Tag: vc

Posted on

2020 Year in Review

I’ve written 102 essays on this blog in the past year, plus some change, spending an average of 1-2 hours per piece and a range from 30 minutes to 2 weeks. An average of 1,200 words per post. While not mutually exclusive, over half of which were on startup topics. One in three described the venture capital landscape. 36 (excluding #0) #unfiltered blog posts, where I share my raw, unfiltered thoughts about anything and everything. 16 on mental health. A surprising 13 on cold emails and its respective ecosystem. And my first public book review. Some didn’t age well, like The Marketplace of Startups. Some will stay evergreen.

25% of my blog posts I started writing at least 48 hours before the publish date. 1 in every 3 (-ish) of the afore-mentioned, I rewrote because I didn’t like the flow. For every 2 essays I wrote, 1 of which I had to wrestle deeply with the thought of imperfection. In effect, half of my essays were a practice to overcome my own mental stigma of “writer’s block.” Yet after over a year of writing, I realize that I’ve become prouder of my writing than when I started.

So, as the year is transitioning into the next, I thought I’d take some time to reflect on my growth 100 (+2) posts after starting this blog. Let’s call them superlatives.

Top 10 most popular

Ranked by total views per post, the 10 posts readers visit the most.

  1. #unfiltered #30 Inspiration and Frustration – The Honest Answers From Some of the Most Resilient People Going through a World of Uncertainty – I asked 31 people I deeply respect to share some of their greatest drivers and darkest moments in life and how they got through them. You can find part 2 here with 10 more thoughts.
  2. My Cold Email “Template” – My friends have asked me for years what I write in my cold emails, and now, what and how I write my cold outreaches are available for your toolkit.
  3. Fantastic Unicorns and Where to Find Them – An essay on the parameters and the mental models investors use to find “unicorn” startup ideas.
  4. When Investor Goodwill Backfires – What It Means to be Founder-Friendly and Founder-Investor Fit – How founders can do investor diligence before signing the term sheet and also how to best manage founder-investor dynamics
  5. #unfiltered #24 How long do you take to prepare for a talk? – A Study about Time Allocation
  6. How to Build Fast and Not Break (As Many) Things – A Startup GTM Playbook
  7. 10 Letters of Thanks to 10 People who Changed my Life – Every holiday season I write thank you letters to the people I deeply respect. It’s one of the best times of the year to reconnect. These are the letters I wrote in 2019. Here are also some I wrote this year for more context.
  8. #unfiltered #18 Naivety vs Curiosity – Asking Questions, How to Preface ‘Dumb’ Questions, Tactics from People Smarter than Me, The Questions during Founder-Investor Pitch
  9. #unfiltered #11 What I Learned About Building Communities through Social Experiments – Touching Jellyfish, Types of Social Experiments, The Thesis, Psychological Safety and Fairness
  10. The Marketplace of Startups – While many of the remarks on this blog post are now obsolete, largely incited by the 2020 Black Swan event – COVID, the two questions at the end of the blog post are the two I still like to ask founders today.

Personal favorites

While not every one of these got the limelight I had hoped, each of these are ones I felt great pride in being able to write on.

Most challenging to write

I had been wrestling with how vulnerable I can allow myself to be in the public space. Writing this post was frightening, but I’m glad I did. It cascaded into deeper conversations with my friends, colleagues and readers, but also inspired more blog posts after this about mental health.

#unfiltered #26 Am I At My Best Right Now?

In closing

I first started this blog with the intention of chronicling my own learnings in the amazing world of venture. While I couldn’t guarantee it would be helpful to every individual reading my humble meandering, I could, at least, guarantee what I write has been or continues to be instructive for me.

Within the first month it had evolved into an FAQ and a means to provide value to as many founders as I can when one day the number of people I want to help exceed my available bandwidth. Wishful thinking at the time, but a cause that inspired me forward. After the first six months, with the introduction of the #unfiltered series, I began to write to think – a way to flush out simple, unrefined ideas to more robust concepts. While I’ll forever be a work in progress, I began to make new dendrite connections that never existed before. In a way, I was and am still chronicling my own journey in hopes that it will continue to guide people beyond my immediate sphere of influence.

Thank you, each and every one of you, for accompanying me on this journey we took yesterday and the one we’ll take tomorrow. And I hope this cognitive passport will continue to serve as your cup o’ Zhou (/joe/) weekly.

Cheers, and I’m excited for the adventure ahead!

Photo by Ray Hennessy on Unsplash

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

Posted on

How Do We Welcome the Founder Narratives Behind the Curtains

Being a founder is one of the toughest jobs in the world. Resilience and grit are two (or one) of the indispensable traits of a 5-star entrepreneur. And most, if not all, investors establish grit as the baseline in founder selection, as opposed to the topline in various other careers. While I don’t mean to discount other career paths, all of which I have incredible admiration for, I can only speak in the world of venture where I spend most of my time in.

Yet that same persistence could very much be the same double-edged sword that makes or breaks you. In October, Ryan Caldbeck wrote about his decision to step down as CEO of CircleUp. It was and is one of the most candid pieces I’ve read about the founder journey to date. In it, one section particularly stood out. “Persistence was my superpower. But now I’ve now come to understand that persistence is a double-edged sword, and my decision not to take a break, to not take more off my plate, hurt me, my family and the company. That was the biggest mistake of my career.”

In the founder journey, there exist many moments a founder’s resilience is stress-tested. To get their first customer. To scale to a team of 10. 30. 100. To get their first investor. To raise their first institutional round. But the last thing a founding team needs is for some of their greatest evangelists – their investors – to create counterproductive friction. While it’s presumptuous of me to say that all friction is counterproductive, some friction and additional perspective is necessary to help founders make better, more informed decisions.

In his same essay, Ryan shares a feedback email he wrote to his former board member, as that member’s participation in the company had become “counterproductive”, “vindictive”, and even “destructive”. Unfortunately, these stories happen more often than I would like. It is why many founders believe investors are the gatekeepers to their startup’s success. But we’re not. We don’t have the right to be. On the same token, that’s exactly why it’s so important for founders to deeply consider founder-investor fit.

Michael Freeman found in 2017 that entrepreneurs are 50% more likely to report a mental health condition. Being a founder is lonely. But it doesn’t have to be.

Anton Ego’s words

A few weekends back, my friend and I re-watched my favorite movie. And as the movie faded into music, Anton Ego’s words echoed in my head. While it’s not the first time this quote has appeared in the venture world, it certainly won’t be the last:

“In many ways, the work of a critic is easy. We risk very little, yet enjoy a position over those who offer up their work and their selves to our judgment. We thrive on negative criticism, which is fun to write and to read. But the bitter truth we critics must face is that, in the grand scheme of things, the average piece of junk is probably more meaningful than our criticism designating it so. But there are times when a critic truly risks something, and that is in the discovery and defense of the new. The world is often unkind to new talent, new creations. The new needs friends.

“Last night, I experienced something new, an extra-ordinary meal from a singularly unexpected source. To say that both the meal and its maker have challenged my preconceptions about fine cooking is a gross understatement. They have rocked me to my core. In the past, I have made no secret of my disdain for Chef Gusteau’s famous motto: ‘Anyone can cook.’ But I realize, only now do I truly understand what he meant. Not everyone can become a great artist, but a great artist can come from anywhere. It is difficult to imagine more humble origins than those of the genius now cooking at Gusteau’s, who is, in this critic’s opinion, nothing less than the finest chef in France. I will be returning to Gusteau’s soon, hungry for more.”

For VCs

One of my favorite investors often says, “stay positive, test negative.” While the greatest strength an entrepreneur can have may be grit, the greatest strength an investor can have is optimism.

Optimism in the world. In markets. In startups. But especially people. That even if one venture doesn’t work out, for the people I’ve had the opportunity to stand behind, I know one of their pursuits eventually will. It’s only a matter of time and luck.

That same optimism is a leading indicator for open-mindedness. As people who build our careers at the top of the funnel, it is our obligation to cast our net outside of what is most familiar to us. There will be a number of ideas and belief systems entrepreneurs have that challenge our own. And in many ways they should, as founders are on the frontlines of innovation, they are aiming to be “right on the non-consensus“, to quote Andy Rachleff. When I first got into VC, that same investor who said “stay positive, test negative”, shared another word of advice, “Some of the best ideas seem crazy at first.“

George Bernard Shaw once said something similar as well, “The reasonable man adapts himself to the world; the unreasonable one persists in trying to adapt the world to himself. Therefore, all progress depends on the unreasonable man.”

Optimism isn’t only isolated to ideas, but also to the people – the “unreasonable” women and men – behind those ideas and the decisions they make. These innovators aren’t perfect, yet somehow many of us expect them to be. And that dichotomy has created this unfair dynamic that stunts innovation more than we think. I have so much respect for the funds that have set aside capital to invest in founders’ wellbeing, like Felicis Ventures, Freestyle, Crosscut, and more. And I hope many more will follow.

The stories we tell

Over the past few months, I’ve had a number of conversations with founders, friends, and readers about “mental fitness” and “emotional hygiene”. If I could borrow two of my friends’ vernacular. And I’ve learned that we humans are such amazing storytellers.

These powerful narratives has kept the human race alive all these millennia. Before the written word, it was the art of the spoken word, passed down from generation to generation, that held tales of ancestral origins of where to hunt and where to migrate to each season. The same stories have started and ended wars. They have helped us conquer impossible odds. Some narratives today are compelling enough for us to buy a new product or to end a conglomerate.

Yet these exact stories, especially the ones we tell ourselves, can cause stress, anxiety, and depression. The ones that the people we care about and respect tell us can carry even more weight. From role models, parents, managers, friends, mentors, teachers, peers, and more.

In closing

I realized, in conversation, these past few autumn months, more than ever, the power of sharing those stories. To share that we’re not alone and that together, we may learn more than the sum of our individual parts. I understand that it’s no easy task. Even for myself, I debated for the longest time whether to share that I’m not at my best right now. But I’m glad I did. The feedback from the people around me I’ve gotten since brought forth clarity and solace. Similarly, six of my friends, who publicly shared how they get through their toughest times (Pt 1, Pt 2), told me after how grateful they were to have an enormous weight lifted off their shoulders.

Top photo by Nong Vang on Unsplash

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

Posted on

When Investor Goodwill Backfires – What It Means to be Founder-Friendly and Founder-Investor Fit

A few Fridays ago, I had the fortune of reconnecting with a founder, backed by some of the most recognizable names in the Valley and exited his business last year to a juggernaut in the data space. Now working on his second startup. And he brought something extremely curious to my attention. “Investors shouldn’t be too founder-friendly.”

I’ve talked to hundreds of founders and seen thousands of pitch decks in my short 4 years in venture capital. Yet, that Friday was the first time I’d ever heard that. And it was too bizarre for me not to double-click on. The fact that the sentence also came out of a founder’s mouth and not an investor’s bewildered me even more.

Continue reading “When Investor Goodwill Backfires – What It Means to be Founder-Friendly and Founder-Investor Fit”
Posted on

#unfiltered #33 Inspiration and Frustration Pt. 2 – What Drives Some of the Most Resilient People Forward

A few weeks ago, I published Part 1 of this post on inspiration and frustration. In that time, its reception has been uplifting. Easily my most popular and well-received blog post to date. It also happens to be one of my favorite posts to have published so far. So, I thought I’d continue to ask people about their cocktail of emotions now, the below two questions:

  1. What is the one thing that inspires you so much that it makes everything else in life much easier to bear?
  2. What is stressing/frustrating you so much right now that it seems to invalidate everything else you’re doing?

But, each person can only choose one of the above two questions to answer.

Three of the below candid responses are people I asked from the first cohort, while the other eight are people I thought would add a new degree of freedom on perspective. All of which were drawn more to their inspiration than their frustration.

And as such…

  1. It takes a lot of things to inspire and motivate… rather than one individual thing. – Model, writer, founder
  2. I’m inspired to have a hand in making the world better for everyone through technological progress! – Venture capitalist
  3. I’ve made friends with a girl from my neighborhood grocery store and a stranger opened a door wide for me so I could run towards the train and not miss it. – Founding partner/CEO, investor, community manager
  4. When you start to understand that life is bigger than just you and me, there’s a shift in perspective that brings meaning and purpose to our lives. – Zynara Ng, public speaking coach, video producer, TED speaker
  5. We have the means to weather our current circumstances. – Business professor, consultant
  6. We have struggled to find an extremely valuable and painful problem to start with. Nevertheless, someone will figure it out. Why not me? – Startup founder
  7. We just got a new addition to our family. […] I look forward to future conversations about life and deep topics with him, just like this one! – Startup founder, podcast host
  8. We just tend to judge ourselves more harshly because we have our entire past and lived traumas that we judge ourselves by. – Senior policy aide
  9. Their thank you letters, pictures, and stories of how Vinder has changed or saved their business/life solidifies to me that I’m on the right path. – Sam Lillie, startup founder, hiker
  10. Since this goal is so long term and grand, it’s easy to realize that small things don’t matter. – Sohum Thakkar, engineer
  11. In a world that falls short of showing us unconditional love, I can live my life in such a way that I can be that source of acceptance that others need. – Engineer, writer
Continue reading “#unfiltered #33 Inspiration and Frustration Pt. 2 – What Drives Some of the Most Resilient People Forward”
Posted on

Before the Close – How to Increase the Chance of Raising Capital

A number of founders ask me for fundraising advice. While they come in different magnitudes, one of the common themes is: “I’ve had many investor meetings, but I still can’t get a term sheet. What am I doing wrong? What do I need to do or to say to get a yes?”

To preface, I don’t have the one-size-fit-all solution. Neither do I think there is a one-size-fit-all solution. Each investor is looking for something different. And while theses often rhyme, the “A-ha!” moment for each investor is a culmination of their own professional and life experiences. This anecdote is, by no means, prescriptive, but another perspective that may help you when fundraising, if you’re not getting the results you want. This won’t help you cheat the system. If you still have a shoddy product or an unambitious team, you’re still probably not going to get any external capital.

One thing I learned when I was on the operating side of the table is: When you want money, ask for advice. When you want advice, ask for money. It’s, admittedly, a slightly roundabout way to get:

  1. Investor interest,
  2. And reference points for milestones to hit.

But it’s worked for me. Why? Because you’re fighting in a highly-competitive, heavily-saturated market of attention – investor attention. This method merely helps you increase the potential surface area of interaction and visibility, to give you time in front of an investor to prove yourself.

Investors are expected to jump into a long term marriage with founders, while, for the most part, only given a small cross-section in your founding journey to evaluate you. It’s as if you chose to marry someone for life you’ve only met 60-90 days ago. While angels and some people have the courage and the conviction to do that, most investors like to err on the side of caution. Contrary to popular belief, venture capitalists are extremely risk-averse. They look for risk-adjusted bets. And if you can prove to them – either through traction or an earned secret – that you’re not just a rounding error, you’ll make their lives a lot easier.

So, let me elaborate.

When you want money, ask for advice.

As you’re growing your business and you want to show you are, ask investors for advice. Tell them. “So I’ve been growing at X% MoM, and I’ve gotten to Y # of users. I’m thinking about pursuing this Z as my next priority. And this is how I plan to A/B test it. What do you think?”

And if you keep these investors in the loop the entire time and ask and follow-up on their advice, at some point, they’d think and ask, “Damn, this is an epic business. Will you just take my money?”

So, what are good numbers?

The Rule of 40 is a rough rule of thumb many investors use for consumer tech markets. Month-over-month growth rate plus profit should be greater than or equal to 40. So you can be growing 50% MoM, but burning money with -10% profit, aka costs are greater than your revenue. Or you can be growing 30% MoM, but gaining 10% profit every month. And if you’ve got 10s of 1000s of users, you’re on solid ground. Better yet, one of the biggest expenses is increasing server capacity costs.

For more reference points on ideal consumer startup numbers, check out this blog post I wrote last year.

For enterprise/B2B SaaS, somewhere along the lines of 10-15% MoM growth. With at least 1 key customer logo. And 5 publicly referenceable customers.

Of course, the Rule of 40 did not age well for certain industries in 2020.

When you want advice, ask for money.

When you ask for money most of the time, investors, partners, and potential customers will say no, especially if you’re super early on and don’t have a background or track record as an entrepreneur. So when they do say no, I like to ask them one of my favorite questions: “What do I need to bring you for you to unconditionally say yes?” Then, they’ll tell me what they want to see out of our product or our business. These, especially if they’re reinforced independently across multiple different individuals in your ecosystem, should be your North Star metrics. And when you do put their advice to action, be sure to follow up with the results to their implemented advice.

  1. You either do what they recommended. And show them what happened. And what’s next.
  2. Or you don’t do what they recommended. But show that you heavily considered their recommendation. What you did instead. Why you chose to do what you did instead. And what’s next.

To take it one step further, once I ask the above question to have a reference point for growth trajectory, I ask: “Who is the smartest person(s) known to achieve X (or in Y)?” with X being the answer you got via the previous question. And Y being the industry you’re tackling.

For instance, I’d recommend:

Then, go to that person or those people and say, “Hey Jennifer, [investor name] said if there’s one person I had to talk to about X, I have to talk to you.” Feel free to use my cold email “template” as reference, if you’re unsure of what else to say.

If you use this tactic again and again, eventually you’ll build a family of unofficial (maybe even official) mentors and advisors, even if you never explicitly call them that. Not necessarily asking for money all the time. But asking for money might help you ignite the spark for this positive feedback loop.

In closing

When I was on the operating side, a brilliant founder with 2 multi-million dollar exits once told me: “Always be selling. Always be fundraising. And always be hiring.”

I didn’t really get it then. In fact, I didn’t get it the entire time I was on the other side of the table. What do you mean “Always be fundraising”? Should I just be asking for money all the time? What about the business?

It wasn’t until I made my way into VC at SkyDeck that I realized the depth of his words. Keep people you eventually want to fundraise from and hire in the loop about what you’re building. Keep them excited. Build a relationship beyond something transactional. Build a friendship.

Jeff Bezos put it best when he said:

“If everything you do needs to work on a three-year time horizon, then you’re competing against a lot of people. But if you’re willing to invest on a seven-year time horizon, you’re now competing against a fraction of those people, because very few companies are willing to do that.

“At Amazon we like things to work in five to seven years. We’re willing to plant seeds, let them grow and we’re very stubborn. We say we’re stubborn on vision and flexible on details.”

Photo by Frame Harirak on Unsplash

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

Posted on

Fantastic Unicorns and Where to Find Them

As a venture scout and as someone who loves helping pre-seed/seed startups before they get to the A, I get asked this one question more often than I expect. “David, do you think this is a good idea?” Most of the time, admittedly, I don’t know. Why? I’m not the core user. I wouldn’t count myself as an early adopter who could become a power user, outside of pure curiosity. I’m not their customer. To quote Michael Seibel of Y Combinator,

… “customers are the gatekeepers of the startups world.” Then comes the question, if customers are the gatekeepers to the venture world, how do you know if you’re on to something if you’re any one of the below:

  • Pre-product,
  • Pre-traction,
  • And/or pre-revenue?

This blog post isn’t designed to be the crystal ball to all your problems. I have to disappoint. I’m a Muggle without the power of Divination. But instead, let me share 3 mental models that might help a budding founder find idea-market fit. Let’s call it a tracker’s kit that may increase your chances at finding a unicorn.

  1. Frustration
  2. The highly fragmented industry with low NPS
  3. Right on non-consensus
Continue reading “Fantastic Unicorns and Where to Find Them”
Posted on

The Double-Edged Sword of Transparency, when Fundraising

In the venture world, startups have another alias. 10-year overnight successes.

For the majority of the world, we hear about startups through a Thursday morning TechCrunch article or by way of the Friday Happy Hour gossip stream. Well, okay, I’m not being time sensitive. We’re not going out for Friday night happy hours these days. But we might spy something in our social feeds after a startup hits 5 million users or they just raised $50 million from a top-tier venture firm.

And these TC or Forbes or NY Times articles paint these founding CEOs to almost be perfect individuals. Good news. They’re not. They’re human – just like you and me. Over the years, the more I’ve gotten to know these leaders, the more I realized how similar we are. How similar they were when they were where I am today. And even now, how they still feel the unease in the uncertainty in the world. My study last week on how people are living through the pandemic – what inspires them or what frustrates them – further illustrated our similarities. An animator who’s fought against doubt. An executive who lost his grandpa, broke up, and felt lost in the corporate politics. A founder who was forced to make the tough decision of leaving his team. And much more.

What’s that one analogy people use again – to show that everyone is living a life we know nothing about?

A duck, above the surface, perfectly calm and composed. Underwater, furiously paddling to stay afloat.

The double-edged sword

The good news is that most VCs know that founders aren’t perfect human beings. The bad news is the irony. On one hand, they know that founders aren’t perfect and should be willing to be vulnerable. On the other hand, too much vulnerability means that VC’s say, “I’m out.”

In many cases, investors may seem hypocritical. And arguably, there’s a handful of them who don’t even know what they’re looking for themselves. Yet, in most scenarios, the bargaining chip is on the investors’ end. Not with the founders. It’s frustrating. I know. I’ve talked to founders and will continue to talk with founders who feel that way. So, what is that fine line between the showing “perfection” and embracing imperfection?

Making the blade that works for you

When founders ask, this is what I tell them.

  1. Be upfront with your investors if you’re incompetent on an aspect or aspects of the business.
  2. Show them you’re competent… in finding a way to be competent.

Be upfront with your investors if you’re incompetent on an aspect or aspects of the business.

Address the elephant in the room. If you don’t bring it up, they’re bound to ask. Or worse yet, if they don’t ask, it’s going to be gnawing at them in their minds. And may end up being the main contributing factor to a “No”.

Show them you’re competent… in finding a way to be competent.

Early-stage VCs usually take between 2-4 months before they go from “Hi, my name is Buttercup” to “Take my money”. And here are the steps:

  • Coffee chat, aka “Hi, my name is Buttercup” (If you’re wondering why “Buttercup”, there’s a story behind there, but another day. Or if anyone’s dying to know, DM me or ask me in the comments below.)
  • 2nd meeting with same individual partner (maybe a +1)
  • Full partnership meeting
  • Diligence
  • Term sheet, aka “Take my money”

Lesson 1: Don’t skip steps (for the most part). What do I mean? When you’re having a coffee chat, your goal should not be to get a term sheet there. Your goal is should be to get to meeting 2. Think of it like a sales funnel.

Lesson 2: Learn and grow during the time you get to know an investor. Doers > thinkers. Hustle. Be scrappy, resourceful. At each step, the VC(s) are evaluating if you have the acumen, competency, and what Sequoia Capital calls it – a bias towards action.

Let’s analogize with the equation of a line: y = mx +b. We measure a founder’s competency not just at “b”, but a greater emphasis on “m”. And over the course of the time we get to know each other, if a founder can prove that to us. For me, after the first meeting, I usually give a couple pieces of advice. “Oh, you should really talk with Sarah. She’s really good at sales.” Or. “Have you thought about this UX improvement in the user journey?”

What I’m looking for, by the time we have our second meeting, is what have they done in the mean time. And for a great founder, there are 2 possibilities:

  1. They acted on the advice, and they come back with the results.
  2. They heavily considered the piece of advice. Did something else. Explained to me why they did something else. And also share the results of that decision.

In both scenarios, they have new results by the time we meet. They don’t have to be “right”, as if I’m even a person who can evaluate what’s right versus wrong. But they do have to learn fast. Hustlers make mistakes. And through the mistakes, they learn. Fast. It’s a preamble to what working with a VC looks like.

If you’re curious, Chris Moody at Foundry Group has a brilliant 3-part series of why you shouldn’t take money from a VC. In his first reason to not, if you want to build a lifestyle business. Otherwise, you’ve got to learn fast and be scrappy.

Here’s an example of scrappiness

When I was an operator, we were strapped for cash and looking for cash, so we didn’t have much of a budget for marketing and advertising. Admittedly, we also didn’t really know how to market the business. Minus a few theoretical classes, we knew nothing.

We used free student printing (for us up to 10,000 pages) to print out flyers we made by ourselves. Given that our audience included both SMBs and millennial/Gen Z’s looking for jobs, as much as we wanted to flyer to college students at the plaza or in front of local businesses, we knew it wouldn’t be smart. ’Cause everyone else was doing so.

So then it came down to the question: where do people have plenty of attention to spend but have not yet been saturated with information. For us, it was the bathroom. Specifically, in the stalls. When you’re locked inside the bathroom, doing your business, you either look at the door in front of you and/or at your cellphone. And the doors were often blank canvases. So we decided to stick our flyers on the backsides of these stall doors – both in the dorms and in public restrooms, which inevitably got our websites 10s of 1000s of views early on.

That said, the janitorial staff tore down our flyers every night at 11pm. So we had to be back on the streets and sticking in flyers in public and dorm bathrooms every morning at 5am. And it so happens, I once talked to one of the university’s janitorial staff members and he actually said thanks. Since he found his new job via a flyer he kept having to rip off.

As the economist Herbert A. Simon says, “a wealth of information creates a poverty of attention.” As an entrepreneur, you’re looking for the margins, where there is a poverty of information and a wealth of attention.

In closing

I can only speak from my perspective and what I seek in founders. But having talked and learned from a number of investors who have a track record for returning >5x MOIC (multiple on invested capital), I know I’m not alone.

It’s okay to be vulnerable of the potholes ahead – to not know how to do certain things. We’re human. It’s okay. But show that you have at least have a hypothesis on how to learn those things.

Photo by Ricardo Cruz on Unsplash

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

Posted on

Myths around Startups and Business Ideas

In a number of recent conversations with friends outside of venture and “aspiring entrepreneurs”, a couple myths, which I’m going to loosely define here as popular beliefs held by many people, were brought to my attention. 4 in particular.

  1. If I have a great idea and build it, it’ll sell itself.
  2. That idea/startup is over-hyped.
  3. The startup/venture capital landscape is over-saturated.
  4. If it doesn’t make sense to me, it’s not a good idea.

Quite fortuitously, a question on Quora also inspired this post and discussion.

If I have a great idea and build it, it’ll sell itself.

Unfortunately, most times, it won’t. As Reid Hoffman puts it: “A good product with great distribution will almost always beat a great product with poor distribution.” As a founder, you have to think like a salesperson (for enterprise/B2B businesses) or a marketer (for consumer/B2C businesses). People have to know about what you’re building. ’Cause frankly you could build the world’s best time machine in your basement, but if no one knows, it’s just a time machine in your basement. Probably a great story to tell for Hollywood one day (even then you still need people to find out), but not for a business.

That idea/startup is over-hyped.

I’ll be honest. This really isn’t a myth, more of a common saying.

Maybe so, at the cross-section in time in which you’re looking at it. But if you rewind a couple months or a year or 2 years ago, they were under-hyped. In fact, there’s a good chance no one cared. While everyone has a different technical definition of over- and under-hyped, by the numbers, time will tell if it’ll be a sustainable business or not. If it’s keeping north of 40% retention even 6 months after the hype, we’re in for a breadwinner.

Take Zoom, for example. Pre-COVID, if you asked any rational tech investor, “would you invest in Slack or Zoom?” Most would say Slack. Zoom existed, but many weren’t extremely bullish on it. Today, well, that may be a different story. As of this morning (Oct. 12, 2020), while I’m editing this post before the market opens, the stock price of Zoom is $492 (and same change). Approximately 343% higher than it was on March 17th, the first day of the Bay Area shelter-in-place. And, right now, the price of Slack is $31. Approximately 56% up from the beginning of quarantine.

Neither are startups anymore, but the analogy holds. Also, a lesson that predictions, even by experts, can be wrong.

The startup/venture capital landscape is over-saturated.

“There’s too much money being invested (wasted) on startups.”

From the outside, it may very well look that way. Every day, every week we see this startup gets funded for $X million or that startup gets funded for $YY million. According to the National Venture Capital Association (NVCA), $133 billion were invested into startups last year. Yet, it pales in comparison to the capital that’s traded in the public markets.

VC funds see thousands of startup pitches a year. Per partner (most funds 2–3 partners), they each invest in 3–5 per year (aka about once per quarter). Meaning >99% of startups that a single VC sees are not getting funded by them. That doesn’t mean 99% never get funded, but it’s just to illustrate that proportionally, capital isn’t being spent willy-nilly.

If we look at it from a macro-economic perspective, if we are reaching saturation in the startup market, we should be getting closer to perfect competition. And in a perfectly competitive market, profit margins are zero. The thing is profits aren’t nearing zero in the startup/venture capital market. In fact, though the median fund isn’t returning much on invested capital. A good fund is returning 3–5x. A great one >5x. And well, if you were in Chris Sacca’s first fund, which included Uber, Twitter, and more, 250x MOIC. That’s $250 returned on every $1 invested.

If it doesn’t make sense to me, it’s not a good idea.

Finding Product-Market Fit and “Idea-Market Fit”

Revolutionary ideas aren’t meant to conform. If an idea is truly ground-breaking, people have yet to be conditioned to think that a startup idea is great or not. As Andy Rachleff, co-founder of Wealthfront and Benchmark Capital, puts it: “you want to be right on the non-consensus.” Think Uber and Airbnb in 2008. If you asked me to jump in a stranger’s car to go somewhere then, I would have thought you were crazy. Same with living in a stranger’s home. I write more about being right on the non-consensus here and in this blog post.

Frankly, you may not be the target market. You’re not the customer that startup is serving. The constant reminder we, on the venture capital side of the table, have is to stop thinking that we are the core user for a product. Most products are not made for us. Equally, when a founder comes to us pre-traction and asks us “Is this a good idea?”, most of the time I don’t know. The numbers (will) prove if it’s a good idea or not. Unless I am their target audience, I don’t have a lot to weigh in on. I can only check, from least important to most important:

  1. How big is the market + growth rate
  2. Does the founder(s) have a unique insight into the industry that all the other players are overlooking or underestimating or don’t know at all? And will this insight keep incumbents at bay at least until this startup reaches product-market fit?
  3. How obsessed about the problem space is the founder/team, which is a proxy for grit and resilience in the longer run? And obsession is an early sign of (1) their current level of domain expertise/navigating the “idea maze”, and (2) and their potential to gain more expertise. If we take the equation for a line, y = mx + b. As early-stage investors, we invest in “m’s” not “b’s”.

In closing

While I know not everyone echoes these thoughts, hopefully, this post can provide more context to some of the entrepreneurial motions we’re seeing today. Of course, take it all with a grain of salt. I’m an optimist by nature and by function of my job. Just as a VC I respect told me when I first started 4 years back,

“If you’re going to pursue a career in venture, by nature of the job, you have to be an optimist.”

Happened to also be one of the VCs who shared his thoughts for my little research project on inspiration and frustration last week.

Photo by K. Mitch Hodge on Unsplash

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

Posted on

#unfiltered #30 Inspiration and Frustration – The Honest Answers From Some of the Most Resilient People Going through a World of Uncertainty

A few weeks ago, around the time I published Am I At My Best Right Now?, I started noticing more and more that my friends, colleagues, and people that I’ve met since were going through tough times. Two lost a family member. Some were laid off. Two were forced to leave this land I call home. Four broke up. Three burned out. Countless more told me they were stressed and/or depressed, and didn’t know how to escape this limbo. After I published that post, another handful of people also reached out and courageously shared the troubles they are going through now. How it’s been so hard to share with others. And yesterday, while editing this blog post, I found out that one of my high school friends had passed.

Inspiration and Frustration

During this time, I had a thought: Frustration is the absence of inspiration. There were many times in my own life when I was beating myself up because I couldn’t think of a solution. And a small percent of those times, I didn’t even bother to think of a solution since I was so engrossed in my frustration with myself.

In these unprecedented times and inspired by the conversations around me, I decided to show that we’re not alone. So, I asked people who I deeply respect and who could shed light as to what it means to be human. I asked just two questions, but they were only allowed to answer one of them:

  1. What is the one thing that inspires you so much that it makes everything else in life much easier to bear?
  2. What is stressing/frustrating you so much right now that it seems to invalidate everything else you’re doing?

In turn, they responded via email, text, or on a phone call. Of the 49 I asked, so far, 31 responded with their answers. 4 politely turned me down due to their busy schedules. Another one turned me down because she didn’t feel like she could offer value in her answer.

26 responded with what inspires them. 5 with what frustrates them. All of whom I know has been through adversity and back.

Admittedly, the hardest part about this study was how I was going to organize all these responses. Unlike the one about time allocation I did over a month ago, where I knew exactly how to organize the data before I even got all the responses, this one, I really didn’t know how to best illustrate the candor everyone shared. In fact, I would be doing a disservice to them, if reduced their honesty and courage to be vulnerable to mere numbers. So, in the end, below, I let everyone speak for themselves. Sometimes, simplicity is the best.

Thank you to everyone who contributed to making this blog post happen, including Brad Feld, Mars Aguirre, Shayan Mehdi, Thomas Owen, Chris Lyons, Mark Leon, Jamarr Lampart, Christen Nino De Guzman, Louis Q Tran, Sam Marelich, Dr. Kris Marsh, Quincy Huynh, DJ Welch, Jimmy Yue, and many, many more heroes who helped me and the world around us behind the curtains.

Continue reading “#unfiltered #30 Inspiration and Frustration – The Honest Answers From Some of the Most Resilient People Going through a World of Uncertainty”
Posted on

How to Identify Market Opportunity and Recognize Market Inefficiencies

round gold colored pocket watch

I was raised a swimmer. From 4 years old, my parents sent me to take swimming classes for 2 primary reasons:

  1. Learn how to not drown.
  2. If we (my parents) are ever going to drown, you’re going to save us.*

*Note: I’d like to point out the irony is that both of parents know how to swim themselves. Not at a competitive stage, but enough to survive from drowning.

Oddly enough, I learned how to swim by drowning. Over the years, like many other children around me, on top of swimming, I also played ball in its various sizes and ran. And I learned that swimming and running are of the 2 purest forms of athleticism and exercise out there. There’s very little margin for error, if any. A tenth of a second is the difference between Olympic gold and not even qualifying for the semifinals. Because of that, in swimming, we’re taught to be efficient. We learned to maximize for our distance per stroke (DPS). And I believe in running, it’s distance per stride.

Efficiency. The ability to do more with less.

The market of efficiency

These days, getting from point A to B isn’t as difficult as it used to be. Cars made travelling miles easier. Planes, for hundreds to thousands of miles. Bikes and scooters, for last mile transportation – distances too close to drive, but take twice as long to walk. Outside of transportation, career development, information and skill acquisition have all seen massive developments not only in the last hundred years, but especially in the last 10 years. Online platforms, like Coursera, Masterclass, Google, and Wikipedia, helped us all shave off months, years, even generations of legwork and information acquisition. They made so many things more accessible.

Accessibility

Accessibility is platformitizing and democratizing information. What Yellow Pages did for services. Reddit for knowledge acquisition. Amazon for shopping. Google for information. And Food Network and food media did for cooks. The average person today is more knowledgeable about the culinary process and its accessories than someone two decades back. Laughable now, but 8 years ago, it’s how I learned not to burn frozen pizza. I could go on and on.

But, in the next ten years, accessibility may not be enough. Though there are many populations in this world who still have yet to access the knowledge I can readily find on my laptop, accessibility provides people with the tools, but not the means to use those tools effectively.

Ease

Ease does. Lower the barriers to entry and bundle the entire knowledge acquisition, or otherwise, what I would call onboarding, in an intuitive manner. Like what WordPress did for websites. Instagram for photos. Opendoor for home-buying/selling. TurboTax for, well, tax.

It’s a messy web of information out there. As economist Herbert A. Simon puts it:

“A wealth of information creates a poverty of attention.”

Here’s an easy way to tell which industries and processes lack ease. Find where people have created hacks to solve a problem.

  • Using multiple tools/software to solve a single problem;
  • Using a “temporary” solution to solve a repetitive problem. Like a basin to catch the rainwater that leaks through the roof;
  • A public forum, like Reddit or a Facebook group or multiple similar questions on Quora, where people share their “life hacks”.
  • A How-to YouTube video that has tens/hundreds of thousands, if not millions, of views.

And to know if you hit the nail on the head, you’ve got crazy pull. Product-market fit. PMF. When you don’t even have the luxury of time to worry if you have PMF ’cause your customer success inbox/sales inbox is filled to the brim. Or you’re getting so many new users that you’re figuring out how to upgrade your servers before your servers go blank. For more on PMF, I highly recommend checking out Lenny Rachitsky‘s recent post surveying 25 of the most successful companies on when they realized they had PMF.

In closing

Tools and platforms that make it easier for an individual to go the distance, to be more efficient, carry 2 traits: accessibility and ease. With each stroke, with each action one takes, they can go further. They can do more. With less. Technology, in the incoming years, will further do so.

And as a VC scout, I look for, what I call – distance per action. Or DPA, for short. So, if you’re working on something that will enable people to have higher and greater DPAs, I wanna talk.

Photo by David Bartus on Pexels.com

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

Proudly powered by WordPress