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The Day I Had To Wear Pants To Ring The IPO Bell

The Day I Had To Wear Pants To Ring The IPO Bell Onstartups Nov 20, 2014

It's #TBT. It's been a busy and exciting several months.

How VCs Think About Adding New Partners

How VCs Think About Adding New Partners Bothsidesofthetable Nov 13, 2014

Let me start with the news that I’m excited to sh […]

If I was an Uber investor... (besides the obvious fact that I'd be rich.) Thisisgoingtobebig Nov 19, 2014

I like Uber as a service. It just works.

I also like the fact that it seems to provide a lot of work for a lot of otherwise underemployed people. All of the drivers I've spoken to have said nothing but good things about it. They seem to like getting the work.

Do I think that all of the executives are bad people? No. In fact, I like all the people I know somewhat well who work there. However, it does seem like the company has a culture problem that results in bad incident after incident.

The culture seems to create a situation where bad ideas seem to fester--where "What's cool at this company?" results in very little hesitation around doing some pretty dumb things.

The press about it has gotten so bad that we may actually be getting to the point where you might not want "Uber investor" in your bio. Despite the fact that it's going to be a hugely successful company, current investors may be experiencing diminishing marginal returns for being associated with Uber.

For example, are we getting to the point where the Sarah Lacy incident gets so bad where female entrepreneurs, for example, stop pitching Uber's investors? Could we? If not, then what about when the next incident pops up--especially now that people are looking for the company to trip up. They're under a microscope now.

So what would I do if I were an investor whose name is now being dragged along in the mud with all of these things?

I'd bow out.

I'd negotiate a sale of my shares and then, without weighing in on the situation in detail, just say something really basic like, "We are no longer shareholders in Uber, but wish the company the best going forward."

Everyone would know exactly why I did it and I wouldn't need to say anything more.

What would be the fallout?

First, it would undoubtedly piss off Travis, Uber's founder--but what's the repercussion there? Statistically, he's not likely to start another billion dollar company later on--so if I don't get into his next thing, [...]

Why Entrepreneurs Should Be Respected More Than Loved Bothsidesofthetable Nov 17, 2014

One of the vivid memories I have from being a startup C […]

Valuing My Own Time and Saying No Thisisgoingtobebig Nov 17, 2014

The other day, I got a note asking whether I'd be willing to meet some "Head of New Things" at a big telecom.

That wasn't their actual title, but it was something like that.

You've met them before. They're new to the gig, super excited about all its potential, and getting out there selling founders hope for that one big gamechanging deal.

But I've seen this movie before, so here's how I responded:

"Hi!

To be honest, these meetings never really work out and I've decided they're just not worth spending the time anymore. There's so much corporate bureaucracy in telco, and they can never actually get anything done. They just move too painfully slow to work with startups.

I'm sure this is a lovely human being that means well, but it's kind of like getting an invite to a dance party in quicksand.

I like a good dance party, but... well... quicksand.

As always, I hope you are doing amazingly.

Charlie"

Funny enough, I ran into that person later that day and they said they totally understood and actually really liked the note. I think it encouraged them to say no more often.

The most precious commodity I have, especially as a one person firm, is my own time. That's really all I have to give to the founders I back. Sure, I write a check, but anyone can do that.

If I'm going to be effective, I have to be very careful about how I dole out my time and where it goes. Therefore, I've had to do a lot of saying no to requests for my time. Here are a bunch of things I don't do:

I won't do office hours anymore at incubators and accelerators. You know those meetings where you get this endless parade of companies sitting with you for 20 minutes each? I just don't think those are good for anyone. It skips the whole vetting process for me--so I wind up giving time to a bunch of companies whose business model I might find problematic from the get go. I'd rather get a list of all of the companies and then pick and choose who I'm actually interested in. [...]

The Silent Killer – The Company Your Community Never Created Bothsidesofthetable Nov 16, 2014

I was at a dinner recently in Chicago and the table dis […]

There are No Gatekeepers Thisisgoingtobebig Nov 12, 2014

One of the underlying dynamics I see in the venture capital, tech, and startup world--and where some of its worst behavior comes from--relates to underlying assumptions about power and influence. Founders put up with bad VC behavior because they think a check from a certain investor is going to make or break their company. VCs bend their rules with certain founders because they think this will be the one deal that got away--rules about oversight, governance, valuation, etc.

Even in the talent market, startup employees make too many consessions around culture and environment because they worry about what it will look like if they leave somewhere too early. Founders hiring top talent get desperate about it and make those same tradeoffs.

Let me be the one to say that there isn't any one single person in the entire world that you *need* to work with who is going to make or break your business or career--and certainly not at the expense of respect or your values.

You think VCs are important or influential? Bullshit. They sell you money, and there's lots of it in the world. If one VC or angel is willing to fund you then another one will. Don't be afraid to turn down money if you don't think you're on the same page with someone in terms of goals, values, or character.

I had an investor reach out to me yesterday--no intro, no context--just asked to meet. I didn't even know he was an investor because all he wrote was "I want to learn about what you're doing." Like, that's literally all he wrote--just demanded my time. Then he got annoyed when I asked who he was and how I could be helpful. "Well, if you bothered to look at the e-mail address, you could have figured it out."

Dude, really? I ain't got time for that.

I don't want to work with an investor who thinks that money should just open doors. My time isn't for sale. It belongs to my founders. The really great thing about my fund now is that my investors are absolutely wonderful, respectful people. I had [...]

Why You Don’t Want to Give Financial Information to All of Your Investors Bothsidesofthetable Nov 9, 2014

We all know that funding markets have changed for start […]

The Case for Optimism and Risk at Startups

The Case for Optimism and Risk at Startups Bothsidesofthetable Nov 5, 2014

Last week a company we enthusiastically backed, uBeam, […]

Why ADD Might Actually Benefit Startup Entrepreneurs

Why ADD Might Actually Benefit Startup Entrepreneurs Bothsidesofthetable Nov 3, 2014

This weekend I was reading the NY Times online and I ca […]

The Thin Skin of the Venture Capital Market Thisisgoingtobebig Nov 3, 2014

The other day, I saw that one of my favorite products, Slack, just raised $120mm at a $1.12 Billion valuation. The company is doing about a million a month in recurring revs.

Personally, I think it was kind of a bad idea--not necessarily because of the valuation, but because it seems like $120mm is way too much money for a software company at this stage, especially one that might even be cashflow positive right now. I think it's likely that it will unfocus the company and what it definitely does is eliminate the possibility of exiting for anything less than two and a half billion dollars. That is likely to lead to decisions that might not be in the best interest in the company or the users.

So that's what I wrote on Twitter...

Love Slack, but $120mm and a $1B valuation at this point will almost certainly lead to lack of focus and less than optimal decision making.

— Charlie O'Donnell (@ceonyc) November 1, 2014

And then I promptly got Twitter flack from one of the people who works at one of the company's investors. They seemed annoyed that I said anything in the first place.

What was said, who's right, etc., doesn't much matter. The fact is, it's just not cool to criticize the investing side of the venture capital market.

Which is why I'm sure the dude who picked apart the physics of the latest round of UBeam will undoubtedly get eviscerated in the tweet and blog world.

"...Here’s the problem. IT’S AN IMPOSSIBLE IDEA. Having done my share of ultrasound physics AND wireless charging work in the past, the first thing that struck me about the idea was that, to transmit any appreciable amount of energy through sound waves, those waves would likely burn you, or at least deafen you, and any other small animals in the vicinity. This is why charging is currently done inside copper wires surrounded by plastic - so you don’t get hurt!

I’m no physicist - oh, wait, I am..."

Now, I know the company and while I'm actually [...]

Why messaging apps are so addictive (Guest Post)

Why messaging apps are so addictive (Guest Post) Andrewchen Nov 4, 2014

[Andrew: This guest post is written by my friend and former Palo Alto running partner, Nir Eyal. Messaging apps have been a fascinating area within mobile, and the big reason for it is that the metrics - especially engagement - have been amazingly strong. I asked Nir to write a bit about why this might be […]

The post Why messaging apps are so addictive (Guest Post) appeared first on @andrewchen.

The Audacious Plan to Make Electricity as Easy as WiFi

The Audacious Plan to Make Electricity as Easy as WiFi Bothsidesofthetable Oct 30, 2014

When I first met Meredith Perry she was 24. That was th […]

Here’s How to Do PR on a Budget Bothsidesofthetable Oct 27, 2014

Yesterday I wrote a post about The Silent Benefits of P […]

10 Tips For A Successful Startup Job Search Onstartups Oct 23, 2014

This following article is a guest post by Rick Burnes. Rick is the VP of Content Products at BookBub. You can follow him on twitter: @rickburnes.

Startup job searches are hard. There’s more risk (most startups fail!), there’s less information and the best opportunities are sometimes hidden and hard to find.

So how do you navigate a startup job search successfully?

The Silent Benefits of PR

The Silent Benefits of PR Bothsidesofthetable Oct 25, 2014

I’ve been having this PR discussion with three se […]

A Seriously Great Story and Why We Funded Them

A Seriously Great Story and Why We Funded Them Bothsidesofthetable Oct 19, 2014

We are often asked how companies get funded, why VCs ma […]

IAC’s HowAboutWe co-founder: How to Avoid Delusional Thinking in Start-up Growth Strategy (Guest Post)

IAC’s HowAboutWe co-founder: How to Avoid Delusional Thinking in Start-up Growth Strategy (Guest Post) Andrewchen Oct 13, 2014

[Andrew: Trying to build and launch dating apps is a favorite pastime of 20-something tech entrepreneurs. However, dating products are notoriously hard to grow because it requires people to be "in-market" and also they don't necessarily want their friends to know they're online dating. Today, we have a great piece from a veteran of the […]

You're Probably Wrong Onstartups Oct 22, 2014

Dear Friend

About that thing we were chatting about the other day. I've been trying to find a good way to say this, but...

Not All Startup and Venture Experience is Equal #getoffmylawn Thisisgoingtobebig Oct 22, 2014

I probably do some kind of speaking event at least every other week. This week, I've got three things on the docket. Needless to say, I have a fair amount of startup event experience.

What I find a bit frustrating is how easily some people get onto panels and are put up in front of an impressionable crowd of new entrepreneurs as "experts". You'll get a venture capital analyst from a brand name firm who has just recently taken his job talking about what makes a company successful. You'll get an entrepreneur who has raised one and only one round of financing in his or her entire life--all from relatively unsophisticated individuals, giving fundraising advice.

Some of what I hear coming out of panelists is either really skewed to their own experience or just plain wrong.

The problem is that as much as we say we're ok with failure, we're actually not very discerning about people's experience. Some people have definitively had better experience than others.

Other people just plain failed.

I've funded or committed to a few dozen seed companies in the last few years and worked for First Round Capital and Union Square Ventures--two of the best early stage firms on the planet. I feel like I can say pretty much all their is to say about seed rounds. However, I'm not about to dish out advice on how to grow into a billion dollar company, because I haven't taken a company there yet. You should probably get Rob Hayes or Fred Wilson for that. I won't ever be offended if you tell me, "Actually, we were looking for a VC who has backed a company that has gone public."

Sometimes, I see people on venture capital panels that aren't even VCs! In common parlance, "VC" refers to someone who is an investor--who can do a deal. To me, the absolute minimum criteria has to be that you work for a venture capital fund. This means you have a pool of money. You're not a broker. You're not a development shop that takes equity. You literally have a bank account that you have access [...]

Startup Culture Rot Thisisgoingtobebig Oct 20, 2014

It starts early.

You're a founder and you're super busy just keeping the company afloat. You don't have a lot of time for much more than eating, sleeping, and selling--whether that means raising capital, pitching to investors, marketing your product or ringing the bell with early revenues.

You don't have time to do things like write an HR handbook or a values statement. That's for a bigger company down the line.

You also don't have time to go out of your way to interview a diverse pool of candidates. You posted a job, the candidates were mostly dudes, and a lot of them were really qualified. You were just happy that anyone wanted to work for your company and you need help *now*. The last thing you want to twist your brain around is trying to figure out how to get more female applicants or people of color. It's too hard and you already have candidates that are really promising.

You barely have time to do anything to bring your team together either. It's ok, because the team is tiny. You all sit together and you know each other pretty well. After all, two of you went to grad school together, one was the younger brother of your childhood best friend, and the other guy worked together with you two startups ago.

In fact, you're feeling pretty good about the team. You're always on the same page. You like working together. You go out together after work. You have the same sense of humor. You joke about age old sports rivalries. It works for you.

That's the problem.

It *only* works for you guys.

What feels like a cool little club to you can be a really unwelcoming environment to anyone else not like you. It's not that you're doing anything bad. You're not sending porn around your Slack chat or making racist jokes. You're just not actively managing the culture because you're busy doing other things.

Great cultures have values that everyone can be a part of--and these values need to be built in to everyday life at your company, no matter how small i [...]

When Should Technical Founders Become CEO? Bothsidesofthetable Oct 15, 2014

Much has been written about when it is time to hire a & […]

The Authoritative Guide to Prorata Rights Bothsidesofthetable Oct 12, 2014

Prorata rights are one of the most important rights of […]

Seed Round Pricing (Actual data warning!) Thisisgoingtobebig Oct 10, 2014

What should you price your seed round at?

Well, it depends...

I could probably write a book on venture round pricing dynamics. It would have lots of philosophy, religion, theory, fiction, and pontification.

However, since I only have time for a blog post, I'll settle for actual data.

Since January of 2010, when I led my first seed investment in Backupify, I have led or committed to 27 investments. That includes all the deals I did at First Round, with the exception of Refinery29, which was a Series A. That also includes 16 Brooklyn Bridge Ventures deals done and five agreed to term sheets. Yes, it's going to be a busy fourth quarter.

The criteria for what is a Seed and what is a Series A for these purposes is whether or not the first round of the company was within the same year that I did the investment, and it had to be less than $750k of prior money. Refinery29 fell out based on timing.

So what does the data say.

Well, if you group them all up, here's what you get:

Pre-Money Valuations (M)

Average
$4,797

Median
$4,000

You wind up with about a four-ish valuation, mostly right around four, but with some outliers that bring up the average.

But price doesn't tell the whole story. What about the round size?

Round Size (M)

Average
$1,188

Median
$1,000

So the average round that I'm participating in is about a million bucks. For those of you that have trouble doing division, not surprisingly, that puts the average dilution right around 20%, which isn't surprising.

Dilution

Average
19.85%

Median
20.00%

So, if you're looking at pre-money valuations saying "But hey, my deal wasn't valued at X, WTF??" then you need to take a look at the dilution numbers.

That's the dirty little secret of pricing:

Pre-money isn't the price. Dilution is the price and you're all pretty much getting the same deal.

On the other hand, stage matters, too... and stage generally impacts the resulting pre-money. How much money you ge [...]

What is the Definition of a Seed Round or an A Round? Bothsidesofthetable Oct 7, 2014

Marc Andreessen kicked off another great debate on Twit […]

Three Words Entrepreneurs (and VC’s) Should Take to Heart Bothsidesofthetable Oct 5, 2014

Note: this is a non-religious post. This weekend was Yo […]

Why Has LA Suddenly Gotten So Much Attention from VCs and Entrepreneurs?

Why Has LA Suddenly Gotten So Much Attention from VCs and Entrepreneurs? Bothsidesofthetable Oct 9, 2014

An abbreviated version of this post appeared yesterday […]

How I learned to change the oil in my car and found a new office because of Shake Shack and a hackathon Thisisgoingtobebig Oct 3, 2014

Random story that I recounted recently to someone the other day. It's super interesting to go back and trace connections and relationships that led to new opportunities. If nothing else, it serves as a good reminder that every thing you do now is an investment in the future.

In 2009, I was introduced to Havi Hoffman. She was working as a developer evangelist at Yahoo! and got me on a panel at a hackathon she was working on. In turn, I wound up inviting her to a 300 person event that I threw at the Shake Shack in Madison Square Park. After seeing my ability to bring a big community together, she wound up introducing me to TK because he was running a hackathon of his own around the first Techcrunch Disrupt in NYC in 2010.

Hi Charlie,

My friends Daniel Raffel (colleague, yahoo) and Tarikh Korula (Uncommon Projects, Brooklyn) + Etsy’s Chad Dickerson are organizing a weekend Hack day on 5/22-5/23 in association with TechCrunch Disrupt. More detail from Tarikh below. They’d love your help getting the word out and can answer any questions. It’d be great to get a mention in NYC Innovation. Thanks in advance for help getting the word out.

Regards, Havi

I wound up not only helping to promote that event, but actually attending, because if a bunch of hackers were going to be in a place in NYC, as an early stage investor I figured I should be there. So I went--the only investor at the time to actually hangout during the pizza and hacking part of the hackathon, not just the demos.

Techcrunch Disrupt is where I met Steve and Jared from GroupMe and what led to me backing the company when I was with First Round Capital.

Later in 2010, I was introduced by Fabian to Andres Wuerfel, who was leading Deustche Telekom's Innovation Group. It seemed like a good intro for GroupMe, so then I put Andres together with the GroupMe team.

Andres stayed in touch. When I launched my fund, he reached out and asked if I'd be willing to speak on a panel in Berl [...]

Faulty Logic in the Venture Capital and Female Founder Discussion Thisisgoingtobebig Oct 1, 2014

Let's get one thing straight. The world and every individual in it is a biased place. We all have our inherent biases and what I am not arguing here is that the venture capital world is a fair playing field for anyone.

I repeat: I AM NOT ARGUING THAT VENTURE CAPITAL IS FAIR TO ANYONE.

HOWEVER...

It weakens your argument, whatever it is, when you use faulty logic. So, if you're going to argue that the process of venture capital is inherently unfair to women, here's the logic that you *should not* use:

"Less than 3 percent of the 6,793 companies that received venture capital from 2011-2013 were headed by a woman, according to a study from Babson College released Tuesday. That means that out of nearly $51 billion in funding that startups received over those two years, a comparatively teeny $1.5 billion went to women-led ventures."

Sounds awful, right?

It may be. It may not be. We really don't know, because we're missing some critical information:

HOW MANY WOMEN ARE SEEKING VENTURE CAPITAL?

Unless you're tracking that statistic, there's no way to use *actual data* to prove how bad the bias is, or if there is any. You can broadcast all the anecdotes you want about how badly women were patronized or not respected in other ways, but until you track that statistic, that's all they are--just anecdotes.

I AM NOT ARGUING THAT WOMEN AREN'T SEEKING VENTURE CAPITAL.

They are, and perhaps not often enough. There are studies that suggest that there are lots of perfectly fantastic female owned business that are undercapitalized because the founders aren't seeking it--perhaps they believe the system won't support it, perhaps it relates to perceptions of risk. This is where I think there's a great opportunity for investment. Right this very moment, I'm in the process of leading investments in two companies where I had to convince a team with a female founder to take capital.

Whatever the case, the stat that just says that venture capital doesn't wind u [...]

There is No Such Thing as a Great Team, Only Great Habits Thisisgoingtobebig Sep 29, 2014

Sometimes, an investor gets lucky. They invest in a company with an idea that doesn't go anywhere, the company pivots, and you wind up in the next big thing.

In hindsight, an investor will tell you that they knew they had backed a great team and that was the key to the investment. It's never luck.

I have a lot of trouble with the "great team" scenario, because it just doesn't seem to play out in real life. What about when a company clearly makes a stupid acquisition? When they spend hundreds of millions to buy you only to turn off your product and shut it off later, were you a great team, but you wouldn't have been a great team if you ran out of money two weeks earlier?

Is greatness innate? Are you born to be an entrepreneur?

Why don't all the people who have "great" entrepreneurial qualities succeed? Wouldn't there be some test you could give all first time entrepreneurs to gage their entrepreneurial prowess to understand how good they'll be at running a company?

It feels like a lot of hocus pocus half the time--where we mistake agressiveness and ambition for qualities of good management in startups. Maybe that's why half the time it seems that entrepreneurs are getting in trouble these days--because investors aren't as good as we think they are at funding the kind of people you want to back.

Adam D'Augelli, a very smart investor over at True Ventures, mentioned to me the other day something that rang true--that the best entrepreneurs update their investors with metrics, not stories. That made a lot of sense to me, but what also led from that was the idea that watching metrics was a habit, not something you're born with. It's something that anyone can get into the habit of doing. Knowing your metrics and following them is a discipline and being disciplined is really what being a manager is all about. Do you create processes that bring the right people to your company? Do you create processes that allow them to communicate well with each other and [...]