Tag: questions

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Why It’s Important to Disagree with Your Co-Founders Early

While I don’t always ask this question, when I do, it provides me enormous context to how the founding team works together. What do you and your co-founders fundamentally disagree on? Over the years, I’ve heard many different answers to this question. “We disagreed on which client to bring into our alpha.” “On our last hire.” “Our pricing strategy.” And so on. As long as you contextualize the point of friction, and elaborate on how, why, and what you do to resolve it, then you’re good. There’s no right answer, but there is a wrong answer.

The answer that scares me the most is: “We agree on everything.” Or some variation of that. While people may share a lot of similarities, even potentially the same Myers Briggs personality type (although I do believe people are more nuanced than four letters), no two people are ever completely the same. Take twins, for example. Genetically, they couldn’t be any more similar. Yet, to any of us, who’ve met any pair of twins in our lifetime know they are vastly different people.

Priorities lead to disagreements

One of my favorite counterintuitive lessons from the co-founder and CEO of Twilio, Jeff Lawson, is: “If your exec team isn’t arguing, you’re not prioritizing.” He further elaborates:

“As an executive team, we never actually argued — which is a strange thing to bother a CEO. But in fact, something always felt not quite right to me when we always agreed. Clearly, we must not be making good enough decisions if we all agree all the time.

“What I came to realize was that the reason why we didn’t argue is we weren’t prioritizing. One person says, ‘I like idea A,’ and the other person says, ‘I like idea B,’ and you say, ‘Great, put them both down, we’ll do it all!’ And in fact, when you look back on those documents at the end of the year, we rarely got around to very much of anything in those documents.

“Be vigorous not just about what makes the list, but the specific order in which priorities fall. “We realized it’s not just about all the things we could do, but the order of importance — which is first, which is second. Now you get disagreements and a lot of vigorous, healthy debate.”

Starting the tough conversation

Admittedly, it’s not always easy to have these tough conversations with the people you trust most. In fact, often times, it’s even harder to have these conversations because you’re scared about what it can do to your relationship. Arguably, a fragile one at best. At the end of last year, Yin Wu, founder of Pulley, shared an incredible mindset shift when building an all-star team, which led to my conversation with her.

You’re a team driven to change the world we live in. And to do so, you need a system of priorities.

One of the best ways I’ve learned to address conflicts – explicit and implicit, the latter more detrimental than the former – is taking the most obvious, but the one that most people try to avoid. Address the elephant in the room at the beginning.

I love the way Elizabeth Gilbert approaches that elephant, “The truth has legs. It’s the only thing that will be left standing in the end. So at the end of the day, when all the drama has blown up, and all the trauma has expressed itself, and everyone has acted up and acted out, and there’s been whatever else is happening, when all of that settles, there’s only going to be one thing left standing in the room always, and that’s going to be the truth. […] Since that’s where we’re going to end up, why don’t we just start with it? Why don’t we just start with it?”

When it hasn’t happened yet

If you haven’t disagreed with your team yet, you either haven’t established your priorities or one or the other or both has yet to bring it up. A mentor of mine once told me, “Whatever you least want to do or talk about should be your top priority.” And the goal is to sit down with your team and figure it out. To come into the conversation suspending immediate judgment and trying to see where your other team members are coming from.

As the CEO of a startup or a leader of a team, you don’t have to use every piece of feedback or input you get from your teammates. But you should make sure your teammates feel heard. That you’ve put thought and intention behind considering their ideas and opinions. Whether you choose to deviate from your teammates’ opinions or not, you should clearly convey the rubric that you used to make that decision. And why and how it aligns with the company’s mission.

In closing

And of course, the follow-up to the first question about disagreement would be: How often do these disagreements happen? And how do you move forward after the disagreement comes to light?

I go back to a line Naval Ravikant, co-founder of AngelList, once said, “If you can’t see yourself working with someone for life, don’t work with them for a day.” Indubitably, you’re going to be working with your co-founders for a long time. And if you haven’t dissented with your co-founders – or for that matter, other team members, investors, and customers – yet, you will. And knowing what, how and why you disagree with others can be invaluable for your company’s survival and growth.

This past weekend I heard a new phrasing of disagreement I really liked from a friend of mine. “Creative conflict.” I’m adding that phrase to my dictionary from now on. And well, this is my preface to you all before I do.

Prioritize. Communicate. And embrace creative conflict.

Photo by Ming Jun Tan on Unsplash

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#unfiltered #49 Doing Boring Things

I recently tuned back into Elizabeth Gilbert‘s, author of Eat Pray Love, 2016 interview with On Being. It also happens to be one of my favorite interviews about creativity and curiosity. I found myself pausing, rewinding, playing, pausing, rewinding, then playing again one line again and again.

“Everything that is interesting is 90 percent boring.”

She further elaborates, “And I think one of the reasons that both my sister and I ended up being authors is because we were taught how to do boring things for a long time. And I think that’s really important, because here is one of the grand misconceptions about creativity, and when people dream of quitting their boring job so that they can have a creative life, one of the risks of great disappointment is the realization that, ‘Oh, this is also a boring job a lot of the time.’ It’s certainly tedious. It’s a boring job I would rather do than any other boring job. It’s the most interesting boring job I’ve ever had. […]

“And we are in a culture that’s addicted to the good part, the exciting part, the fun part, the reward. But every single thing that I think is fascinating is mostly boring.”

She takes it from a perspective that everything has its boring parts. So you have to learn to accept what’s boring along with what’s interesting. I think she’s absolutely right. But while I was tuning in again to that same interview – those exact same lines – for who knows, the 20th time, I thought… maybe there’s something more. Forgive my brain for having the tendency to jump into numbers and equations. That for some reason, one of the primary ways I understand life has to be through some quantitative lens. I thought, what if we take it from an expected value perspective.

Expected value = 10% * (Utility of interesting) + 90% * (Utility of boring)

The utility we gain from boring, often times, is of course, well… boring. Some utility value less than zero. Or in other words, more often than not, we lose utility. On the other hand, the utility we gain from interesting is positive. So, then it becomes a balancing act between what’s interesting and what’s boring. That in the decision to pursue something interesting, there might be the below subconscious calculus:

10% * (Utility of interesting) > 90% * (Utility of boring)

To shine a different light, is the interesting part interesting enough that it outweighs all of the boring parts combined, and ideally, more?

Take, for instance, writing for me. I love writing. It’s meditative. Thought-provoking. And it’s challenging. But at the same time, editing, filling in the keywords for SEO, finding a cover image, all the way to writing when I don’t feel inspired, but I do so to commit to a weekly routine is tedious.

Similarly, Gilbert uses the example of raising children. “Raising children — I’m not a mother, but I’m a stepmother, I’m a grandmother, I’m a godmother, I’m an aunt, and I know that 90 percent of — especially, being with very small children…

“Incredibly — it’s hard. And then there’s the moment where you realize, ‘Oh, my God, this is a spark of creation that I’m working with, and this is magic, and this is life seen through new eyes.’ And creativity is the same, where 90 percent of the work is quite tedious. And if you can stick through those parts — not rush through the experiences of life that have the most possibility of transforming you, but to stay with it until the moment of transformation comes and then through that, to the other side — then, very interesting things will start to happen within very boring frameworks.”

For many of this blog’s readers, it’s starting a business. Whether you’re changing the world or the people you care the most about, that mission is what drives you. That’s what makes it interesting. And every time you hit a milestone –

  • Your first user outside of your friends and family,
  • Rated #1 on Product Hunt,
  • One of your customers writes a handwritten love letter to you and your team about how you saved her family,
  • You finally have enough revenue to pay your team members who’ve been working with you for free for two years,
  • $1M in ARR,
  • 50,000 users,
  • You reach profitability,
  • Your dream investor says yes,
  • A Fortune 500 business offers you 9 figures for your business,
  • And the list goes on and on.

… it’s exciting! But let’s be honest, not every day will be sunshine and rainbows. 90% of your days will be tedious. Some percent of those days or weeks might even suck! 90% of your days will be you working to find and reach that 10%. And if that 10% is just that amazing, it’ll make that 90% worth it.

In a sense, it’s like the Pareto Principle. 80% of your utility will come from 20% of your achievements. That star 20% – your customer love letters, providing employment for all your team members during the tough days of COVID.

In an analogous mental model, in everything that is boring, there might be a small percentage that makes it interesting. Now I’m really curious as to what I might discover here.

Photo by Sophie Dale on Unsplash

#unfiltered is a series where I share my raw thoughts and unfiltered commentary about anything and everything. It’s not designed to go down smoothly like the best cup of cappuccino you’ve ever had (although here‘s where I found mine), more like the lonely coffee bean still struggling to find its identity (which also may one day find its way into a more thesis-driven blogpost). Who knows? The possibilities are endless.

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

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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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Startup Growth Metrics that will Hocus Pocus an Investor Term Sheet

Founders often ask me what’s the best way to cold email an investor. *in my best TV announcer voice* Do you want to know the one trick to get replies for your cold email startup pitches that investors don’t want you to know? Ok, I lied. No investor ever said they don’t want founders to know this, but how else am I going to get a clickbait-y question? Time and time again, I recommend them to start with the one (at most two) metrics they are slaying with. Even better if that’s in the subject line. Like “Consumer social startup with 50% MoM Growth”. Or “Bottom-up SaaS startup with 125% NDR”. Before you even intro what your startup does, start with the metric that’ll light up an investor’s eyes.

Why? It’s a sales game. The goal of a cold email is to get that first meeting. Investors get hundreds of emails a week. And if you imagine their inbox is the shelf at the airport bookstore, your goal is to be that book on display. Travelers only spend minutes in the store before they have to go to their departure gate. Similarly, investors scroll through their inbox looking for that book with the cover art that fascinates them. The more well-known the investor, the less time they will spend skimming. And if you ask any investor what’s the number one thing they look for in an investment, 9 out of 10 VCs will say traction, traction, traction. So if you have it, make it easy for them to find.

That said, in terms of traction, most likely around the A, what growth metrics would be the attention grabber in that subject line?

Strictly annual growth

A while back, my friend, Christen of TikTok fame, sent me this tweetstorm by Sam Parr, founder of one of my favorite newsletters out there, The Hustle. In it, he shares five lessons on how to be a great angel investor from Andrew Chen, one of the greatest thought leaders on growth. Two lessons in particular stand out:

And…

Why 3x? If you’re growing fast in the beginning, you’re more likely to continue growing later on. Making you very attractive to investors’ eyes – be it angels, VCs, growth and onwards. Neeraj Agrawal of Battery Ventures calls it the T2D3 rule. Admittedly, it’s not R2-D2’s cousin. Rather, once your get to $2M ARR (annual recurring revenue), if you triple your revenue each year 2 years in a row, then double every year the next 3 years, you’ll get to $100M ARR and an IPO. More specifically, you go from 2 to 6, then 18, 36, 72, and finally $144M ARR. More or less that puts you in the billion dollar valuation, aka unicorn status. And if you so choose, an IPO is in your toolkit.

image001
Source: Neeraj Agrawal’s analysis on public SaaS companies that follow the T2D3 path

For context, tripling annually is about a 10% MoM (month-over-month) growth rate. And depending on your business, it doesn’t have to be revenue. It could be users if you’re a social app. Or GMV if you’re a marketplace for goods. As you hit scale, the SaaS Rule of 40 is a nice rule of thumb to go by. An approach often used by growth investors and private equity, where, ideally, your annual growth rate plus your profit margin is equal to or greater than 40%. And at the minimum, your growth rate is over 30%.

For viral growth, many consumer and marketplace startups have defaulted to influencer marketing, on top of Google/FB ads. And if that’s what you’re doing as well, Facebook’s Brand Collabs Manager might help you get started, which I found via my buddy Nate’s weekly marketing newsletter. Free, and helps you identify which influencers you should be working with.

But what if you haven’t gotten to $2M ARR? Or you’ve just gotten there, what other metrics should you prepare in your data room?

Continue reading “Startup Growth Metrics that will Hocus Pocus an Investor Term Sheet”
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The Fastest Way to Test a Startup Idea

Last week, I reconnected with Shuo, founding partner of IOVC, and one of the first people I reached out to when I began my career in venture. That day, I asked her a pretty stupid question, “Given the rise of solo capitalists, rolling funds, equity crowdfunding, and the democratization of capital, do you think now’s a good time to raise a fund?“

She replied, “I don’t know. It could be a good time now. It could be a good time five years from now. If you’re set on sticking around for the long term, it really doesn’t matter. ‘Cause whether it’s a good time or not, you’re going to be raising a fund regardless. So just do it.”

Not gonna lie, it was serious wake-up call. While I was initially looking for her perspective on the changing venture market, what she said was right. If you’re set on doing something, say starting a fund or a business, the “right time” to start is irrelevant. The world around us changes so much so frequently. We only know when’s the right time in hindsight. So focus on what we can control. Which is starting and doing.

So as an aspiring founder, which idea do you start with? And how do you test it?

Starting a business is scary

Starting a business is scary for most people. And well, the government doesn’t always make it easy to do so. Just like what WordPress and Squarespace did for websites, you have companies, like Stripe (and their Stripe Atlas), Square, Shopify, Kickstarter, just to name a few, streamlining the whole process for entrepreneurship. For an aspiring entrepreneur, not only is it taking that leap of faith, before you begin, there’s a slew of things you have to worry about:

  • Figure out how to incorporate your business (C-corp, LLC, or S-corp),
  • Assign directors and officers to your business,
  • Buy the stock, so you actually own your stock,
  • Learn to file your taxes (multiple forms, including your 83(b) election),
  • When you raise funding, get a 409A valuation,
  • And that’s just the beginning.

Of course for the above, do consult with your professional lawyer and accountant. It’s two of the few startup expenses I really recommend not skimping on. While the purpose of this post isn’t designed to solve all the documents you’ll have to go through in starting a business, hopefully, this will help with one front – taking that leap of faith. Specifically finding early validation for your idea.

The superpower of writing

I stumbled on Max Nussenbaum‘s, who’s leading On Deck‘s Writing Fellowship, provocative tweetstorm:

He boils it down to, effectively, four reasons:

  1. You can test the validity of an idea faster by writing than with code.
  2. Writing well trains your ability to sell.
  3. Publishing regularly gets you comfortable with shipping early and often.
    • To which he cited one of my favorite Reid-isms: “If you’re not embarrassed by the first version of your product, you’ve launched too late.” – Reid Hoffman
  4. Writing is easier for most people to pick up than coding.

There’s a “5th reason” as well, but I’ll let you uncover that yourself. Talk about creativity. Side note. Max created one of my favorite personal websites to date.

Much like Max, I write to think. And in sharing my raw thoughts outside of the world of startups via the #unfiltered series, often far from perfect, as well as my take in this fast-changing universe, my cadence of writing twice a week has forced my brain to be accustomed to the velocity of growth. In the sense, I better be learning and fact-checking my growth week over week. Over time, I’ve developed my own mental model of finding idea and content catalysts.

Of course, if you know me, I just had to reach out. Particularly around the third point in his tweetstorm.

What mental models or practices did he use to help him wrestle with his embarrassment from his own writing? And he replied with two loci that provided so much more context:

  1. “Reading other writers who open up way more than I do, which makes what I’m doing feel easy by comparison. Two favorites I’d recommend are Haley Nahman and Ava from Bookbear Express.”
    • And another I binged for an hour last night. Talk about counterintuitive lessons. My favorites so far are Stephen’s 12th and 16th issue. You might not agree with everything, but he really does challenge your thinking. Thank you Max for the rec.
  2. “Publicly committing to writing weekly and finding that the embarrassment of publishing was outweighed by the embarrassment I’d feel if I missed a week. Also, like all things, I’ve found it very much gets easier with practice.”

Why not both?

Then again, why not both? I go back to Guillaume‘s, founder of lemlist, recent LinkedIn post. He says:

And he’s completely right. If I were to analogize…

Writer = common
Writer + coder = uncommon
And… writer + coder + X = holy grail

You don’t have to own one unique skill. And in this day in age, there aren’t that many individually unique skills out there that haven’t been ‘discovered’ yet. Rather than search for the singularly unique skill that you can acquire, I’d place a larger bet on a combination of skill sets that can make you unique. As a founder, test your ideas early with writing. If there’s evidence of it sticking, build it with code. And it doesn’t just to be just writing and code, whatever set of skills you can acquire more quickly and deeper with the circumstances and experiences you have. Even better if there’s a positive flywheel effect between your skills.

In closing

There’s a Chinese proverb that goes something along the lines of, “The best time to plant a tree was 20 years ago. The second best time is now.” And it circles back to Reid’s quote that Max cited, “If you’re not embarrassed by the first version of your product, you’ve launched too late.” As an entrepreneur, or as an emerging fund manager, it’s a given you’re going to mess things up. But all the time fretting around at the starting line is time better spent stumbling and standing back up.

I followed up with Shuo after our call, and she elaborated a bit more, “In all honesty, you can argue now is a good time (a lot of capital available for good managers) or a bad time (valuations are frothy), but in the long-term, these variables even out and it’s how you add value as an investor that’s most important.”

If I were to liken that same insight to aspiring entrepreneurs… Yes, investors look for timing. And yes, understanding the timing of the market is important, when you’re launching a product that will revolutionize the way we live in a fundamental way. But that boils down to which idea you plan to pursue. But if you’re looking to be a founder, it’s finding that overlap in the 3-way Venn diagram between (1) what the market needs and (2) where you, as the founder, can provide the most value. And (3) where your competitors are not maximizing their potential in.

For many aspiring founders, that first step can be practicing the art of writing. Writing for clarity. Writing to practice selling. Learning to ship early and embracing imperfection. Frankly, it’s also something I need to get better at myself.

Though I’m not a religious fellow, I’m reminded of a quote from Jesus’ teaching, which I first found in Jerry Colonna’s book, Reboot. “If you bring forth what is in you, what is in you will save you. If you do not bring forth what is in you, what is in you will destroy you.” Writing is that act of bringing forth what is in you. And well, if you’re like me, I often find my greatest regrets come from a lack of action rather than in taking action.

If you’re looking for a place to start…

Top photo by Cathryn Lavery on Unsplash

Thank you Shuo and Max for reviewing early drafts of this essay.

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The Goosebump Test

Ever since I started my career in VC, I’ve been trying to understand the concept of “intuition”. Yet, it wasn’t after I’d seen over 500 pitch decks and met over 100 founders before I began to have an inkling of what intuition meant. In fact, embarrassingly so, when I first started at SkyDeck, Berkeley’s startup accelerator, I thought every other startup I met was gonna be a winner. After all, it was rather rare that a founder wouldn’t be excited about their idea at the first meeting. I was told again and again by investors, one of the key drivers for a startup is the founder’s passion. I thought, well, the numbers might not be there yet. But with this founder’s excitement, they’ll get there eventually. And quickly, I mistook “hopefully” as “eventually”. Two words with very different meanings.

You don’t have to be a full-time investor to know that I was quite off the mark. I soon and quickly learned that passion can be faked, especially in the first meeting. And on that journey, I realized how important having a large and deep sample size was. Large, in the sense of number of founding teams I was meeting. Deep, in the sense of spending longer hours with these teams. Of course, realistically, I couldn’t spend more time with everyone I met, but that also meant I shouldn’t just spend half an hour with them and call it a day. My general rule of thumb became I was going to meet every founder at least twice, and at least a week apart. This gave me:

  1. Time to cool my head from the excitement of the meeting
    • Am I more, less, or just as excited to meet them in meeting two as I was in meeting one?
    • If I were [insert my mentor’s name], would I do the deal? Why or why not?
      • Sometimes, it was really helpful to put myself in the shoes of someone’s who’s way more experienced than I am.
  2. Time to approach the opportunity more analytically
    • Does it align with the macro trends I’ve seen?
    • Do they have some early semblance of product-market fit? Why can that be an early proxy for it?
    • Would I be a power user?
    • Is their origin story enough to compel them towards this idea for the next 7-10 years? Are they meant/”destined” to do this?
    • Would they be able to succeed without me? Without funding?
    • Is venture funding a path they need to take towards growth? What about equity crowdfunding? Bootstrapping? Reaching profitability via a tweak in their business model?

Of course, there were, are, and will be exceptions.

Alfred Chuang of Race Capital recently shared his “co-founder test”: “People asked me so well, how do you determine this is a company you want to invest in. In early stage, I say if this company I want to co-founded with, that I will, in any moment jump on my own two feet in the building, the company would have found this, I don’t do it. Wow. Right. That’s where the conviction come from. Right? This is the ultimate gut test, you don’t pass that gut test, you don’t do it. So I urge the founders on either side to say, Well, think of me as your co-founder. If you don’t think of me as a co-founder, don’t do the deal with me.”

I recently tuned into one of Basecamp‘s Jason Fried‘s latest interviews, in which he describes how he chooses to pursue projects based on feel. Particularly when he gets the goosebumps. Similar to him, and I’m sure many others, I regret far more of what I say yes to than what I say no to. It’s not that I jump in knowing I will regret my decision. In fact, I’m usually pretty sure I won’t. Nevertheless, in only a rare few circumstances, is it a full-body yes, as Tim Ferriss would call it. VCs, as with any investor or buyer, aren’t immune to buyer’s remorse.

When imagining what could go right – the greatest, most impactful possible upside, does it send happy chills down my spine? Am I riffing off their energy and actively throwing ideas out? Am I unconsciously trying to hit my limit on words per minute? If so…

Some investors call it intuition. Others call it conviction. I’m gonna need my own pretentious phrase. Let’s call it the goosebump test.

My goosebumps will undoubtedly evolve over time. It will react to new stimuli, based on my accumulated knowledge and experience. It will also learn from the scar tissue that will form in the future. While I will try to follow my goosebumps as much as I can, they will undoubtedly also fail me at times. Just like how I wouldn’t be as excited now by some of the startups that got me excited back at SkyDeck, I imagine there will be a healthy handful that I do now that my body will learn from in the future. And I will continue to do my best to codify my learnings and share my scar tissue for myself and on this blog over time.

Photo by Stephen Leonardi on Unsplash

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#unfiltered #45 Two Questions that Force Me to Face My Own Ego

“Ego is about who is right. Truth is about what is right.” – Mike Maples Jr.

I distinctly remember reading this soundbite on page 64 years ago in Tim Ferriss‘ then-new book, Tribe of Mentors. With the recent string of world events over the past few months, I’m reminded once again of this line. It’s strange to think that our most available mentors come in the form of books. Yet, every time I realize this fact, I seem to stumble upon another Eureka moment.

I was a passively-rebellious kid growing up. Though not often, there were times I would swing left when my parents said right. High school, on the other hand, did not make it any easier for my parents. As if puberty was not enough, in high school speech and debate, I learned to play the devil’s advocate on nearly everything. Frankly, it didn’t matter if they were right or not. And in more times than I am willing to admit, I found myself in trouble for not heeding my parents’ advice. Physically. But more often, emotionally. I was just emotionally antagonistic to my own wellbeing. Something I was unwilling to admit for quite a while.

We live in an era where many debates have spiraled down the path of: “If I’m right, you’re wrong” or “If I’m wrong, you’re right.” But most issues – and I might even be as bold as to say, all issues – are not nearly as binary. Debates have become arguments rather than conversations. We fail to realize great constructive conversations are never zero sum. Socratic discussions lead to nuance and a spectrum of colors that are dimensionally vast. Many of us have chosen what is the easiest for us to swallow in that moment. That soundbites resonate more than 3-hour debate. We’ve turned our attention towards ephemeral efficiency rather than robust literacy. At the same time, we need to balance complexity with simplicity. Sometimes, matters aren’t as complicated as we make them out to be. Other times, they are and possibly more so.

Someone I deeply respect once told me. “The quality of your words are determined not by what comes out of your mouth, but by how much reaches another person’s ears.” Oddly enough, we fail to use our senses in the proportions nature gave to us. Two ears. One mouth. Yet, we often act as if we have two mouths and one ear. And I am not immune to that fact.

Over the years, due to the accumulation of scar tissue, I’ve learned to abstract who from what they are saying. When I hear advice, opinions or even facts from someone I am emotionally aloof or antagonistic with, I ask myself, if someone I deeply respect said the exact same thing, would I still be as averse as I am now?

If still so, why? What are my underlying assumptions to oppose such a claim?

Similarly, if someone I deeply respect (even blindly so) says something I agree with too quickly, would this piece of advice hold the same gravitas if it came from someone with little social capital?

Of course, the above is much easier when my inner weather isn’t hormonally turbulent. But when it is, I breathe deeply thrice. And ask myself the question again. And if still turbulent, then I repeat until I’m ready to face my own ego.

Photo by Krissana Porto on Unsplash

#unfiltered is a series where I share my raw thoughts and unfiltered commentary about anything and everything. It’s not designed to go down smoothly like the best cup of cappuccino you’ve ever had (although here‘s where I found mine), more like the lonely coffee bean still struggling to find its identity (which also may one day find its way into a more thesis-driven blogpost). Who knows? The possibilities are endless.

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

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Think like an LP to Get a Job in VC

I want to preface this piece by first saying, though I have LP (limited partner) friends, I’ve never been an LP. So take everything with a grain of salt. For that matter, even I have been an LP, still take this with a grain of salt. After all it’s just my one perspective on the world. Nevertheless, I hope this perspective helps to provide some context around the venture space. As it did for me.

For years, I’ve recommended my friends who were looking at startup job opportunities to think like a VC. And having chatted a number of firms over the years about scout, associate/analyst, venture partner roles, I’ve come to a new revelation. Or rather one that I’ve practiced for a while, but haven’t connected the dots until recently.

When you’re looking for VC job opportunities, think like an LP. I’ve written about the LP calculus a few times before, like:

Here are some questions I usually consider:

  • How have you thought about your own differentiation that gets you access to some of the uniquely fund-defining opportunities you have?
  • What are the startups in your anti-portfolio? And what have you learned since from them?
  • [if their funds are wildly different in fund size (i.e. Fund I – $20M, Fund II – $100M)] How do you think about fund strategy now versus Fund [t_now-1]?
    • For context, usually each subsequent fund doubles in size. i.e. Fund I $20M, Fund II $40-50M, Fund III $80-100M
  • [If they have fund advisors, EIRs, and/or scouts] How do you pick advisors? What is your mental model for picking scouts?
    • Or one of my favorite phrasings: How do you differentiate the good from the great [advisors/scouts]?

Over the weekend, my friend sent me a great podcast for me to unwind. In it, I found an unlikely hero soundbite. “Your library holds a lot of value that you may not know until the story arrives. […] No one’s selling characters ’cause they’re one story away from this character becoming a hit.” While its context is related to why Marvel won’t sell any of its superheroes, Alex Segura‘s, co-president of Archie Comic Publications, anecdote proves just as insightful to the world of venture.

Discovering first-time early-stage founders is hard. The same is true for finding the next killer GP or venture firm. AngelList’s Rolling Funds are democratizing access to capital, lowering the barrier to entry for emerging fund managers. And really the success of a fund is determined by its MOIC – multiple on invested capital. 5x and up would be ideal. And that, like I mentioned in my last blogpost, boils down to the fund’s top one or two winners. Loosely analogized to a fund’s unicorn rate (percent of portfolio that are unicorns). In other words, the “one [investment] away from this [fund] becoming a hit.”

To see if a fund can consistently find those stories boils down to its systems. Often times, you’re joining a fund that has yet to have a runaway success. Or a fund that has a fund returner. So, instead, you’re looking at their thesis and if their thesis allows them to be:

  1. The best dollar on the cap table of a startup in their scope
  2. Forward-thinking enough to see where the market is heading, rather than where it’s been
    • And by definition of being forward-thinking, taking bets/risks that few other VCs would, yet calculated enough to make logical sense given the trajectory of the market. In other words, is the thesis grounded on first principles, yet able to capture their second-order effects?
    • That, in turn, requires you as a VC applicant to have decent literacy in the market the firm is betting in.

As James Clear, author of Atomic Habits, wrote, “You do not rise to the level of your goals. You fall to the level of your systems.” What are their mental models? Fund strategy? How do they think about portfolio construction? About capital allocation? And more importantly, time allocation?

If you’re looking to learn more about GP-LP dynamics, I highly recommend Samir Kaji’s Venture Unlocked podcast and Notation Capital’s Origins podcast.

Photo by Micheile Henderson 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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#unfiltered #43 Do I Like to Write?

writing, how to start a blog

An investor I had recently been put in touch with asked me this past Monday if I like to write. I thought it was a peculiar question at first. But it strangely kept gnawing at me as the week went on. While I can’t say for certain that it was that investor’s intention, it became a forcing function for me to reflect on my motivations.

If you’ll believe it, I used to hate writing. With a capital H. I used to dread when a teacher or professor would assign us essay prompts for homework. Many of my college and high school friends can probably attest to that fact. More so, I was the world’s best procrastinator. Ok, “best” might be overselling myself. But I had a track record for deferring my 10-/20-page essay until the night before it’s due. It was the antithesis of fun. I knew exactly what my professors sought. All I had to do was put the puzzle pieces together. Frankly, writing was a necessity to survive my academic career, not one I’d seek out as a passion.

It wasn’t always that way. In elementary school, I loved writing poetry. An exploration of my inner creativity, unrestrained by the educator’s whip. I also took part in school poetry competitions. As time went on, writing lost its sparkle, between book reports and persuasive essays.

Before this one, I started two other blogs. Neither of which lasted past three months. Both of which I started back in college. Looking back no one asked me to start a blog, much less three blogs. But looking back, I attribute each time I started a blog to the professors I had. Particularly by their rare ability to make learning fun and contagious. It was much less the content of each class, but rather, the fact that we graduated each class armed not with just answers, but with two other faculties I found indispensable over the years:

  • The ability to ask nuanced questions,
  • And the ability to find answers and questions to answer those questions.

My senior year in college I had a third catalyst for writing. As you guessed, also inspired by my professor for a class I didn’t have many expectations for when I signed up, despite hearing glowing reviews from my friends. That year I began writing in journals every day. There is no catch. There are no cheat days. We just had to ideate at least once every day. No matter how long or how short it took, once a day keeps the demons away. At the same time, outside of a promise of commitment, there were no rules. There were no rubrics. No one would grade us on how and what we wrote. Full, uncontrolled creative liberty.

It took me about three months. Slowly, but surely, the spark returned. Over time, journaling evolved into blogging. The best part is I don’t even know what the next stage of my Pokemon evolution will look like. I won’t go in depth here on how I journal these days, but if you’re curious…

Over the past year, I’ve had an increasing number of friends and readers reach out to me and ask me how writing comes so easily to me. It sure didn’t in the larger arch of my life. And not, it doesn’t… not always at least. Some days it takes longer than others. But just like how I wake up and exercise first thing in the morning, journaling is a muscle I am training every day, if not multiple times a day. Whether it’s in my journal or on my Google Keep app or on a Notion page.

That said, I think I’m far less coherent as a speaker than as a writer. I’ve had friends and mentors tell me over the years in conversation, “David, you’re not making any sense.” Unfortunately, in more occasions than I would like, I have a feeling of cognitive dissonance when speaking, which I am actively working to mend. After all, I can only hide behind the veil of asynchronicity for so long. Ironically, I’ve been engaging in more and deeper synchronous conversations than asynchronous over the course of the pandemic.

Luckily, I also haven’t gotten writer’s block yet ever since I began this blog. But there have been certain weeks where I’ve been frustrated at the quality of my journal entries. Enough so, that it never makes it onto this blog. So it goes to say, I never run out of ideas; I just sometimes run out of ideas I think are nuanced enough to share. After all, it’s why I started the #unfiltered series. George Orwell once said, “If people cannot write well, they cannot think well. And if they cannot think well, others will do their thinking for them.”

In closing

I never started this blog with the intention of tracking viewership growth. But I’d by lying if I said I wasn’t grateful and elated to see the reception of some of my essays. On days when readers reach out and say thank you, I really believe the sky’s the limit. When I reach out to people I look up to and they mention in our conversation that they enjoy the content I write, I struggle to contain my smile.

My swim coach once asked me semi-rhetorically, “David, why d’ya like to swim?” To which he followed up and said, “You like to swim because you’ve won.” While in terms of numbers I’m still far from “winning”, this modest scope of reception so far only compounds upon my creative joy.

When I pursue any endeavor in my life, I always ask myself: Are there skills, relationships, and/or enjoyment I build that transcend the pure outcome of this endeavor? (Or two cousins of this question here and here.) For this blog, yes. And it boils down to three reasons:

  1. I write to think. It’s a process of self-discovery. On the flip side of the same token, it’s to prevent my prefrontal cortex from atrophying.
  2. Creative joy. There’s something just so satisfying when a blank canvas turns into a cohesive illustration of my mind’s entropy.
  3. And knowing that, no matter how miniscule, it’s inflected a handful of people’s lives upwards. That, and knowing that every so often, somebody out there will smile as they read this.

Photo by Aaron Burden on Unsplash

#unfiltered is a series where I share my raw thoughts and unfiltered commentary about anything and everything. It’s not designed to go down smoothly like the best cup of cappuccino you’ve ever had (although here‘s where I found mine), more like the lonely coffee bean still struggling to find its identity (which also may one day find its way into a more thesis-driven blogpost). Who knows? The possibilities are endless.

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

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