Tag: entrepreneur

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How to Hire Your First Executive

climb, hill

Last week I had the chance to sit with the one and only Steven Rosenblatt, former President at Foursquare and the one who got Apple into the advertising business, now Founding GP at Oceans. Of the many things I could have asked, I had one burning question. Something that I also knew Steven knew like the back of his hand. Hiring executives.

Particularly, I’ve always been curious, since I’ve never done so myself, but have watched many friends and founders do it — successfully and well… its polar opposite, best described with this meme.

And in fourteen words, I asked Steven: For a first-time founder, how does one go about hiring their first executive?

To which, Steven generously shared: “There are three questions that founding CEOs need to ask themselves.”

  1. “What’s the most critical gap in the company that you need incredible leverage?” What are the holes you’re really failing at? That if you can hire, will dramatically increase the success of the company. If you don’t solve, you won’t have the right to raise the next round of funding. You don’t need to build a $100M company today; you need to build a $10M company today.
  2. “What are the things you hate to do or suck at?” A lot of CEOs optimize for the question: What kind of CEO do I want to be? But what’s more powerful, as Steven shared, is: What kind of CEO do I NOT want to be? Are you sure your superpower as a founder is aligned with what you want to do?
  3. “Is this person going to help me build the culture that I want at my company?” Sometimes someone is going to look great on paper, but the rest of the company and culture will outright reject them.

Culture, talent, and everything in between

As the saying goes, you look for the shimmer, but mine for the gold. (Yes, I made that up. But trust me, if I say it enough times, it’ll stick.) So, I’d be remiss to leave the jewel unexcavated. As such, in the double take, I asked: Tactically, how do you know if someone is a good culture fit?

“Write down the things that are important to you,” Steven shared, “What kind of team are you looking to build?” A results-oriented one or a process-oriented one? A culture of one-on-ones or not? Distributed or not? A family or a world-class orchestra?

“There’s no script for this,” elaborates Steven, “But think deeply about how you want to treat your employees, how you think about growth, and how you talk to investors. When I transitioned from Apple to Foursquare, on day one, while I was still only an advisor, Dennis invited me to an Exec meeting. I knew this was a culture of transparency. Additionally, at our weekly All-Hands, while Dennis led some of them, I would lead them as well as other execs. Something I found that our employees really really appreciated it. I went from a culture of secrets to one of transparency.

“So, to understand if someone is a good fit for your culture, after you write down what’s important to you, ask them:

  • What’s important to you? What haven’t you achieved that you want to achieve?
  • How do you do your best work? When do you feel the most motivated?
  • Why do you want to work here? Why are you excited to do so?

“These are multi-year relationships. And you need someone great to help you get to the next level. The truth is your first execs aren’t going to change; it’s who they are. And if they don’t live and breathe your values from the beginning, they won’t change their personality just for you.

“One thing I make sure to bring up is why they shouldn’t be here. ‘I’m not sure you really want to work here. Let me give you a bunch of examples of why you won’t want to be here. Let me tell why this is really, really hard.’ I then listen to how they react to it. In the early stages, you want someone who’s bought into the mission. After all, this is someone you’ll spend a lot of time with. Can you take this person out to brunch with your family?”

Whether it’s Steven’s brunch test or Stripe’s Sunday test or Netflix’s Keeper test, have a good heuristic for the type of person you want to hire.

The first 90 days

Now that you’ve hired a great candidate, I had to ask the man, “What does a great exec hire do in their first 90 days?”

There’s a saying that good things come in pairs. If I might add to that, it turns out great things come in triads. ‘Cause without skipping a beat, Steven said, “A great exec hire must do three things in their first 90 days: 1/ spend time with everyone; 2/ align with the founders, and 3/ build an action plan.”

1. Spend time with everyone

“Meet with everyone who’s at the company and really get to know them. Not just what they do at the company, but also why they choose to do what they do.”

Digging a level deeper, I asked: “So what questions do you ask your team members to really get to know them?” Steven, responded in kind, with his Rolodex of questions — a set I know I’m keeping in my 52-card deck:

  • What’s on your mind?
  • What does your day-to-day look like?
  • What inspires you?
  • And what’s holding you back? What’s stopping you from doing your best work?
  • If budget wasn’t an issue, what would you do? And what would you need to be able to get it done?

Of course, goalpost of everyone changes as your company scales. If someone is the first exec hire, talking to literally everyone makes sense. On the flip side, as Steven shared, “if you’re at a point, when you’re on a 100+ team — like a Series B company — you may not be able to talk to all 100 employees. In that case, 50-70 employees should suffice.”

2. Align with the founders

As important as it is to talk with the team, the conversations before and after the exec is hired are different only in the context that the latter goes much deeper. The best way for an exec to hit the ground running is to really understand the company’s past, present and future.

The past. “A great exec needs to understand what’s been built to date and why. What were some of the hard decisions we had to make? Where did we pivot? What did we stop doing? And what have we learned to date?

The present. “Who is using the product and who are our target customers? How are they using it? Gather as much product-related data as possible.”

The future. “Where do we think we want to be in the next 90 days? Six months? A year? Are there things that the exec would like to change? Where are we not aligned and why aren’t we?”

Within that three-month period, a great exec should have already figured out where they are going to prioritize their time. When putting it all together, a world-class exec is able to answer the question: Is the plan we want to execute on the same as the one our team is doing day-to-day? Is there any cognitive dissonance?

3. Build an action plan.

After they’ve talked to everyone, “the exec then comes back to management and lays it out. ‘Here’s where we need to get to to be fundable. I’ve talked to the employees, and here are the gaps we need to solve in the next few months. To help us get there, here are some of the hires I’m going to recruit.’

“In the prior conversations, you, the founder, have laid out that plan to fundability in the next 12 to 18 months. Does the exec agree with it? After all, the company’s KPIs are the exec’s KPIs.

“If so, the question becomes: How will the exec spend their time? What part are they owning? You hired this person to either take something off your plate or do something you hate doing or are not good or mediocre at. The exec’s job is to free up the founders’ time to do what they’re great at. So, you can focus on things that are higher leverage.”

So it got me thinking about the validity of my own question, is 90 days really the right benchmark for an exec to go from 0 to 100. Turns out, it may not be. “Given that this is your first exec hire and you’re still early, 60 days is more than enough, ” said Steven, “As you go further down the road, it’ll take more time to ramp up.” When you have a real business going on — something that’s default alive, as opposed to default dead — that’s when 60 days of an onboarding period turns to 90.

Letting go

I was also curious of the counterfactual. What if your hire goes wrong? How do you let someone go?

“Unless they’re a new hire, the day you let them go should not be the first time they’re hearing about this. Ideally, there should be no surprises that things aren’t going right. As the CEO, you should be having several frequent and transparent conversations to help them course-correct. If it’s clear that this person is not working out, move swiftly to let the person go. The longer you wait, the more damage it will cause long-term.

“It should also not be a surprise to the team when you do let them go. People often play to the lowest common denominator. Never the highest. ‘I just need to be better than the worst.’ If someone is really weak in their role, people see that. And if you don’t do anything about that person, they will set the culture and the standard for everyone else. So if you let someone go, and everyone else breathes a sigh of relief, that sets the record straight and your team can move on.”

Paul Graham and Suhail Doshi have a similar approach. If you ask your co-founders to separately think of someone who should be fired, and if they all thought of the same person, it’s probably time to let them go.

To take this a level deeper, I love the words Matt Mochary uses and recently shared on an episode of Lenny Rachitsky’s podcast. “The best way to lay someone off is for them to hear it from their manager in a one-on-one.” And before you give them the lay of the land, preface these hard conversations with: “This is going to be a difficult conversation. Are you ready?”

After they say “Yes”, then you share: “I’m letting you go. And this is why.”

After you share the why, you follow up with: “My guess is that you’re feeling a lot of emotion, anger, and sadness. Am I right?” Then actively listen to their fear and pain.

After you’ve had the conversation, don’t ask the canonical “How can I help?” But actively step in and help them find a better home. At the same time, it’s worth giving some people the space and time to process the multitude of emotions and stimuli. So, this doesn’t have to the first conversation, but most likely the second or third post-announcement.

In closing

As we wrapped up our conversation, Steven left me with these closing words. “Don’t be scared to make that first executive hire. But also, don’t rush into it. Take the time to get it right.”

He’s right. As with all great things, take the time to get it right.

Cover photo by Tobias Mrzyk 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!

Any views expressed on this blog are mine and mine alone. They are not a representation of values held by On Deck, DECODE, or any other entity I am or have been associated with. They are for informational and entertainment purposes only. None of this is legal, investment, business, or tax advice. Please do your own diligence before investing in startups and consult your own adviser before making any investments.

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How to Take Control of your Fundraising Process

It’s not often I get to work with someone I deeply respect on the content front. In fact, in the history of this blog, I’ve never done so before. But there are a rarified few in the world that if I was ever given the chance to work with them, I’d do so in a heartbeat. Tom White is one of them. As someone who I had the chance to work briefly with when our time at On Deck overlapped, he is someone I’ve been continually enamored with — both in how he commands the English language and in how intentional and thoughtful he is as an investor.

So when Tom reached out to collaborate on a blogpost for the Stonks blog, it was a no-brainer. And, the below is that product on how founders can own their fundraising process.

David’s note: Tom never ceases to amaze me on his ability to meme anything.

It’s a tale as old as time.

After a good meeting and a great pitch, the VC across the table (or on your screen in this day and age) offers a forced smile and utters: “Thanks again for making the time. Let me circle back internally and we’ll get back to you if we’re interested.”

If you have ever fundraised as a founder — hell, if you’ve ever fundraised, period — you have heard those fatal few words many more times than you care to remember. Though frequently said, the pangs of disappointment and frustration that they impart seldom fade away.

Fear not fellow founders!

To ensure you never hear those dreaded words again, we turned to the one and only David Zhou. A “tenaciously and idiosyncratically curious” writer and investor per LinkedIn, David pens the inimitable, brilliantly-named Cup of Zhou, scouts for a number of VCs, and helps run the On Deck Angel Fellowship.

Over to David!

Your ability to raise capital is directly proportional to your ability to inspire confidence in potential investors.

I’ll get into that, however, first a brief aside.

One of my favorite lines in literature comes from the seventh book of the Harry Potter franchise: Harry Potter and the Deathly Hallows. Inscribed on the golden snitch is a simple, but profound phrase: “I open at the close.”

In many ways, that line alone echoes much of the world of entrepreneurship. Whether backcasting from the future as Mike Maples Jr. puts it (i.e. great founders are simply visitors from the future) or breaking down your TAM to your SAM then SOM, the greatest founders — no, storytellers — start from the end. They share the future that they wish to see and distort today’s reality to fit into that predestined mold. Without further ado, my five tips on willing the future you want to see via successful fundraising.

1. Measure Founder-Investor Fit

Before you dive into talking with every investor under the sun, you must first understand there are more investors out there than you possibly have time for. You will never pitch every single one, nor should you. You need to be judicious with your time.

As you raise your first institutional round, you’re seeking out early believers. Julian Weisser — an investor with whom I’m lucky enough to work — calls this belief capital. You’re selling a promise, a vision.

And let’s be honest, at pre-seed there is no amount of traction that will convince any investor with numbers alone.

You see, it’s all about narrative building.

More on that below, but for early investors, it’s about whether they not only believe, but are also willing to fight for the future you collectively desire.

2. Close the First Meeting

I recommend that many founders with whom I work ask a two-part question heavily inspired by my conversation with Hustle Fund’s Eric Bahn for my emerging LP playbook: “Critical feedback is important to me in my journey to grow as a founder and a leader. So I hope you don’t mind if I ask, given what you know about my startup and myself: On a scale of one to ten, how fundable am I?”

To be honest, the number they give is inconsequential. That said, if they give you a ten, get a term sheet on the spot.

The more important question is the following one: “Whether I didn’t share it yet or don’t have it, what would get me to a ten? What would make this startup a no-brainer investment?”

Collect that feedback.

Put it in your FAQs.

Incorporate it into your next pitch.

Test and iterate.

I was listening to Felicis Ventures’ Aydin Senkut on Venture Unlocked recently and he mentioned that he iterated on his fund pitch deck every single time he got a no. And by the time he received his first yes from an investor, he was on the 107th version of the pitch deck.

As such, the answer to the second question should help you preempt and address concerns—explicit or implicit—in future pitches.

I discovered the below courtesy of the amazing Siqi Chen. Per a 2015 Harvard study, most people believe that people make decisions by:

  1. Observing reality
  2. Collecting facts
  3. Forming opinions based on the facts collected
  4. Then, making a rational decision.

But the reality is, people do not. People aren’t rational and investors are no exception.

Like everyone else, investors:

  1. Are presented with facts.
  2. Fit facts into existing opinions.
  3. Make a decision that feels good.

Most of these opinions are not explicit. It’s neither on the website nor laid out in the firm’s thesis.

The good news is that most investors will share the same reservations. If one investor hesitates about something, another will likely do so. The best thing a founder can do is to address it before it comes up.

For example, if an investor tells you that if you have a better pulse on the competitive landscape, you would then be a ten. In the next version of the pitch, you might say “You might be thinking that this space is highly competitive, and you’re right. At a cursory glance, we all look like we tackle the same problem and fight over the same users. But that’s when this space deserves a double take. Company A is best in class for X. Company B is second to none in Y. But we are world-class in Z. And no one is offering a better solution for Z. Not only that, customers are begging for solutions for Z. One in every five posts on Z’s subreddit asks for a solution like ours. But if you look at the responses, no one has a perfect solution for it. In fact, people are duct taping their way across this problem. Not only that, in the past three months, since we shared our product on the subreddit, we’ve had 10k signups to the waitlist with 500 of them paying a deposit to get early access to our product.”

On that note, I don’t think it’s worth trying to change the original investor’s opinion after they share such feedback. Most of the time, you’ve unfortunately lost your window of opportunity. If it takes X amount of information for an investor to form an opinion about you, it takes 2-3X the amount of effort and time — if not more — for him/her to change said opinion and form a new one.

Lastly, per Homebrew’s Hunter Walk: “Never follow your investor’s advice and you might fail. Always follow your investor’s advice and you’ll definitely fail.”

3. Schedule the Second Meeting during the First

Say the vibes are right and you get the impression that the investor really loves your product and/or your problem space and/or you as a person. When you’re raising your first institutional round, it’s either a “Hell yes” or a “No.”

Open up your calendar at the end of the first meeting and schedule your next meeting there and then, but be sure to give the VC enough time to talk with his/her team and also suggest where their firm might want to dive deeper. Give three options for topics to dive into the next meeting. For instance:

  1. The team and future hiring plans
  2. The vision and financial projections
  3. The product, demo, and team’s current focus

From there, have the investor pick one of the above before your next meeting. If they don’t, say something along the lines of: “During this conversation, you seemed to love to hear about the product, so we’d love to dive deeper into the product the next time around unless you prefer one of the other two options.”

Also, start tracking which paths seem to convert investors faster. For example, if 30% of the investors you talk to jump into diligence after hearing the vision, but only 15% convert after the product path, lead with the vision one first next time. “Most of our investors fall in love with us after hearing about the vision, and would love to share more on that at the next meeting.”

The moral of the story is simple: make it easy for your investor to say yes to the next meeting.

4. Realize that ‘No’ is merely a ‘Yes’ in Disguise

If you get the feeling that it may be a no, ask the investor, “What firm/investor do you think I should talk to who might be a better fit for what I’m working on?”

Do not ask for introductions. An introduction will come naturally if an investor is really excited about you. Additionally, even if the investor who passed does introduce you, a natural question will be: “Why didn’t you invest?”

This sets you up for failure because the other investor’s first impression of you will be negative. The only exceptions are if the reason is outside of your control. For instance, they’re raising their next fund since they don’t have any more to deploy out of the current fund, or they’ve recently changed their investment thesis away from what you’re building.

But I digress. What you should do instead is collect a Rolodex of names.

Never ever run out of leads. You never want to be in the position to beg someone who turned you down for money.

When a certain investor gets mentioned more than once — ideally at least three to four times — that’s your cue to reach out to them. “Hey Tom, we haven’t met before, but I’m currently fundraising for David’s Lemonade Stand. And four investors highly recommended I chat with you on the product, given your experience in food-tech and how you helped Sally’s Lemonade Bar grow from 10 to 500 customers.”

5. Use Investor Updates

Send interested investors weekly investor updates during your fundraise and monthly ones after its conclusion. Share important learnings, key metrics, and your fundraise’s progress.

Be sure to induce FOMO in your updates. Not in the sense that your round is closing soon, rather, that you’re at an inflection point right now in both your product and the market. Two example prompts:

  • Why are you within the next 12-18 months “guaranteed” (I also use this word hesitantly) to 10x against your KPIs?
  • Is the blocker right now a market risk (which leaves a lot for debate, and most investors will choose to wait for a future round) or an execution risk?
  • How have you de-risked your biggest risks?

Taking this a step further, you need the courage to “fire” an investor. If an investor doesn’t get back to you after two emails, it could just be that they’re busy. If they don’t get back to you after eight or nine emails, they’re just not interested. My rule of thumb is always three emails each a week apart for each investor. I have seen founders who have done more, but I would not recommend any fewer.

Regardless, whatever number you decide on, the last email ought to try to convert them. For examples:

“Since you haven’t gotten back to me yet about your interest, I assume you’re not interested in investing. As such, this will be our last investor update to you. If we are wrong, please do let us know.”

Interestingly enough I’ve seen more investors start conversations by this last email than by the very first. Remember to treat your fundraise like a sales pipeline; A/B test different copy and see which lands the best.

Concluding Thoughts


Remember, fundraising is a lot like life: it’s simple, but far from easy. It requires grit, determination, and a healthy dose of elbow grease. Despite current market conditions, forge ahead! Follow Jim Valvano’s lead and “Don’t give up. Don’t ever give up!”

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!

Any views expressed on this blog are mine and mine alone. They are not a representation of values held by On Deck, DECODE, or any other entity I am or have been associated with. They are for informational and entertainment purposes only. None of this is legal, investment, business, or tax advice. Please do your own diligence before investing in startups and consult your own adviser before making any investments.

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How do You Know if You Should Professionalize as an Investor?

climb, grow, elevation

Last Friday, one of the greatest operators and super-connectors I know, who also moonlights as an angel investor, asked me: How do I know if I should professionalize as an investor?

Undeniably, a great question. But before I share my answer to her question, I thought it’d be best if I first elaborated on what “professionalize” means in this context. It’s a term we have used more than once here at On Deck Angels. And as a result, it has spilled over into the vocabulary I use even outside of venture. But in the context of investing, professionalize is where one would go from an amateur, part-time investor to a full-time investor. Either working at a fund, starting their own syndicate or fund, or as a full-time angel.

The thing is, to be a career startup investor, you have to be lucky. The capital required to have a seat at the poker table is high. While there are many platforms — from Republic to Wefunder to Titan Invest — that are working to democratize access, the truth, for now, still is that to access the best deals, you’re either lucky as a network leader or as a capital allocator. In other words, do you know the best and most entrepreneurial talent? And do you have a frick-ton of money?

And given that some element of luck on top of skill is table stakes, I felt the best response I could give wasn’t in the form of a statement or opinion, but in the form of five questions.

  1. Why do you invest? What compels you to continue investing?
  2. What are two positive adjectives you would use to describe your sibling*? What are two negative adjectives you would use to describe your sibling*?
    • *Or life partner, or someone you know really really well.
  3. Have you ever laid someone off and regretted it? Why did you regret it? And at point after the event did you notice your regret?
    • If not… as an investor, have you ever said no to a founder and regretted it? Why did you regret it? And at point after the event did you notice your regret?
  4. Of the five people you hang out with most, what are common traits that at least two of them have? List as many as you can.
  5. If you were to start a fund or syndicate tomorrow, what would you call it?

So before you keep reading, I would recommend pausing. And to pull out a notepad and jot your own answers down to the questions above. It’s a useful exercise I ask myself, and evidently others as well, if you’re looking to professionalize as an investor.

When you’re ready, keep reading beyond the below image, as I’ll share my rationale behind the above questions.

*Author’s Note: Effectively, I was trying to space out the questions from the rationale of why I ask them below as much as I could, so that the below text wouldn’t influence your thinking (if you plan on doing this exercise).

windy road, path, goal
Photo by Adelin Grigorescu on Unsplash

So, why the five questions?

  1. Motivation – Why are you an investor? The underlying motivation matters. Are you in it for money? To pay it forward? To prove someone or some notion wrong? How fleeting is your motivation? Raising a fund is a decade-long relationship. Raising three is two-decades long of a relationship. So, the question is how deep is your motivation. Can it last multiple decades?
  2. Strengths/weaknesses – This question is adapted from Doug Leone’s. People often describe others in comparison to themselves. For example, if I say Joanna is funny, by transitive property, I believe Joanna is funnier than I am. If I say Kai is smart, I believe Kai is smarter than I am. I often find this question to be much more useful in understanding a person than just asking for their strengths and weaknesses. After all, adjectives are, by definition, comparative words.
  3. Standards – This question is a riff on Matt Mochary’s. If your answer to the question is no, then you don’t know your bar for excellence. Why does your bar matter? There’s a saying that A-players hire other A-players because they know just much it takes to win. B-players, on the other hand, know they’re not as good as A-players, but on average, still want to feel superior, so they hire C-players. A-players can stand B-players, but can’t stand C-players. So eventually, the A-players leave your company. Why does this matter for an investor? You need to be able to differentiate between an A-player and a B-player. The difference between a great founder and a good founder is a fine line, and most people miss it. If you want to have a chance at being a top decile investor, you need to know. After all, people often learn more from loss than from gain. For the second part of the question, being a great investor — or to be fair, a great anything — is all about the velocity in which you learn. Speed and direction.
  4. Deal flow – This question is a proxy of where you’re going to the majority of your early deal flow, and likely who and where you’re connected the most with. The follow up would be do you get enough quality deal flow from people with these traits. In other words, if you had the capital, are you confident you could put at least $250K to use every quarter? If not, stay a scout or raise a syndicate instead of a fund. Until you can build up to this.
  5. Legacy – Building a fund is multi-generational. Just three funds would be a 20-year relationship. And the best funds often outlive the founder(s) themselves. So the biggest question here is what kind of legacy are you trying to build? Or are you trying to build one? This legacy, founded upon your values, determines how you plan for succession and who you raise to be your firm’s next leaders.

In closing

Of course, the five questions aren’t an end-all-be-all. There’s still the ability to think through fund strategy and portfolio construction. There’s fund admin. The back office. Tech stack. Picking strategic markets where you have an unfair advantage. That said, if you can answer the above questions well, you’ll have a compelling narrative to either fundraise from LPs or join a larger fund.

Cover photo by Hu Chen 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!

Any views expressed on this blog are mine and mine alone. They are not a representation of values held by On Deck, DECODE, or any other entity I am or have been associated with. They are for informational and entertainment purposes only. None of this is legal, investment, business, or tax advice. Please do your own diligence before investing in startups and consult your own adviser before making any investments.

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#unfiltered #73 The Risks and Opportunities Created By Compelling Narratives

“If you look at all big human achievements, like flying to the moon, for instance, it’s all based on large scale cooperation. How did humans get to the moon? It wasn’t Neil Armstrong flying there by himself. There were millions of people cooperating to build the spaceship, to do the math, to provide the food, to provide the special clothing, and the funding.

“The big question becomes: why are we capable of cooperating on such a large scale when chimpanzees or elephants or pigs can’t?

“It’s the ability to invent and believe fictional stories.”

Yuval Noah Harari is right. He shared the above thoughts in a Startalk episode that came out yesterday.

For any big achievement, and I’m specifically reminded of the recent news with FTX — for FTX to get as large as it did at its peak — it was a monumental achievement. It was the work of many, rather than a single individual. It was the result of many buying into this narrative that Sam Bankman-Fried shared. That includes his team. His customers. His investors, from Sequoia to Tiger to Softbank to Coinbase. Many of whom are smart people who gave into the velocity of the market the last two years.

Source: Sequoia article on FTX
While I’m not sure how I feel about founders playing games during the meeting, I can’t deny the vision isn’t compelling.

To be fair, and this is not to condone the wrongdoings of the FTX team, every founder’s job is to distort reality. To put the human race on a fast track towards a future that is non-fiction to the founder, but fiction to everyone else. A world that isn’t false, but has yet to come. As author William Gibson once said, “The future is already here — it’s just not evenly distributed.”

I also love the thesis of Alexia‘s fund, Dream Machine. We make science fiction non-fiction.

Founders pitch their answer to: What will the world look like? Investors, customers, and talent then make bets with their time and money on which future they would like to see happen and the likelihood of it happening.

FTX is no exception. The fine line is when a founder does get creative, it is imperative for them to have a moral compass, which seems like SBF didn’t have. And of the million and one things they’ve done wrong (no board, giving loans using customer money, fraud, etc. and some more that are more questionable in nature, like political donations, etc. — none of which from what little I know are things I would ever endorse), I have to say they nailed their marketing and messaging. They got a lot of people excited about it fast. It’s easier to get people excited about the future of money than the future of fintech or the future of crypto.

As Jason Lemkin points out, they nailed their website.

The Super Bowl ad

The past week has been an insane week for crypto, namely when FTX filed for bankruptcy. And while there are many different angles to it, I took it upon myself to revisit a podcast episode from two months back where Nathaniel Whittemore, FTX’s former Head of Marketing, shared his marketing insights. Namely, around their 2021 Super Bowl ad.

A Super Bowl ad two years since its founding date. If nothing else, that’s impressive. Moreover, they got Larry David who has been known to never appear on ads to do it for them.

But what I found to be very powerful is Nathaniel breaks down why they chose to do a Super Bowl ad in the first place:

“People always focus on how much [an ad] costs. ‘This ad costs X.’ Which in a vacuum seems so high. […] What I think that analysis doesn’t take into consideration:

  1. “The number of people actually watching those ads. If you’re gonna get X people with an ad that costs a $100,000, but then, 50x that with an ad that costs $5 million, that’s the same ratio.
  2. “But the more important piece is that at least in America, the Super Bowl is the literal one moment each year that people not only are not annoyed with ads, but it is an active part of the experience that they’re having and they’re excited.”

He also does caveat that it doesn’t mean a Super Bowl is good for every kind of marketing campaign. But more so for brand-building, as opposed to product marketing or lead gen.

To echo that, David Sacks wrote a great piece on the importance of having an operating philosophy which I’ve referenced on this blog before. In it, he finds it incredibly powerful for companies to aggregate product updates and marketing campaigns in four big “lightning strikes” (each quarter) rather than have tidbits of information floating around every week.

Of course, companies like Twitch, Salesforce, Apple, and Google have taken it a step further by having a large launch event once a year. As Sacks mentions, “It’s not just about the external marketing value. There’s a huge internal benefit from setting dates and deadlines in order to hit a public launch.” It drives excitement and a narrative that both customers and future customers, as well as team members can get behind. The world is waiting. Your team is shooting to meet and beat expectations. And that’s incredibly motivating.

What does this mean for the crypto narrative?

A friend who took a hit from the recent series of events asked me at dinner last night, “What does this mean for crypto?”

Of which I think Yuval does a better job explaining it than I could. In the same podcast episode, he explains, “Not everybody believes in the same god or in any god. But everybody believes in money. And if you think about it, it’s strange because no other animal even knows that money exists. If you give a pig an apple in one hand and a pile of a million dollars in the other hand, the pig would obviously choose the apple. And the chimpanzee the same. And the elephant.

“Nobody, besides us, knows something like money exists in the world. The value of money doesn’t come from the paper. Most of the money in today’s world is not even paper; it’s just electronic data moving between computers. So where’s the value from? It’s from stories we believe.

“We are at risk of the whole thing collapsing. It happens from time to time in history. Inflation to some extent is that. The value of money is not what we were told it is. And inflation can sometimes hit thousands of persons and millions of persons. Eventually, the money becomes worthless.”

I don’t personally believe crypto will become worthless at any predictable point in the future. In fact, I think it has a great future ahead. Just a little early for its time from an infrastructure perspective. But, it is a non-zero possibility. That said, the more institutions, especially larger ones like FTX, that use crypto as the currency of faith, collapses, the more the faith behind the story of crypto will waver. And with repeated bad players, it is a race between mass adoption and the rate faith deteriorates.

For as long as the exchange currency is in dollars, crypto has still yet to be widely adopted. For instance, the value of crypto is pegged as a function of the dollar. As of the day I’m writing this on November 16th, 2022, if you type in bitcoin in Google search, the first search result is that Bitcoin is worth 16,768 US Dollars. In other words, as long as crypto is measured in dollars, the story of the dollar is stronger than that of crypto.

In closing

I’m not here to share my latest scoop or an update on the current situation about FTX. Twitter is filled with these already. Plenty of smart individuals have already covered all the ground I would ever even think about covering. I don’t keep my finger on the pulse of crypto and FTX nearly as much as my friends and colleagues.

Really, the purpose of this blogpost is really my curiosity that in order for FTX to get the notoriety that it has today, the team must have done something really well. And in my eyes, it’s not the product or the business, but the narrative in which they built. So, if someone at HBS or GSB isn’t writing a case study on this, they should.

P.S. Had to pass this to two friends at 6AM this morning to see if this blogpost was even worth publishing. Bless their hearts for their support so early in the morning.

Cover photo by Dollar Gill 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!

Any views expressed on this blog are mine and mine alone. They are not a representation of values held by On Deck, DECODE, or any other entity I am or have been associated with. They are for informational and entertainment purposes only. None of this is legal, investment, business, or tax advice. Please do your own diligence before investing in startups and consult your own adviser before making any investments.

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How to Win Hot Deals

hot, spicy, chili, pepper, deal

Two weeks ago, in an On Deck Angels workshop, one of our community members asked: “What do you recommend to do to increase access to allocation and top-performing deals?” To which I responded briefly with my belief that investors should always try to win their right on the cap table — whether it’s in the current round or the next. And, there are four ways to win that right:

  1. Go early.
  2. Being a valuable asset to the company.
  3. You are never too good to chase the best.
  4. Get to know the lead investor. Specifically, in their mind, be different.

As a footnote to all this, Founder Collective did a study a year or so ago where they found the 30 most valuable companies in the world raised half as much and were worth 4x the 30 most funded companies in the world. So, while hot rounds are great and all, there’s no telling that they’ll be the most valuable companies in ten, even five, years’ time. All that to say, I realize I’m writing this blogpost in a down market — likely only a few quarters of many more before we see the end of this recessionary period. The truth is, there are probably not as many hot rounds as there are before. But they still exist. And as an investor, you want to be ready for when that happens. While you set yourself up to have a prepared mind for getting picked, focus on picking.

To take a deeper dive on getting picked…

Just like it’s important for a founder to find product-market fit, it’s equally as important for an investor to find investor-market fit. Think of your check or your vehicle as a product in and of itself. As an investor, you are either great at picking or great at getting picked or both. For the purpose of responding to the above question, I’ll focus on the latter — getting picked.

It’s a three-sided marketplace where your customers are your LPs, founders, and your co-investors. Of all the above, to be fair, LPs loving you doesn’t necessarily get you better access to deals, so we’ll save that discussion for another day. And while there are many factors to getting picked, it boils down to two things:

  1. Founders love you
  2. Co-investors love you

In both scenarios, you get proprietary access to deals. As Sapphire’s Beezer said, “‘proprietary deal flow’ is not really a thing.” Proprietary access, on the other hand, is a thing.

Lenny Rachitsky and Yuriy Timen put out a great piece on activation rates recently. In it, there’s one line I particularly like, when they defined the activation metric:

“Your activation milestone (often referred to as your ‘aha moment’) is the earliest point in your onboarding flow that, by showing your product’s value, is predictive of long-term retention.”

The product, your fund or check. Retention, how likely they are to keep you on their speed dial (for a particular topic or function). And there are two distinct qualities of a great activation metric: “highly predictable” and “highly actionable.”

  • Highly predictable: The founders know exactly what they can get from you. The value you give isn’t vague, like “we invest in the best early-stage founders.” a16z can afford to say that. You can’t.
  • Highly actionable: Knowing what value founders can get from you, they know the exact types of questions to ask you to best extract that value.

The earlier you are in your investing journey, the more obvious you should make the above.

Taking the product analogy in stride, how do you get to a point where your customers get to your activation milestone? Where they form a new habit around keeping you top of mind?

How do you get founders to love you?

In my mind, there are two ways we can measure if founders love you:

  1. For founders you’ve invested in: If they answer with your name to “If you were to start a new company, who are the first three investors you would bring back to your cap table?”
  2. For founders you haven’t invested in: You get (great) deal flow from founders you passed on.

Tactically, in combination with being predictable and having your value be actionable…

Go early. Be the first check in when they’re still non-obvious. This of course requires a combination of luck and conviction. The latter is more predictable than the first. Be bullish when others are bearish.

Being a valuable asset to the company. Founders have 2 jobs: (a) make money and (b) hire people to make money. As an investor, everything you do is directly or indirectly involved in that. Also, when a founder fundraises, I would ask them what they plan to do with that money (i.e. hire VPs, more engineers, scale to X # of customers), and see if you can be preemptively helpful there.

You are never too good to chase the best. This is something that I picked up from a Pat Grady video some long while back. But to win the best deals, you go to where the founders are, don’t expect them to come to you. That’s how Sarah Guo, Pat’s wife, won a lot of deals that Sequoia wanted to get into.

How do you get co-investors to love you?

The best way to measure this is your co-investors proactively invite you to invest in future deals together.

The best way to get there is to:

Get to know the lead investor. Specifically, in their mind, be different.

Their lead investor might have a large portfolio where they can’t be as helpful to every investment they make. Try to squeeze in the round and be insanely helpful to their/your portfolio. And over time, as you co-invest in more deals, they’ll keep you top of mind for future ones.

For this one, it pays not to be generalist. I don’t mean as a function of industry but as a function of how you add value to your portfolio. Someone who can do everything is less desirable than someone who is really good at just one thing. Say, hiring executives or getting FDA approval or generating PR buzz. Interestingly enough, responsiveness is also a differentiator. I heard an investor say recently that the value of an investor is determined not by what happens during the meeting, but in between meetings. And I completely agree. The cap table doesn’t need another investor. The cap table needs people who will increase the chances of the company’s multi-billion dollar outcome.

The takeaway here is to not be better, but to be different. People can’t tell better, but they can tell different. That’s why the word differentiated is used so much. Have a differentiated approach. Have a diversified portfolio. On the other hand, having a better generalist strategy than a16z or Sequoia is hard to measure. While it may be true in the long run, better is difficult to measure in foresight, but obvious in hindsight. Just like product-market fit. Hard to pinpoint in the windshield, but obvious in the rearview mirror. It’s better to be the in a pool of one than a pool of many. Be the one CEO coach. Be the one who helps founders build robust communities. Or, be something that no one expects. Like Charlie Munger, be the best 30 second mind in the world.

Another reason I left this in the co-investor love section is that while being different does help you stand out to founders, there seems to be a lot more logo chasing from founders. Differentiation, unfortunately, falls short of brand recognition. I genuinely hope that this does change in the next few quarters.

In closing

While the question that inspired this blogpost is meant for hot rounds, the same holds for just being a great investor. One thing I’ve told many applicants to On Deck Angels is that we look for folks who are excited about putting investor on their resume and is willing to put in the legwork to become a great investor. The above is one of many paths to become one.

Arguably the above is how to be a great champion of people. The investor part comes with luck and having an eye for great talent, ideally before others. Betting on the non-obvious before they become obvious.

The best startup investors are disciplined and constantly learning. Some might argue that they may not have the time to entertain hot startups in general. Or at least startups when they are hot.

Photo by Pickled Stardust 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!

Any views expressed on this blog are mine and mine alone. They are not a representation of values held by On Deck, DECODE, or any other entity I am or have been associated with. They are for informational and entertainment purposes only. None of this is legal, investment, business, or tax advice. Please do your own diligence before investing in startups and consult your own adviser before making any investments.

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How Liquid Is Your Network?

liquidity

“How can I help?”

I’m sure every founder has heard that line at least 50 times every time they’re in fundraising mode. Hell, even outside of it. Pshhh, I’m guilty of saying it myself, while I do try to catch myself when I do. You’d think being helpful is table stakes as an early-stage investor. Surprisingly, being helpful as an investor is actually a huge differentiator.

Most investors are only as helpful as their check size, despite pitching their value-adds a million and one times. Some investors are extremely helpful only within the funding window(s) they are participating in. For instance, a seed investor is largely helpful during the 12-18-month funding window between the seed and the Series A. Others are helpful when they are asked. And a small handful of investors are true champions by being proactively helpful.

One of my favorite stories when I was interviewing LPs for the emerging LP playbook was when Brent invested in a GP who had a track record for being proactively helpful. This GP “was one of [Brent’s] first investors. He would often come into our office, and without being prompted, proceed to write code against our APIs.” Unprompted. Unsolicited, but insanely helpful.

Earlier this week, I was also reading the October investor update from a founder I love, and in it, he was talking about how much he loved the team at Sequoia (who have yet to invest), and shared that he had learned more about product in the last “3 days than [he had] in the last 3 months.”

A big part of the reason I joined the On Deck Angels team last year was to be a part of a community bringing the world’s most helpful investors together. As such, I’ve been lucky enough to be a student to our community on how they’re helpful — whether they choose to invest or not. Some examples include:

  • Writing a 3-5 page bug report for every founder you take a meeting with. This teaches an investor two things: 1/ to be judicious of one’s time and only take meetings with founders that you are truly likely to invest in, since these take a while to research and write up, and 2/ to always think in a “give first” mentality.
  • Record a Loom breakdown of why you decided to pass and what would get you over the fence. I’ve shared this before, but one of my favorite VC quotes and has been since the day I learned of it is: “There is no greater compliment, as a VC, than when a founder you passed on — still sends you deal-flow and introductions.”
  • Being able to admit how you can’t be helpful. As an investor, you don’t have to be good at everything, just really, really good at one thing, or a small handful of things.
  • Sharing their memos publicly on why they’re excited about a startup. This helps build a startup’s reputation, and also your own brand as a thought leader.
  • Sharing your deal memos and founder asks with your LPs (if you run a fund or syndicate). For this, admittedly, it’s best to get the founders’ approval, given the confidential nature of certain details.
  • Make an intro for every pitch meeting you take. Intros are often extremely high leverage. It takes you 1-2 minutes to write something up and send a double-opt-in intro. And oftentimes, can save the founders from at least tens of thousands of dollars worth of decision-making mistakes or costs. Of course, that requires you to have either photographic memory (which I don’t have) or a really good CRM. For the latter I use Airtable, and I track small details like: ideal catch-up frequency, preferred medium of communication, chill factor (yes, some of my intro emails can get a bit wonky depending on the person), and what makes them the best dollar on a founder’s cap table.

Many of the above aren’t necessarily hard to do, but just requires a consistent commitment to do them well. And of all the many ways one can help, they all fall into three buckets:

  1. Introductions
  2. Strategy, decision-making, and tactical advice
  3. Downstream and co-investment capital

The last is the most obvious. The second is easy to understand, but often the hardest to execute on, and often comes from being an active or former operator yourself. Hunter Walk of Homebrew has this line, “Never follow your investor’s advice and you might fail. Always follow your investor’s advice and you’ll definitely fail.” Advice is just as helpful as it is dangerous. Something I’ll likely dive into in a future blogpost.

But for the purpose of this one, I’ll focus on introductions.

Network liquidity

I was recently reading Shawn’s chronicled reflections from his time as a Partner at On Deck — someone I am deeply fortunate to have worked alongside. In it, one line immediately grabbed my attention:

“Network liquidity is table stakes. […] This refers to how successful we are at connecting founders to people that are relevant to their needs and asks. The most important dimensions to consider are accuracy (how relevant was an introduction) and speed (how fast did you deliver).”

In 2022, and I imagine even more so, in the next few decades, it’s not about who you know — ’cause frankly, everyone will know everyone else. Social media, the metaverse, web3, the Zoom-ification of everything, and the rush back to IRL will only make this easier. I don’t believe any investor — or in fact, anyone, period — will have a “proprietary network.” So instead of who you know, it’s about how well you know them, and your ability to leverage that relationship.

We see this especially in the venture markets. In my recent blogpost, Sapphire’s Beezer shared: “We have felt for a number of years now (including pre-COVID) that the concept of ‘proprietary deal flow’ is not really a thing. Proprietary access however is something we think is true, powerful and not simple to achieve (hence why powerful ).”

I wrote quite a relevant essay a few months ago about how to write email forwardables. In order to tap into someone else’s network liquidity, there are two things you must establish:

  1. Your rapport with the person you’re asking it from
  2. Their rapport with the person you want to get to know

Requester and matchmaker rapport

I can’t speak for everyone, but my willingness to make intros depends strongly on both of the above, especially the former. Selfishly speaking, even if I don’t know the person who will receive the intro nearly as well, to put it bluntly, if I know I can look good to that person when I make it, that’s a strong motivator to do so. For that to happen, I need to fall in love with something about you — the person who would like to be introed. It could be you (usually the greatest motivating factor) and your passion. Even better if your passion is contagious. It could be your product. Or your insight. Usually, it’s some permutation of the afore-mentioned.

I meet with 10-15 net new founders per week. 25-30, if it’s accelerator season. Given my job description, almost every single founder asks me for intros. Sometimes, even without context.

Matchmaker and intro recipient rapport

The other side of the equation is the rapport I have with the person you want to get to know. The truth is the world of intros is like any other asymmetric game. The most well-known, busiest, and often hardest-to-reach people are the ones bombarded with the most intro requests. But like any other human being on this planet, they only have 24 hours in a day.

As a matchmaker myself, I have to cognizant not to overwhelm incredibly busy individuals with a flood of intro requests. And it is my job to triage requests. Sometimes, it’s also helping, in the case of fundraising, founders recognize not what they say they want, but to help them figure out what they really need.

In making requests to famous friends

There are times when the busiest people I know are the only people are capable of fulfilling the ask. So, it also comes down to your accumulation of social capital with the intro recipient. I have two columns in my Airtable CRM, labelled:

  1. Why I am useful to them
  2. Is my usefulness a priority to them? (on a scale of 1-5)

With the former, have I given before I have taken? Have I helped them before? Additionally, is the intro request more of a give or a take? A great startup with a strong team and traction for an investor is more of a ‘give.’ It’s deal flow from them. On the flip side, a founder asking for free advice is more of a ‘take.’ In general, ‘takes’ require more social capital than ‘gives.’

With the latter, priorities change. You may be useful in one phase in their life, but no longer so, in another. For example, when an emerging manager is fundraising for their Fund I, I am someone who is extremely top of mind for them, but when they’re not, I slip in importance. But regardless of the phase in their life, if someone is kind and thoughtful AND you’ve helped with a major decision or inflection point in their life, they’ll always be around. That said, I never try to abuse that goodwill. Personally, I hate being in debt and having others be in my debt.

You can also be “useful” in many different ways. For instance, doing interesting things is one way. One of the most famous people I know with millions of followers across his socials is willing to entertain any ask I ask of him under the condition I invite him to every social experiment I host in LA.

In closing

The more relevant an ‘ask’ is to the recipient, the more likely they’ll respond positively. The more top of mind you are and the more social capital you have with someone, the faster they’re likely to respond. We live in a saturated market of attention. Everything in the world is asking for ours — social media, kids, friends, work, portfolio companies, chores, Netflix, and sleep. And by no means all encompassing.

As you scale yourself as an investor, it’s important to think critically about who is in your network and how well you know them. If you’re a syndicate lead with 500 LPs, how many of them are passive capital? How many of them want to actively help your portfolio?

If you’re an investor who’s a Xoogler and wants to leverage the Google network, who do you know will go out of their way to help you? How many of them have you on speed dial? Which vintage were you a part of?

The great Richard Feynman once said, “You must not fool yourself, and you are the easiest person to fool.” One of the greatest fallacies an investor or even a founder can make is to assume they have a larger leverageable network than they actually do. Only to realize that when you do need to draw on these connections, you’re unable to.

So, if you have the time this weekend or the next, sit down with a critical eye and ask yourself: How liquid is your network?

Photo by Terry Vlisidis 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!

Any views expressed on this blog are mine and mine alone. They are not a representation of values held by On Deck, DECODE, or any other entity I am or have been associated with. They are for informational and entertainment purposes only. None of this is legal, investment, business, or tax advice. Please do your own diligence before investing in startups and consult your own adviser before making any investments.

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It’s a Numbers Game

numbers

When I first jumped into venture, there was a wave of founders who believed that a great product will sell itself. But in the past few years, under the proliferation of startup content, discourse and amazing Twitter threads, while anecdotal, I’m happy to have seen far fewer founders who believe in that extreme.

Nevertheless, that dogma hasn’t completely disappeared. Rather than sales and marketing, I’ve realized this to be more the case on the fundraising front.

How often are you in the batter’s box?

This past week, a handful of pre-seed founders asked me for fundraising advice. On Monday, a founder I had chatted with at the beginning of the pandemic reached back out to let me know he was now starting to fundraise for a new idea. Naturally I asked him what he learned from the last idea.

To which he responded, “There weren’t enough investors interested in my last idea.”

I followed up, “How many did you talk to?”

“Twenty.”

That’s not nearly enough. Especially for what was his first institutional round. Moreover, like most other founders, he wasn’t an insider. As such, I believe he should have pitched to more. A lot more.

He’s not alone. Two other founders I chatted with felt they had already tried everything after getting rejected by 30 and 40 investors, respectively.

I mentioned in a blogpost back in April that if you’re an emerging fund manager raising a Fund I, think of it like raising 10 Series A rounds. For most Series A rounds, a founder talks to about 50 investors. So for a Fund I, you’re likely to talk to 500 LPs to close one. An LP I talked to for a blogpost that will soon come out chatted with a GP who pitched 625 investors to raise her first $18 million fund.

Why do I mention this? While this is equally true for emerging fund managers raising a Fund I — a fund that’s pre-product market fit, if the average Series A founder needs to pitch 50 investors, as a pre-seed founder, you need to talk to double that number. If you’re lucky, you can stop pitching sooner. But at the very minimum, you should expect that ballpark number. And that’s also why fundraising is a full-time job.

The more realistic your expectations, the more efficiently you can set up your pipeline, the faster you can get back to building your world-changing idea.

The takeaway

Never run out of leads. You never want to be in the position where you have to go back to someone who passed on you. Keep your funnel open. Every time you pitch a VC or an angel, especially those that say “No,” ask them: Which investor would you recommend who might be interested in what I’m building?

A lot of founders try to optimize for warm intros. But most people who say No to you won’t go out of their way to help you, especially asynchronously. They’d much rather spend time on their own portfolio companies. So, don’t add in asynchronous steps that would increase friction. You don’t need warm intros. You just need names. And if any investor gets recommended more than three times, it’s worth just cold messaging that person sharing that they came highly recommended from the investors you’ve chatted with so far.

For those who say “Yes” to you, it is likely you won’t ever reach profitability with the capital they gave. Early-stage investing, for instance, the pre-seed, luckily, is very collaborative. If you’re raising a $1M pre-seed round, that leaves room for a lead investor of $500K, $3-4 $100K checkwriters (emerging fund managers, syndicate leads, or active angel investors), and a bunch of smaller, but extremely valuable investors. Ask each for who they’d like their co-investors to be. Even if those recommendations don’t commit this round, collect the names for your next round.

During your first institutional raise — hell, even prior to that — you’re an outsider. No one’s heard of you. But there are still people out there who believe in the world that you want to create. You just have to find those early believers. Believers in you. Believers in the future you see.

Justin Kan once shared this great line:

Focus on distribution.

Photo by Nick Hillier 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!

Any views expressed on this blog are mine and mine alone. They are not a representation of values held by On Deck, DECODE, or any other entity I am or have been associated with. They are for informational and entertainment purposes only. None of this is legal, investment, business, or tax advice. Please do your own diligence before investing in startups and consult your own adviser before making any investments.

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#unfiltered #71 In Search For Work-Work Balance

balance

My friends who know me well know I have this concept I call work-work balance. And in sharing it with someone new, it’s usually met with a light chuckle. I never mean it as a joke. But nevertheless, people take it as my attempt to be snarky and witty.

I believe most of you, my readers, are familiar with work-life balance. A lifestyle that balances work and your life outside of work, often one that spends the capital earned though work. When I hear most people say it aloud, its most frequent use case is in avoidance of doing more work. But the underlying principle is that most people don’t enjoy the work they do. Rather, they find their joy and fulfillment in pursuing hobbies and passions outside of the confines of a 9-to-5.

Just like having a work-life balance is a privilege, having a work-work balance is, in my humble opinion, even more so one. Speaking of privilege, earlier this week, I had the fortune of hearing a rather profound line:

“If you do one thing in life that fuels and motivates you, then you should yourself lucky.”

So, in even talking about work-work balance, I admit I came from a position of privilege, but one I do not think is unattainable for those who also have the privilege of debating the technicalities of work-life balance.

Work-work balance is the balance of doing what you love doing with work that you need to do to continue doing what you love doing. To me, work that I enjoy doing — interesting projects — fulfills me. It gives me meaning and purpose in life. To best illustrate this concept, I’m going to have to steal Elizabeth Gilbert‘s line in a 2016 interview with On Being. It’s not the first, and it won’t be the last time I quote her here:

“Everything that is interesting is 90 percent boring.”

When you’re proud to have work be your identity

Starting something — anything that is going to be core to your identity, even if it is only briefly — is going to be unhealthy.

Being a great venture-backed founder is unhealthy. Starting a venture fund from scratch is unhealthy. Being a world-class content creator is unhealthy. Being a diligent and serial author is… well, you get it. Hell, even binge-watching the latest and greatest Netflix show is unhealthy.

It is also the difference between passion and obsession. One keeps you daydreaming; the other keeps you from sleeping.

I’m not advocating that everyone live an unhealthy lifestyle, but that the concept of work-life balance is a lifestyle that doesn’t fit everyone, but those who have not or have yet to find deep fulfillment in the professional aspect of their life. For those who have found their life’s work, work-work balance may be a more sought-after lifestyle. In working mainly with founders and emerging fund managers, their life stories seem to corroborate the previous sentence.

In the world of startups, I often tell founders, and have many a time, advised founders not to take venture capital. There is no shame in creating an great and fulfilling lifestyle business. But as soon as you take venture, that’s a different story. After all, another name for venture capital is impatient capital. It is the perfect permutation of not just ambition, but also of expectation. The greater you raise in venture, the greater the expectation.

A $10 million valuation is not a number indicative of your company value. In fact, I think the 409a valuation does a better job of that than what VCs price your company at. Rather, a $10 million valuation on a social media company is a bet that you have a 0.0025% chance — a 1 in 40,000 chance — that you’ll be as big as Meta. At least at the time of writing this blogpost. Equally so, a $1 billion valuation is a bet on the odds that you have a 1 in 400 chance to grow as big as Meta. As Uncle Ben said, “with great power comes great responsibility.”

And as such, the expectation and the will of your new bosses — your investors — is that you can scale a team that can help you capture that opportunity. And for VCs, or die trying. Many, if not most, great VCs would much rather you bat for the home run than walk a base. After all, the success of an investor is not defined by their batting average but the magnitude of home runs she or he hits. But I digress.

As a founder, you must love your work so much that it’s contagious. That it affects your investors, your team, and your customers. Why? Because in the course of building a rocket ship, there are a million and one things that can go wrong, and a million and two things that feel tedious, repetitive, and slow. And the work you enjoy doing must be so powerful that just the thought of being able to do more of it invigorates you through the long troughs between wins.

I say all this to every founder I’ve met who didn’t fall madly in love with their problem space and who expect venture funding. The going will get tough, and I, like many other investors, want to know that you have the grit to make it through this long, windy journey. Having a good pulse on work-work balance is one of a few proxies for that grit.

Of course, I do want to posit that a work-work balance doesn’t mean you should make prolonged sacrifices to your mental health, your sleep schedule, or your time with friends and family.

Photo by Piret Ilver 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!

Any views expressed on this blog are mine and mine alone. They are not a representation of values held by On Deck, DECODE, or any other entity I am or have been associated with. They are for informational and entertainment purposes only. None of this is legal, investment, business, or tax advice. Please do your own diligence before investing in startups and consult your own adviser before making any investments.

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Three Mindsets To Being A Great Venture Investor

compass, path, direction, future

“Readily available quantitative information about the present is not gonna give you they key to the castle. […] If everyone has all the company data today and the means to massage it, how do you get a knowledge advantage?

“The answer is you have to either:

  1. Somehow do a better job of massaging the current data, which is challenging; or you have to
  2. Be better at making qualitative judgments; or you have to
  3. Be better at figuring out what the future holds.”

Those are the words of the great Howard Marks on a recent Acquired episode.

When most of us first learned economics — be it in high school or college, we learned of the Efficient Market Hypothesis. In short, if you had access to both public and private information, you would be capable of generating outsized returns that outperformed the market.

The truth is that reality differs quite a bit. And that’s especially in early-stage investing. Investors often make investment decisions with both public and private information at their disposal. There is admittedly still some level of asymmetric information, but that depends on deep of a diligence the investors do. Yet despite the closest thing to a strong efficiency, there’s still a large delta between the top half and bottom half of investors. The gap widens further when you compare with the top quartile. And the top decile. And the top percentile. Truly a power law distribution.

Massaging the data

I’m no data scientist, although I am obsessed with data. But there are people who are, and among them, people I deeply respect for their opinion.

There’s been this relentless, possibly ill-placed focus on growth (at all costs) over the last two years. Oftentimes, not even revenue growth, but for consumer startups, user growth.

I want to say I first heard of this from a Garry Tan video. The job of a founder pre-product-market fit (pre-PMF) is to catch lightning in a bottle. The job post-PMF is to keep lightning in that bottle. Two different problems. Many founders ended up focusing on or were forced to focus on (as a function of taking venture money) scale before they caught lightning in that bottle. They spent less time on A/B testing to find a global maximum, and ended up optimizing for a local maximum.

Today, or at least as of September 2022, there’s this ‘new’ focus on retention and profitability (at all costs). But there’s no one-size-fit-all for startups. As a founder, you need to find the metric that you should be optimizing for — a sign that your customers love your product. Whether it’s the percent of your customers that submit bug reports and still use your product or if you’re a marketplace, the percent of demand that converts to supply. Feel free to be creative. Massage your data, but it still has to make sense.

From a fund perspective, equally so, it’s not always about TVPI, IRR, and DPI, especially if you’re an emerging fund manager. Or in other words, a fund manager who has yet to hit product-market fit. You probably have an inflated total-value-to-paid-in capital (TVPI) — largely, if not completely dominated by unrealized return. The same is true for your IRR as well. In the past two years, with inflated rounds and fast deployment schedules, everyone seems like a genius. So many investors — angels, syndicate leads, and fund managers — found themselves with IRRs north of 70% for any vintage of investments 2019 and after. Although an institutional LP that I was chatting with recently discounts any vintage of startups 2017 and after.

So the North Star metrics here, for fund managers, isn’t IRR or TVPI. It’s other sets of data. I’ll give two examples. For a fund manager I chatted with a few weeks ago, it was the percent of his portfolio that raised follow-on capital within 24 months of his investment because it was more than twice as great as the some of the best venture firms out there. Another fund manager cited the number of his LPs who invested in his fund’s pro rata rights through SPVs.

Making qualitative judgments

In this camp, these are folks who have an extremely strong sense of logic and reasoning. When a founder has yet the data to back it up, these investors go back to first principles.

In my experience, these investors are incredible at asking questions, like how Doug Leone asks a founder for their strengths and weaknesses. But more than just asking questions, it’s also about building frameworks and knowing what to look for when you ask said questions.

For instance, every investor knows grit is an important trait in a founder. More than knowing at a high level that grit is important, what can you do to find it out? For me, it boils down to two things.

  1. Past performance. In other words, prior examples of excellence that they worked hard to get.
  2. Future predictors. I ask: Why does this problem keep you up at night? Or some variation. Why does this problem mean so much to you? Why are you obsessed? Are you obsessed? Why is this your life’s calling? And I’m not looking for a market-sizing exercise here.

While I don’t claim to hold all the truths in this world, nor can I yet count myself in the highest echelons of startup investing, the most I can do here is share my own qualitative frameworks for thinking:

Futurists

One of my favorite thought pieces on the internet is written by a legendary investor, Mike Maples Jr. of Floodgate fame. In it, he illuminates a concept he calls “backcasting.” To quote him:

“Legendary builders, therefore, must stand in the future and pull the present from the current reality to the future of their design. People living in the present usually dislike breakthrough ideas when they first hear about them. They have no context for what will be radically different in the future. So an important additional job of the builder is to persuade early like-minded people to join a new movement.”

Early-stage investors must have the same genetics: the ability to see the future for what it is before the rest of humanity can. And they back founders who are capable of willing the future into existence and create reality distortion fields, a term popularized by Bud Tribble when describing Steve Jobs.

When I first jumped into venture, one of the first VCs I met — in hindsight, a futurist — told me, “Some of the best ideas seem crazy at first.” A visionary investor is willing to take the time to detect brilliance in craziness. Paul Graham, in a piece titled Crazy New Ideas, proposed that it’s worth taking time to listen to someone who sounds crazy, but known to be otherwise, reasonable because more than anyone else, they know they sound crazy and are willing to risk their carefully-built reputation to do so.

For 10x founders and investors alike, the more you hear them out, the more they make sense. That said, if they start making less and less sense the more you listen, then your time is most likely better spent elsewhere.

In closing

As you may already know, a great early-stage investor requires a different skillset than a great public equities trader or a hedge fund investor. You’re more likely to work with qualitative data than quantitative data. Regardless of what archetype of a venture investor you are, you have to believe that we are capable of reaching a better future than the one we live in today. It is then a question of when and how, not if.

Of course, I don’t believe that these three archetypes are mutually exclusive. They are more representative of spectrums rather than definitive traits. Think of it more like an OCEAN personality test than a Myers-Briggs 16 personalities.

To sum it all, I like the way my friend describes venture investors: pragmatic optimists. Balance the realities of today with how great the future can be.

Photo by Jordan Madrid 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!

Any views expressed on this blog are mine and mine alone. They are not a representation of values held by On Deck, DECODE, or any other entity I am or have been associated with. They are for informational and entertainment purposes only. None of this is legal, investment, business, or tax advice. Please do your own diligence before investing in startups and consult your own adviser before making any investments.

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#unfiltered #70 Conviction Comes From The Stories We Tell Ourselves

focus, conviction, motivation

On the second half of a late summer Friday, as I was overlooking the singed blades of the parched grass in our front yard, I found my good friend, Andrew, in my inbox. An inbox that was about to be empty from filing an eclectic collection of investor updates, food science analyses, tech articles, and my weekly subscription of Substack extraordinaires into my Read Later folder.

An email headline in boldface. All it would take would be two clicks. Two clicks to add to my party of internet writers I would be conversing with over a Saturday morning of roasted hojicha tea. Instead, I clicked once. Just once. And I’m glad I did.

Andrew started writing again. Pen to paper. Or rather, finger to keyboard. And that, that was worth celebrating. I, like many of his other friends, had been starved, deprived, relieved of his prose given his busy schedule. In it, he postulated the relationship between commitment and conviction.

“Commitment helps you stay on the path. Conviction is what calls you to the path in the first place.”

In sum, the pre-requisite for commitment is conviction. And so, it got me thinking about the source of conviction…

From inspiration

For decades, athletes have tried to break the 4-minute mile. According to British author John Bryant, since 1886. “It had become as much a psychological barrier as a physical one. And like an unconquerable mountain, the closer it was approached, the more daunting it seemed.”

But it wasn’t till May 6, 1954, did Roger Bannister break it with a time six-tenths under the mark. As soon as Bannister did it, 46 days later, another did. One year later, three runners broke the once elusive 4-minute barrier in one race.

The thing is, nothing technological had changed in the world when all these runners post-Bannister broke the four minutes. Nutrition hadn’t drastically improved. Neither was there drastic evolution in the technology of shoes. Yoram Wind and Colin Crook argues it was a mindset shift. The impossible was possible.

We see the same notion today in the world of emerging markets. In these markets, the first wave of unicorn founders is usually spearheaded by Harvard and Stanford grads building X for Latam or Y for Africa. For instance, both of Grab’s founders are HBS graduates. Gojek’s Nadiem is no exception. Nubank’s David Velez holds a similar Stanford GSB degree. So does Cabify’s Juan de Antonio. Rappi’s founders are also Stanford alumni. And the list goes on. They come with the Silicon Valley mindset in a market underestimated by not only the broader world but by the homegrown talent themselves. I like the way a Midwest founder-turned-investor once put it, “My mind is in Silicon Valley, but my feet are in the Midwest.” The same is true for this first wave.

And once they’ve proven it’s possible to reach unicorn status, the second wave follows quickly after.

Most people follow in the footsteps of our predecessors. Older siblings are the same for their younger siblings. Parents are that for their children. While I’m not a parent yet myself, I do aspire to be that for my children. Equally so, that’s why we need diverse representation in media, in positions of power, and in stories.

For many, conviction comes from examples to disprove the limitations of our own imagination.

From emotion

For a handful of others, conviction comes from a deep desire to prove or disprove.

There’s a superpower that comes with being underestimated. Reddit’s founders famously hung on the office walls the words of a Yahoo! exec who told them,  they were nothing but a “rounding error.”

When Michael Phelps’ eight gold medals in Beijing were on the line, their coach Bob used what the French team was boasting on the papers as motivation in the locker rooms. “The Americans? We’re going to smash them. That’s what we came here for.” And soon after, the world was blessed with one of the greatest races to date. A race of which the Americans — the underdogs — pulled a miraculous spectacle of conviction and resolve.

For founders, you need obsession, not just passion. Many of the best ones have a personal vendetta — a deep, unquenchable desire borne out of time spent in the idea maze. Every successful founder needs to perform 10-15 miracles in the startup to household name journey. Trials by fire that are meant to deter the fainthearted.

After chatting with a number of limited partners (LPs, folks who invest in venture funds) over the past two months, I’ve realized the thread of founder obsession continues here. That investor-market fit is not just a function of professional experience but also of life experience. Once again, a deep desire to change the world from personal frustrations and the hope that no one will ever have to go through what they went through.

In closing

Earlier this year, Reed Hastings shared a profound line with the graduating class, “[stories are] about harnessing the human spirit.” Conviction starts from the story we tell ourselves. The story itself is bound by the limitations of our own imagination. And conviction happens to be the belief that we can will our imagination into existence.

Michelangelo once said, “The sculpture is already complete within the marble block, before I start my work. It is already there, I just have to chisel away the superfluous material.” Commitment is the dedication to your conviction. A devotion to say no to distractions and yes to the person you want to be.

We live in a world filled with shiny objects. So, ask yourself, do you want what others want? Or what you truly want? Is your conviction inherited or innate?

I was listening to the latest episode of the All-In podcast, and David Friedberg echoed a similar notion for the greater human race, “What differentiates humans from all other species on Earth is our ability to tell stories. A story is a narrative about something that doesn’t exist. And by telling that narrative, you can create collective belief in something. And then that collective belief drives behavioral change and action in the world.”

Photo by Devin Avery 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!

Any views expressed on this blog are mine and mine alone. They are not a representation of values held by On Deck, DECODE, or any other entity I am or have been associated with. They are for informational and entertainment purposes only. None of this is legal, investment, business, or tax advice. Please do your own diligence before investing in startups and consult your own adviser before making any investments.

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