. Most of the time, and often the most detrimental, are the ones we don’t realize. If anything, this blogpost is me pinching myself to wake up.

Photo by Garrett Jackson 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!

Proudly powered by WordPress