Tag: li jin

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Creativity is a Luxury

“Creativity is a residue of time wasted.”

I recently came across the above quote – the attribution to Einstein. And I found it extremely prescient. In the world last year. And in the years ahead.

Creativity is the ability to find inner peace in a busy world. To weave cacophony into symphony. The ability to recognize and chart patterns between the pixels and decibels around us. A guiding, focusing, and metaphorical – and I mean metaphorical in its truest form – principle that abstracts you from the literal shackles of your current situation. Now before I get to abstract…

I’ve written about where I find my inspiration on numerous occasions, including while I’m:

  • Exercising
  • Driving
  • Cooking
  • Showering
  • Listening to podcasts
  • Washing the dishes

… just to name a few. In each of the above, I give myself the intellectual bandwidth and the time to ponder. Simply ponder. With no goal or predestination in mind. Frankly, this blog is a product of such intellectual adventures.

And I know I’m not alone. In the world coming out of the pandemic, this may cause a new revolution of creativity.

Our grassroots

Hundreds of thousands of years ago, we transitioned from a nomadic to a more specialized lifestyle. The transition to specialized roles in a hunter-gatherer society allowed hominids to share the responsibility of survival. As we learn in the basics of economics, economies that have comparative advantages who trade can create a larger global supply of goods and services. In this case, it was the cooperation among the citizens of the same society that freed individuals’ bandwidths to explore other interests, including, but not limited to:

  • Controlled use of fire
  • Adaptability to colder climates
  • Specialized hunting tools, like fishhooks, bow and arrows, harpoons and bone and ivory needles
  • Intricate knowledge of edible plants

While hand-built shelters likely go as far back as 400,000 years ago, and huts made of wood, rock and bone as far back as 50,000 years ago, it wasn’t until the Neolithic Revolution that agricultural culture became a permanent habitual change. In the emergence of an agricultural lifestyle, humans now freed up time they would have otherwise spent on migration or hunting. And with that same free time, they invented more creative means of living, not just survival, like the means to combat disease and increased agricultural knowledge. Economists Douglass North and Robert Paul Thomas call this Neolithic Revolution the “first economic revolution“. The two state this was the result of “a decline in the productivity of labour in hunting, a rise in the productivity of labour in agriculture, or [an] … expansion of the size of the labour-force”.

Maslow’s Hierarchy

If we look at Maslow’s Hierarchy of Needs, the evolution of free time, and therefore creativity, makes complete sense. Psychologist Abraham Maslow wrote in 1943 that humans make decisions motivated five tiers of psychological needs.

Maslow’s Hierarchy of Needs

A person’s most basic, tangible needs are at the bottom, whereas the intangibles reside at the top. And according to Maslow, you cannot begin to fathom the higher echelons of your needs, like esteem and self-actualization, until you’ve fulfilled the tiers underneath. Maslow also calls self-actualization “growth needs” and the lower tiers “deficiency needs”. In a very real sense, when you’re struggling to find food and shelter or job security, you don’t have the mental capacity or free time to entertain how high your potential can go. Time, specifically leisure time, is a luxury for people who have fulfilled all their deficiency needs. And that leisure time is what creatives need.

Asking the best

Of course if I was to write anything on creativity, I had to ask my buddy, DJ Welch (IG, LI) – one of the most creative minds I know. Not only did he grow his YouTube channel to 370,000 subscribers in less than three years, he was also an artist for Lucasfilm, Instagram, Cartoon Network and more. Now, he’s working on a new project – Primoral Descent – one that I’ve been excited for the public to finally see.

“As a child, my parents let me have a lot of free time. They let me make my own choices. They let me be imaginative. That’s when you come up with innovation. Creativity is a river above everyone’s head.”

When I asked him to unpack that, he said, “Good ideas are gifts from the universe – fish that swim in that river. All you have to do is learn how to reach up and fish for them. And just like fishing, if you stick around long enough – if you’re patient enough, you’ll be able to catch a few. But you never know what fish you’ll reel in. Just that you will.”

Toys for adults

We see the same with entrepreneurs and creatives. They have time to think. Time to reach into that river and pull out an idea. They are investors and the medium of investment is their time. In fact, you can argue they’ve dedicated almost every waking hour to optimize themselves to offer a creative solution or perspective into the market. They’ve made it their job to be innovative. After all, innovation, by definition, is a creative solution. Under Einstein’s definition, we could call them professional time wasters.

As Chris Dixon says, “The next big thing will start out looking like a toy.” Today, we see the rise of NFTs, VR/AR, content creation, e-sports, and much more. Not too long ago, we had the telephone, and eventually the smartphone, as well as the internet. All of which had their origins as toys. And I know I’m only scratching the surface here. In order to have time to create toys, or for that matter, even play with toys, you need leisure time.

With that same time, more and more people are pursuing their interests and passions, creating, what Li Jin at Atelier Ventures dubbed, the “passion economy“. Similarly, more people are dabbling into new hobbies. In the pandemic, the average person saved 28 minutes of time that would have been spent on going to work. An hour on average for the round trip. Some people used that time saved to get more work done. Others used their time saved to discover new passions – be it baking, starting a podcast, hiking, or gaming. For many Americans, that extra time was paired with stimulus checks and communities coming together to cause political and economic shifts – for better or worse.

As Tal Shachar, former Chief Digital Officer at Immortals, said, “The next big thing in 2021 is the YOLO economy. Consumers will be more open to trying new products/services and spending on novel experiences, particularly with friends, as we emerge from the pandemic with pent up demand and few routines.” In the process of trying, you will inevitably uncover more surface area to expand on.

In closing

In 2021 and onwards, as entrepreneurship and solo-preneurship lowers its barriers to entry, we’re lowering the Gini Index equivalent for creativity. More people will have increased access to time – time to self-actualize. Time to challenge our status quo.

I love this line in Kevin Kelly‘s “99 Additional Bits of Unsolicited Advice“: “The greatest rewards come from working on something that nobody has a name for. If you possibly can, work where there are no words for what you do.” If you can succinctly describe what you’re working on, then you’re not really pushing the envelope.

Later in that same essay, Kelly writes, “A multitude of bad ideas is necessary for one good idea.” And to have ideas, you need time. As DJ and I were wrapping up our conversation, I asked, “So, DJ, how do you optimize for creative moments?”

And he responded with some great food for thought. “I nap. Sleeping is how I process information. As I go lay down for a nap, right in that lucid moment, I come up with my ideas. I quickly scribble them down, then go back to sleep. When I finally wake up, I go work on them. The great Winston Churchill’s naps were a non-negotiable part of his day. In fact, during WWII, he had a bed set up in the War Rooms so he could take his daily afternoon naps. Similarly, I often take 20-minute power naps around 2-3PM. And I’ve never pulled all-nighters. Thinking isn’t hard for me. Thinking is the part ‘efficient people’ [who work straight through the day] get stuck on.”

Cover Photo by Jr Korpa on Unsplash

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How to Build Your Investor Pipeline Without a Network

One of the most common questions I get from first-time founders, as well as those outside the Bay Area, is: “Who is/How do I find the best investor for our startup?” Often underscored by circumstances of:

  • Raising their first round of funding
  • Finding the best angel investors
  • Doesn’t have a network in the Bay Area or with investors

While I try to be as helpful as I can in providing names and introductions, more often than not, I don’t know. I usually don’t know who’s the best final denominator, but I do know where and how to start. In other words, how to build a network, when you don’t think you have one. I emphasize “think” because the world is so connected these days. And you’re at most a 2nd or 3rd degree connection from anyone you might wanna meet. Plus, so many early-stage investors spend time on brand-building via Medium, Quora, Twitter, Substack, podcasting, blogging, and maybe even YouTube. It’s not hard to do a quick Google search to find them.

“Googling” efficiency

While I do recommend starting your research independently first, if you really are stumped, DM me on my socials or drop me a line via this blog. Of course, this is not a blog post to tell you to just “Google it”. After all, that would be me being insensitive. Here’s how I’d start.

One of the greatest tools I picked up from my high school debate days was learning to use Google search operators. Like:

  • “[word]” – Quotes around a word or words enforces that keyword, meaning it has to exist in the search items
  • site: – Limits your search query to results with this domain
  • intitle: – Webpages with that keyword in its title
  • inurl: – URLs containing that keyword

Say you’re looking for investors. I would start with a search query of:

site: docs.google.com/spreadsheets intitle: investors

Or:

site: airtable.com inurl: investors

Feel free to refine the above searches to “angel investors” or “pre-seed funds”.

Landing and expanding your investor/advisor network

I was chatting with a friend, first-time founder, recently who’s gearing up for her fundraising frenzy leading up to Demo Day. She asked me, “Who should I be talking to?” While I could only name a few names since I wasn’t super familiar with the fashion industry, I thought my “subject-matter expert network expansion” system would be more useful. SMENE. Yes, I made that name up on the spot. If you have a better nomination, please do let me know. But I digress.

First, while you might not think you have the network you want, leverage who you know to get a beachhead into the SMEN (SME network) you want. Yes I also made up that acronym just now. But don’t just ask anyone, ask your friends who are founders, relative experts/enthusiasts, and investors. Ideally with experience/knowledge in the same/similar vertical or business model.

Second, if you feel like you don’t have those, just reach out to people who are founders, relative experts/enthusiasts, and investors. Via Twitter, Quora, LinkedIn, Clubhouse. Or maybe something more esoteric. I know Li Jin and Justin Kan are on TikTok and Garry Tan and Allie Miller are on Instagram. You’d be surprised at how far a cold email/message go. If it helps, here’s my template for doing so.

Then you ask them three questions:

  1. Who is/would your dream investor be? And two names at most.
    • Or similarly, who is the first (or top 2) people they think of when I say [insert your industry/business model]?
  2. Who, of their existing investors, if they were to build a new business tomorrow in a similar sector, is the one person who would be a “no brainer” to bring back on their cap table?
  3. Who did they pitch to that turned them down for investment, but still was very helpful?

For each of the above questions, why two names at most? Two names because any more means people are scraping their minds for “leftovers”. And there’s a huge discrepancy between the A-players in their mind and the B-players. Then you reach out/get intro’ed to those people they suggested. Ask them the exact same question at the end of the conversation (whether they invest or not). And you do it over and over again, until you find the investor with the right fit.

Photo by Andrew Ly on Unsplash

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Why Should the Investor NPS Score Exist?

I’ve written about product-market fit on numerous occasions including in the context of metrics, pricing, PMF mindsets, just to name a few. And one of the leading ways to measure PMF is still NPS – the net promoter score. The question: On a scale of one to ten, how likely would you recommend this product to a friend?

As investors, while a lagging indicator, it’s a metric we expect founders to have their finger always on the pulse for their customers. Yet how often do investors measure their own NPS? How likely would you, the founder, recommend this fund/firm/partner(s) to your founder friend(s)?

Let’s look for a second from the investor side of the table…

Mike Maples Jr. of Floodgate pioneered the saying, “Your fund size is your strategy.” Your fund size determines your check size and what’s the minimum you need to return. For example, if you have a $10M pre-seed fund, you might be writing 20 $250K checks and have a 1:1 reserve ratio (aka 50% of your funds are for follow-on investments, like exercising your pro rata or round extensions). Equally so, to have a great multiple on invested capital (MOIC) of 5x, you need to return $50M. So if you have a 10% ownership target, you’re investing in companies valued around $2.5M. If two of your companies exit at $200M acquisition, you return $20M each, effectively quadrupling your fund. You only need a couple more exits to make that 5x for your LPs. And that’s discounting dilution.

On the flip side, if you have a $100M fund with a $2-3M check size and a 20% ownership target, you’re investing in $10-15M companies. Let’s say your shares dilute down to 10% by the time of a company’s exit. If they exit at unicorn status, aka $1B, you’ve only returned your fund. Nothing more, nothing less. Meaning you’ll have to chase either bigger exits, or more unicorns. But that’s hard to do. Even one of the best in the industry, Sequoia, has around a 5% unicorn rate. Or in other words, of every 20 companies Sequoia invests in, one is a unicorn. And that means they have really good deal flow. Y Combinator and SV Angel, who have a different fund strategy from Sequoia, sitting upstream, have around 1%.

Erik Torenberg of Village Global further elaborated in a tweet:

And, Jason M. Lemkin of SaaStr tweeted:

Why does a VC’s fund strategy matter to you as the founder?

A fund with a heavily diversified portfolio, like an angel’s or accelerator’s or participating investors (as opposed to leads), means they have less time and resources to allocate to each portfolio startup. The greater the portfolio size, the less help on average each startup team will get. That’s not to say you shouldn’t seek funding from funds with large AUMs (assets under management). One example is if you have an extremely passionate champion of your space/product at these large funds, I’d go with it.

I wrote late last year about founder-investor fit. And in it, I talk about Harry Hurst‘s check-size-to-helpfulness ratio (CS:H). In this ratio, you’re trying to maximize for helpfulness. Ideally, if the fund writes you a $1M check, they’re adding in $10M+ in additive value. And based on a fund’s strategy (i.e. lead investors vs not, $250K or $5M checks, scout programs or solo capitalist + advisory networks, etc.), it’ll determine how helpful they can be to you at the stage you need them.

If you were to plan out your next 18-24 months, take your top three priorities. And specifically, find investors that can help you address those. For example, if you’re looking for intros to potential companies in your sales pipeline and all a VC has to do is send a warm intro to their network/portfolio for you, bigger funds might be more useful. On the other hand, if you’re struggling to find a revenue model for your business, and you need more help than one-offs and quarterly board meetings, I’d look to work with an investor with a smaller portfolio or a solo capitalist. If you’re creating a brand new market, find someone with deep operating experience and domain expertise (even if it’s in an adjacent market), rather than a generalist fund.

While there’s no one-size-fits-all and there are exceptions, here are two ways I think about helpfulness, in other words, value adds:

  1. The uncommon – Differentiators
  2. The common – What everybody else is doing

The uncommon

Of course, this might be the more obvious of the pair. But you’d be surprised at how many founders overlook this when they’re actually fundraising. You want to work with investors that have key differentiators that you need at that stage of your company. By nature of being uncommon, there are million out there. But here are a few examples I’ve seen over the years:

  • Ability to build communities having built large followings
  • Content creation + following (i.e. blog, podcast, Clubhouse, etc.)
  • Getting in’s to top executives at Fortune 500 companies
  • Closing government contracts
  • Access/domain expertise on international markets
  • In-house production teams
  • They know how to hustle (i.e. Didn’t have a traditional path to VC, yet have some of the biggest and best LPs out there in their fund)
  • Ability to get you on the front page of NY Times, WSJ, or TechCrunch
  • Strong network of top executives looking for new opportunities (i.e. EIRs, XIRs)
  • Influencer network
  • Category leaders/definers (i.e. Li Jin on the passion economy, Ryan Hoover on communities)
  • Having all accelerator portfolio founder live under the same roof for the duration of the program (i.e. Wefunder’s XX Fund pre-pandemic)
  • Surprisingly, not as common as I thought, VCs that pick up your call “after hours”

The common

Packy McCormick, who writes this amazing blog called Not Boring, wrote in one of his pieces, “Here’s the hard thing about easy things: if everyone can do something, there’s no advantage to doing it, but you still have to do it anyway just to keep up.” Although Packy said it in context to founders, I believe the same is true for VCs. Which is probably why we’ve seen this proliferation of VCs claiming to be “founder-friendly” or “founder-first” in the past half decade. While it used to be a differentiator, it no longer is. Other things include:

  • Money, maybe follow-on investments
  • Access to the VC’s network (i.e. potential customers, advisors, etc.)
  • Access to the partner(s) experience
  • Intros to downstream investors

That said, if an investor is trying to cover all their bases, that is a strategy not to lose rather than a strategy to win, to quote the conversation I had with angel investor Alex Sok recently. As long as it doesn’t come at the expense of their key differentiator. At the same time, it’s important to understand that most VCs will not allocate the same time and energy to every founder in their portfolio. If they are, well, it might be worth reconsidering working with them. It’s great if you’re not a rock-star unicorn. Means you still get the attention and help that you might want. But if you are off to the races and looking to scale and build fast, you won’t get any more help and attention that you’re ‘prescribed’. If you’re winning, you probably want your investor to double down on you.

Even if you’re not, the best investors will still be around to be as helpful as they can, just in more limited spans of time.

Finding investor NPS

You can find CS:H, or investor NPS, out in a couple of ways:

  • The investors are already adding value to you and your company before investing. Uncommon, but it really gives you a good idea on their value.
  • You find out by asking portfolio founders during your diligence.
  • Your founder friends are highly recommending said investor to you.

Then there’s probably the best form of validation. I’ve shared this before, but I still think it’s one of the best indicators of investor NPS. Blake Robbins once quoted Brett deMarrais of Ludlow Ventures, “There is no greater compliment, as a VC, than when a founder you passed on — still sends you deal-flow and introductions.”

In closing

“How likely would you, the founder, recommend this fund/firm/partner(s) to your founder friend(s)?” is a great question to consider when fundraising. But I want to take it a step further. NPS is usually measured on a one to ten scale. But the numbering mechanic is rather nebulous. For instance, an 8/10 on my scale may not equal an 8/10 on your scale. So your net promoter score is more so a guesstimate of the true score. While any surveying question is more or less a guesstimate, I believe this question is more actionable than the above:

If you were to start a new company tomorrow, would you still want this investor on your cap table?

With three options:

  • No
  • Yes
  • It’s a no-brainer.

And if you get two or more “no-brainers”, particularly from (ex-)portfolio startups that fizzled off into obscurity, I’d be pretty excited to work with that investor.

Photo by Laurice Manaligod on Unsplash

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A Reason to Stay

Photo by Hayden Scott on Unsplash

In the first startup I joined, we messed up our initial business model by not providing a reason for small- and medium-sized business (SMB) owners to stay. We created a marketplace between SMBs to transact with each other. But, after the first one to three transactions, they had no need for our platform. The scary thing about marketplaces isn’t that you’re connecting suppliers to their demand network, but not providing any bonuses after onboarding – a reason to stay.

Some of the stickiest companies are marketplaces because they provide that reason to stay. More often than not, providing a lovable product so convenient, it’s much easier to use the marketplace platform than to do the transaction themselves, and an easy, passive way to be discovered by future clients/customers that would be much more difficult on their own.

Why Multiplayer Video Games Work

In his book The Messy Middle, Scott Belsky, Chief Product Officer at Adobe and founder of Behance (acq. by Adobe), a discovery platform where creatives can showcase their portfolios and engage with others’, shares that when crafting the ‘first mile’ experience, you need to optimize for three questions:

  1. Why are your customers here?
  2. What can they accomplish?
  3. What can they do next?

Arguably, I believe that founders should always have these three questions hovering above their product strategies, beyond the ‘first mile’, only embedded more implicitly. Video games do an amazing job in this regard, especially massively multiplayer online role-playing games, or MMORPGs for short.

Why play the game? Find escape and sanctuary to be someone players want to be but can’t in the confines of reality.

What can they accomplish? Achieve that endgame that players see in the trailers and in the tutorial (the onboarding for an MMORPG user). The endgame is self-defined as well. Of course, the game optimizes for the power creep meta endgame. Yet, players can always opt for a ‘destiny’, a story, they find compelling, like becoming a fashionista, a wealthy merchant, a mentor, a content creator, and with faster computing systems and more robust infrastructure, a contributor to the game itself, through user-generated content (UGC). The Steam Workshop is an excellent example of UGC.

What can they do next? Level up their character and gear. Tackle the next quest – main or side – towards something larger than themselves. There’s always a defined goal, as well as actionable steps and additional incentives laid out for the players. This creates high retention value – a reason to stay.

The same is true for many other types of genres of multiplayer games – multiplayer online battle arenas (MOBA), battle royale (BR), first-person shooters (FPS), and more. It’s just the narrative of the endgame may change a little towards leaderboard domination. E-sports, content creation, and live streaming then offers a new tier of recognition and endgame for many veteran players.

Back to Marketplaces

I’ve always argued that as a founder, you want to focus on unscalable wins before thinking of scale pre-product-market fit. Focus on the individual experiences. As Li Jin, partner at the reputable a16z, wrote in a post about the passion economy, “[great founders] view individuality as a feature, not a bug.” The best marketplaces, like Uber, Airbnb, and Medium, started off focusing on the unscalable wins for a small individual subset of their potential users. These products offered their early users a reason to stay:

  • (Additional) Incentives and tools, to make their stay worthwhile;
  • Discovery platform to help them grow their brand and customer base, actively and passively;
  • And, subsequent community and network effects.

Early adopters jump on a new product, as fast as they jump off one. They’re finicky. They’re window shoppers, but at the same time, the most willing and likely to try out your product. Luckily and unluckily, the San Francisco Bay Area has no shortage of these folks, and being a tech startup, with its initial user base here, often inflates your early metrics. In short, the goal of your product is to make these technological butterflies fall madly in love with you and your product. That’s the tough part, but it’ll also mean you’ve found product-market fit (PMF).

Where do we find ‘love’?

Instead of a minimum viable product, or MVP, Jiaona Zhang, Senior Director of Product at WeWork, in her First Round Review piece, chases the “pixie dust”, or what I like to call the secret sauce – a truly unique, money-making insight. This magic is found through diligent iteration on consumer feedback, especially in the beta stages of a product. During the beta, users have the serendipity to discover “that magical moment in the user journey where the user realizes that this product is different from anything else they’ve ever experienced”. Her framework, designed from the perspective of the consumer:

Wouldn’t it be cool if users could [a process/action that would 10X their lives]?

What We Learned

The same was true for us at Localwise. Of course, we were motivated by poor retention metrics. But, we learned what businesses truly needed by asking each of them in person, as well as flyering (and getting rejected, or worse, ignored) to college students and to shops. So, still deeply in love with the community we built, we found that need when connecting local talent to SMBs. For businesses with high churn rate with temporary employees and a need to build a brand, that was their reason to stay.

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