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Understanding Your True Character as an Entrepreneur

Understanding Your True Character as an Entrepreneur Bothsidesofthetable Apr 19, 2015

Why do we do all that we do? Is it for the money? The r […]

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Following on in a hot market Thisisgoingtobebig Apr 21, 2015

Conventional wisdom says that you follow on in your winners in venture capital, but I'm not sure you can always accomplish that so cleanly.

In hindsight, if you were an Etsy investor, you would have wished you participated in every single round the company ever did, putting as much as you could in.

But what if you had done the same thing with Fab?

Did those companies look so different in the first few rounds? In fact, didn't Fab look like much more of a $3 billion IPO after those first couple of follow ons than Etsy did?

If you're making investments in seed stage companies, I'd argue that if you don't have a very big fund, you're much better off just writing one check for each company, and not following on. The multiples of return you get in a winner when you're in at single digits are more than enough to make up for missed follow on opportunities, and the truth is, the Series A guys want as much of the next round as possible anyway. You actually make things easier for the entrepreneur--because once things "take off", they can't fit everyone in.

The funny thing, though, is that "take off" these days usually just means "raises money." It's not clear whether the metrics of pre-sales, downloads, or customers acquired with venture dollars are really predictive of great outcomes. Yet, companies are able to raise tens to hundreds of millions of dollars before you can really confidently say you've got a winner. I question whether or not seed funds leaning into Series A and B deals really know that they have a winner on their hands just a year to 18 months into the life of the company. If that were true, why is the average Series A fund such a mediocre performer?

Plus, the idea of leaning into your winners makes it sound like these funds are really being selective about their follow ons. When's the last time you saw a seed fund not participate in a next round because they thought the price was too high or because they still weren't sure if the risk was off [...]

VC Value add: Why it probably doesn't matter, but I try anyway. Thisisgoingtobebig Apr 20, 2015

A while back, a larger fund courted one of my portfolio companies heavily. I wasn't sure if this firm was the best partner for the company, so I reached out to an experienced founder who had been through lots of rounds as both an entrepreneur and an angel investor.

He told me the following:

There are maybe two or three VCs on the face of the earth that add any value to the eventual outcome of a company, so there's really just a few criteria that matter...

- They should do no harm.

- They should be able to close the round quickly and without too much distraction.

- You should like them enough to have them on your board.

- They should hit your bogey in terms of price.

He said if you could check off all four of those boxes, you should just do the deal and move on. I was so surprised because he had taken money from investors who had a tremendous reputation for adding value to their companies.

When you look at venture returns, however, the reality in most circumstances is that you're either in the big deal or you're not. If you're in a billion dollar outcome, it overshadows anything else you do as an investor.

Sometimes, the "best" firms are in the best deals, but often times, they're not, or they're joined by a lot of randos. That top tier VC firm might be the lead on the Series A for unicorn you've heard of, but the seed round might be filled with lots of other firms who don't do squat for their companies--except take credit for their success.

Sometimes, firms get into deals not because they're highly sought after--but because the team pivoted several times. Dumb luck dictates that the firm who got the deal just happened to be the eighth firm down the list for a pitch after the game-changing pivot. The first seven firms--the ones the entrepreneur really wanted, got the first business model pitch--the one that didn't have a chance of working out.

Way to go, 8th best seed fund!

Other than having the guts to keep writing checks, it's no [...]

We Like Humans, But We LOVE Code (Machine Learning Case Study)

We Like Humans, But We LOVE Code (Machine Learning Case Study) Onstartups Apr 16, 2015

The following is a guest post by Jonah Lopin (@jonahlopin), founder at Crayon. Jonah is a HubSpot alumnus, and I'm an angel investor in the company.

Here at Crayon, we love humans.

A Hard Post to Write – Helping @MattLauzon Bothsidesofthetable Apr 15, 2015

I was contacted today by Matt Lauzon, the founder of Du […]

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Can You Build Your Business on Somebody Else’s Platform? Bothsidesofthetable Apr 12, 2015

Many of you will know that Twitter unexpectedly cancell […]

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How I first met Eric Ries and also why I’ve ordered his new Kickstarter-exclusive book The Leader’s Guide

How I first met Eric Ries and also why I’ve ordered his new Kickstarter-exclusive book The Leader’s Guide Andrewchen Apr 7, 2015

Taken a few weeks ago at dinner, at Mission Rock in Dogpatch tldr It’s the last week to order Eric Ries’s new book, called The Leader’s Guide. In a very innovative experiment, it’s being published exclusively on Kickstarter. It’s the only way to buy a copy. I’ve already ordered a signed version and encourage you to support his work too. […]

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The 99: How the SEC protects you from venture capital returns. Thisisgoingtobebig Apr 10, 2015

I don't need to remind you of the widening gap between the rich and the poor, but if I were to be more accurate, I'd say it's the widening gap between the mega rich and everyone else. When you've already got tens and hundreds of millions of dollars, a whole world of moneymaking opportunities are available to you that the rest of the world can't access.

Take venture capital, for example.

To benefit from the explosive growth of companies like Uber, Airbnb, Dropbox, etc, you had to fit in either one of two categories: be an angel investor already in an inner circle of experienced angels and entrepreneurs, largely located in Silicon Valley, or be an investor in a venture capital fund that backed those companies.

Very few are ever going to wind up in the former category--so the most accessible option for most investors would have to be a venture capital fund. Only, that's not such an accessible option as it turns out either.

The SEC, in an effort to "protect the little guy" has all sorts of regulations. First, you have to be an accredited investor--someone with a few hundred grand in income or a million to your name. Below that and they need to keep you from investing in really risky stuff, like venture capital.

Of course, they don't prevent you from putting your whole savings into penny stocks, but that's another story.

Even just being accredited though doesn't mean you're in. One regulation has effectively kept the most investors from participating in the most recent tech boom--namely the 99 investor limit in a limited partnership. That's how most venture capital funds are structured. While the "accredited investor" requirements for being allowed into these funds aren't so onerous , they make it really unattractive for funds to take smaller checks.

You see, if you're trying to raise a $50mm fund and keep it to one legal entity, you can only have 99 underlying investors. Math dictates that they'd have to each commit a little more than half a million [...]

Questions from Hunter #MondayMailbag Thisisgoingtobebig Apr 6, 2015

I've known Hunter Walk for almost a decade. He found me through my blog and I didn't think he was real. Hunter Walk can't be any blog commenters real name, can it?

Turns out that not only is he real, but he's one of the most genuine, thoughtful, and egoless people I've met in the startup world--a real breath of fresh air. I look forward to connecting with him when he's in NYC and when I head out his way. He approached me recently with an idea for cross interviewing each other and I thought it was a good way to have my writing be a little more collaborative with my audience. I wasn't sure whether his answers would wind up here or vice versa, but when I thought about it, it turned out I was pretty adamant that my blog is for my voice. So, if you want to read what I wanted to know about Hunter, you can check it my interview of him here, on his blog.

I liked this exercise so much that I think I'd really like to make #MondayMailbag a tradition with other people. I don't know what the criteria will be or how we'll work it out, but maybe we could just start with a Twitter hashtag and go from there. What questions do you want me to answer next Monday?

1. BBV has talked proudly about its large number of female founders. When you think back to your time at USV, FRC and BBV, can you identify a time you passed on a founder because of a blind spot or unconscious bias you possessed at the time and if so, what did you do going forward to not make the mistake again?

I think other people have talked more about the fact that I've funded female founders than I have. I talk proudly about all my founders, but not necessarily because they're female. I'm just trying to invest in the best opportunities.

There are two parts to regretting a pass. One is passing for the wrong reasons and the other is having it turn out to be a missed financial gain. Normally, unless you realize the latter occurred, you don't think much about your passes. Maybe I passed on someone because they'r [...]

Why Unicorns Are No Longer Enough. The Battle for Hendecorns Bothsidesofthetable Apr 1, 2015

We built MakeSpace’s logistics systems and custom […]

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This is what free, ad-supported Uber rides might look like. Mockups, economics, and analysis.

This is what free, ad-supported Uber rides might look like. Mockups, economics, and analysis. Andrewchen Mar 30, 2015

Cheaper and cheaper rides Free, ad-supported Uber rides are inevitable, and if Uber doesn’t do them, a different competitor – perhaps Google! – will do it. It would be the next step in the industry’s trajectory towards lowering prices. Uber started in the high-end of the market, as “everyone’s private driver” which emphasized quality, but the early pricing was out of range for most. […]

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An Insider's Look At HubSpot Sidekick's Growth Approach

An Insider's Look At HubSpot Sidekick's Growth Approach Onstartups Mar 18, 2015

The Sidekick growth team is a small, data driven and aggressive group within HubSpot that works on new, emerging products with massive audiences and a freemium business model (similar to Dropbox and Evernote). We are constantly pushing ourselves to learn new growth strategies, tactics, and techniques. I have personally become more data driven and model driven after joining the team, and wanted to walk through an example of one decision that became much easier with the use of our generic problem solving framework.

I am a big believer in the idea that complicated problems look simple when you are able to break them down. Don’t take my word for it - this is what was attributed to Einstein:

If he had one hour to save the world he would spend fifty-five minutes defining the problem and only five minutes finding the solution

The Sidekick growth team follows a very straightforward process that strives to take complicated choices, and analyze them to produce areas of opportunity:

Step 1: Choose a goal

Step 2: Build a model

Step 3: Analyze the inputs

Step 4: Identify opportunities

Announcing a new strategic investor and partner at Brooklyn Bridge Ventures Thisisgoingtobebig Apr 1, 2015

I've said before that I wouldn't take on a partner.

I didn't think I needed one, and I'm happy to say that it seems that I've done just fine without one. I've had the good fortune of investing in standout companies like Canary, Tinybop, Floored, Orchard, and Ringly, just to name a few. The fund is performing really well and we've had lots of inbound offers to invest in the second fund, which was being rounded up until recently.

That's when I got an offer I couldn't refuse.

Someone called me up that I hadn't met in person before but that I had interacted with over Twitter. This person had built a hugely successful firm that grew in size from fund to fund--and was now a major brand in the space.

Right off the bat, we hit it off. It was like we were talking to mirror images of each other. And that's when it happened...

Marc Andreessen asked to join Brooklyn Bridge Ventures.

Yeah, I wouldn't have believed it either, but he said he wanted to get back to the roots of investing in pre-seed and seed deals, of focusing on some hands on work with lots of first time entrepreneurs.

Turns out, he's also in love with New York the way I am--and believes that the diversity of industry, culture, and talent here is the best place to start the next big thing. He'll be moving to the Big Apple at the end of this month.

Still reeling from the offer, I sunk back down to earth when I realized that I had priorities. While I was well on my way to raising my $15 million dollar second fund, I wasn't quite finished with that process yet. When I told him about my concern of adding a new partner in the middle of a fundraise, he asked me how big the target was. After I told him, he joked that he'd shake out his couch cushions and make it happen.

I said, "What do you mean 'make it happen'?"

That's when Marc offered to be the sole investor in the fund--putting up the whole $15 million. He said it wasn't about the money for him--but that he just wanted to work with someo [...]

The Coming Zombie Startup Apocalypse Thisisgoingtobebig Mar 30, 2015

Are we in a bubble?

And if so, when will it burst?

Everyone likes to debate it, and statistically, almost no one gets it right. Not only is it notoriously difficult to time the market, but even if you did, you'd miss out on individual winners. Sam Altman of YC recently pointed out that pulling back during the downturn in 2008 would result in several big misses:

In October of 2008, Sequoia Capital—arguably the best-ever in the business—gave the famous “RIP Good Times” presentation (I was there). A few months later, we funded Airbnb. A few months after that, a company called UberCab got started.Those companies would have not only returned any fund that invested in them, but would likely return an entire career's worth of investing over the course of several funds.

Still, no one wants to be the one holding the back when things do pop--and they will, right? Doesn't every good run have to come to an end? Will this bubble also end in a blaze of glory with companies shutting down left and right in a massive startup apocalypse?

Probably not, since that's not exactly what happened the first time around.

Would you be surprised to know that almost half of the dot com companies founded when the boom started in 1996 were still around in 2004--four years after the peak of the NASDAQ?

A paper by two University of Maryland researchers who arrived at that number concluded the following:

"...Observed financial losses did not, in fact, equate with firm failure...tectonic changes in the
underlying entrepreneurial landscape were obscured by the financial bust. Against a
highly salient backdrop of destroyed market value, we interpret the high survival rate of
Dot Com firms to mean that many of the business ideas that flowered during the Dot
Com era were basically sound. In other words, good ideas were oversold as big ideas.
Most internet opportunities were of modest scale – often worth pursuing – but not usually
worth taking public. Because most internet bus [...]

No Comment Thisisgoingtobebig Mar 25, 2015

All of three of you seemed to notice that my new blog design is missing comments. That's because it was rare that any more than three people ever commented on my blog in the first place.

Don't get me wrong. I wanted feedback. I love feedback, but most of the feedback wasn't happening in the comments. It was happening by e-mail and on Twitter. So, I'd occasionally get a comment or two... and once in a blue moon I'd get like eight.

In over a decade of blogging, I've never found a consistent writing schedule. I write like I do now, finding twenty minutes here and there in between meetings, and then I rush off to something. So, if I get comments, I can't seem to prioritize responding to them sooner than two days later.

On Twitter, however, I'm very responsive.... so Twitter has always been a much better way to interact with me around my blog anyway. It's probably where I get most of my traffic as well. I still get a lot of e-mail subscribers as well, and they just hit reply.

So, I decided, in an effort to clean up all of the superfluous design elements from my blog, that I wasn't going to carry over my Disqus comments. I never go back to them and they weren't much of a community. I'm happy to engage around any aspect of my blog in public on Twitter or by e-mail, but I won't be doing it through a comments feature anymore. It's a time and effort thing, and a quality bar.

Also, you're welcome to disagree on your own blog. :)

What I’ve Learned from Fred Wilson Bothsidesofthetable Mar 24, 2015

Last week Fred Wilson and I sat down in Santa Monica fo […]

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Why the New Seed Might Be a Bad Seed Thisisgoingtobebig Mar 23, 2015

About a year ago, I started hearing about the existence of a "pre-seed" round. At first, it sounded ridiculous. Actually, it still sounds ridiculous to me. The term "seed" implies the very beginning to me. If you can't go to "seed" investors for your very first investment because you're too early, that just seems weird to me.

At Brooklyn Bridge Ventures, I want to be part of the first money to go into a company, no matter what you call it. I do the same kind of rounds today that I was doing five years ago. Two of the first deals I ever did at my previous fund were part of an $800k round of investment into Backupify, which recently sold to Datto, and an $850k round into GroupMe, just after they built a prototype at a Hackathon. They're at a similar stage to my investments now out of Brooklyn Bridge backing Tinybop pre-launch, Canary before their Indiegogo pre-sale, and VIXXENN with just an alpha site and a few stylists.

What's interesting is that those earlier rounds wouldn't be called seed rounds today--and many of the investors in those rounds wouldn't have necessarily participated in them now. Fund size has a lot to do with it. The larger your fund, the larger the checks you need to write and so putting $200k to work at a time doesn't make economic sense for many investors. So whereas seed rounds five years ago may have been less than a million dollars on a pre-money valuation of three or four million, today's seed is up and over a million and usually closer to two million, with post money valuations nearing $10 million.

Josh Kopelman wrote recently that these rounds are much more entrepreneur friendly, especially in the wake of the "Series A Crunch". In fact, he wrote a few things that I think there's another way to look at.

"The problem is that the number of A rounds hasn't changed. That amount of Series A capital HAS NOT increased. So, if you have 4x the number of companies with seed funding, that's 4x the players competing for the same money… makin [...]

The Gift of the Ask Thisisgoingtobebig Mar 16, 2015

It's very easy to think of an ask as a negative--of a burden on someone.

When it comes to startups, however, especially when you've built up a great reputation and done a lot of good work for others, people are not only eager to help you, but they take great pride in being asked. Working with you is an opportunity. Getting a chance to take a leap with you is an opportunity. Earning equity in your endeavor, or having the opportunity to buy some of it on the ground floor, is an opportunity. It's a gift and you have to start thinking of it as one.

So, not only does that mean not being afraid to ask, but it also means realizing that if you don't ask, people can feel left behind. We join the startup world because we want to work with the best people. We want to work with innovators and those on the services side of the business--the lawyers, recruiters, and even investors, because I do think investors should be servers, want to be that first call.

When I raised my first fund, I send out a note to a bunch of people whoes input and experience I valued--people I would have been thrilled to work with. I didn't know if they were fund investors or not and I didn't want to put them in an awkward position by making a direct ask--so I just bcc'd them all. I said, "I assume you're not fund investors... but if you are and you want to be involved, I'd love to work with you. The last thing I want is anyone who I admire wondering whether I didn't value them enough to make the ask."

I'll be doing that again for my upcoming second fund as well. I don't expect many to respond, but if I truly think of my fund as an opportunity, it's important for me to know that I would have wanted to work with them.

Meet me and Eric Ries at a private event on March 21st – here’s how to attend

Meet me and Eric Ries at a private event on March 21st – here’s how to attend Andrewchen Mar 4, 2015

Hi everyone, I’m hosting a fireside chat (whatever that is!) with Eric Ries on 3/21. It’ll be at a private event in the Dogpatch neighborhood of SF, and I’ve saved a few seats available for my regular readers to attend. A couple topics I plan to touch on: How Eric and I met in 2008 as unknown/unread […]

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What Do You Need to Do to Improve Sales? Here’s a Start … Bothsidesofthetable Mar 10, 2015

I write about sales often both because it’s the l […]

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Some Perspective on Twitter vs. Meerkat

Some Perspective on Twitter vs. Meerkat Bothsidesofthetable Mar 15, 2015

* I love Twitter. So far I’m loving Meerkat, too. […]

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The Magic Moment of Meerkat Bothsidesofthetable Mar 8, 2015

* Ok. If you work in tech this week you’ve no dou […]

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How the Seed-Stage VC Trend Began, The Downsides of Unicorns & Much More Bothsidesofthetable Mar 6, 2015

* If you are a 20-something tech entrepreneur you could […]

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Some thoughts on #Meerkat Thisisgoingtobebig Mar 5, 2015

Downloaded Meerkat yet?

It's the new new thing.

The app is five days old and getting in with all the right names in the Valley. (The company has been around for a few years, but this is a new product for them.)

It's so new, we don't even know if people are using it a second time, yet already it's been in the Wall Street Journal. (PS... Yuliya is really becoming an asset to the WSJ's tech coversage. Future star to watch.)

In 2007, I was at the SXSW where Twitter blew up. That's how I was able to get into the Hatching Twitter book, where, for some reason, Nick Bilton refers to me as short. I'm 5'11'', thank you. How tall is Nick, anyway?

In 2010, Foursquare hit it big in Austin not long after their funding, which I accidently kicked off with a blog post. If only I could have pulled that off with my own startup. [sad trombone]

In 2011, GroupMe seemed to be the winner. I had funded it out of a hackathon earlier that year.

So after being around all these apps, eight consecutive years of going down to Austin, speaking three times, judging a thing, hosting the first SXSW wiffle ball tourney, I'm feeling pretty darn qualified to weigh in on the ultimate future of a five day old app. I've even used it a couple of times!

If you can't tell, I'm being sarcastic...

You know the only answer VC's should feel qualified to give on this one?

¯\_(ツ)_/¯

Here, however, are a few early thoughts:

1) It's obviously the best live streaming mobile app we've ever seen. It's stupidly easy and the quality is way better than technology could ever get Qik to be back in the day.

2) Yes, it is definitely going to be a huge thing at SXSW. Yes, those of us not at SXSW (which I won't be this year... that's another story... just too big), will find it completely insufferable. You think we didn't want to see the Tweets and Instagrams of the parties... just wait to see how much we'll hate the drunk livestream of the parties.

3) Yes, it will get funded w [...]

Personal update: I’ve moved to Oakland! Here’s why.

Personal update: I’ve moved to Oakland! Here’s why. Andrewchen Feb 24, 2015

My new neighborhood, in Jack London Square, Oakland, CA. Where’d you move? I moved to a tiny neighborhood called Jack London Square in Oakland. Yes, it’s named for that guy that wrote about the gold rush. I’ve only been here 3 months but I really like it so far. Previously, I lived in Palo Alto […]

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The most common mistake when forecasting growth for new products (and how to fix it)

The most common mistake when forecasting growth for new products (and how to fix it) Andrewchen Feb 23, 2015

Forecasting weather is hard, and so is forecasting product growth. Startups are about growth Paul Graham’s essay in 2012 called “Startup = Growth” makes a big point in the first paragraph: A startup is a company designed to grow fast. Being newly founded does not in itself make a company a startup. Nor is it necessary […]

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5 Mistakes Founders Make When Hiring Their First Salesperson

5 Mistakes Founders Make When Hiring Their First Salesperson Onstartups Feb 25, 2015

Your MVP is complete. Some seed funding is in the bank, or maybe even a Series A. You’re anxious to see if your product flies off the shelf. It’s time to make that first sales hire.

Here Are the Details About Upfront Ventures’ Newest EIR – @Chamillionaire

Here Are the Details About Upfront Ventures’ Newest EIR – @Chamillionaire Bothsidesofthetable Feb 23, 2015

Five-and-a-half years ago I first met Chamillionaire at […]

Pitch me! Thisisgoingtobebig Mar 2, 2015

Working out of the Townhouse has been an interesting experience in that I'm working side by side with a lot of non-startup people. It's a co-working space full of creatives and freelancers, most of whom who have never pitched an investor, and probably never seen a startup pitch either. Their reaction to what I do day in and day out is very telling about how a lot of people, including VCs themselves, think of the job.

The first question I always get, which I find endlessly hilarious, is "Don't you get tired of people pitching you all the time?"

Umm... No. That's, well, a big chunk of the job.

I say that, but I'm not entirely sure all my peers understand that. One time, I spoke at a meetup that was divided into my talk and demos--and the organizer assumed I wanted to go on before the demos. I didn't understand why it would matter, but she told me that most of the investors like going before so they could skip out after the demos and not get bombared at the end of the event.

Seriously?

Well, I guess I'm not surprised. I've had a debate with other investors before about the "warm intro" requirement. For a seed fund, I find it a bit silly. Most founders barely have anything that looks like anything at this point, and most of them haven't done this before.

How good of a screen could someone else who doesn't do what I do be to make the intro?

Great, so you went to coffee with someone I know or maybe even funded once. The founders I backed aren't VCs (well, except Dave) so I don't know if that is such a great signal.

I asked another VC why they do this and they answered, "So we don't have to go through all the random crap."

If you're an investor that has a magical dealflow stream that isn't mostly random crap, please tell me how you do this. Also, if none of the investments you made first looked like random crap at the beginning, and you have a great track record, I'll buy you lunch.

Obviously, there's a wide spectrum of founders trying to rais [...]

Some Career Advice for Aspiring Tech CEOs Bothsidesofthetable Feb 24, 2015

A shortened, better edited and with nicer pictures vers […]