Month: May 2012
Today’s post is a guest post from my friend Nicholas Napp. We first met five years ago and while I’ve never invested in anything he’s done, I’ve tried to be helpful along the way. Nick is currently running a company called MoveableCode and has a great Kickstarter campaign going for his latest product Incantor (Magic Made Real). Go check out the campaign and support him if you are interested. In the mean time, enjoy his story about Never Giving Up and Never Surrendering. And yes, I recently “invested” in Nick via Kickstarter at the $250 level – I now am excitedly waiting for my Incantor Nobilis for 2.
First – an overview on what I’m working on now
I founded MoveableCode back in 2009, initially to do some mobile Augmented Reality research on a National Science Foundation SBIR grant. We quickly learned that we could make cool things but no money and pivoted. Two years later, we are all about innovative mobile entertainment. We have a grand vision to build a kickass company and Incantor is a big part of that.
Post pivot, I’ve been lucky enough to lure in two good friends, Kevin Mowrer and Trivikram Prasad. Kevin used to run all of R&D for Hasbro and founded their entertainment division. He used to be a client of mine. Triv was an engineer at a company I worked for when I first came to the US as a product manager. He went on to lead teams for Intel and Intuit and is now based in Bangalore, India. I’ve known both of them for 15+ years and we immediately clicked as a team. We’ve raised a modest amount of money, just enough to get some proof points and are now getting in to high gear.
Incantor is our vision of what happens when addictive gameplay is combined with immersive, community-driven fantasy. It is built on a simple premise: Magic Made Real. The game unites people, places and things and is played with your smartphone, a magic wand and your friends. The magic wand is a sophisticated bluetooth device and the game is played as a fantasy LARP in the real world.
We made the decision to go the Kickstarter route because we wanted to connect with fans. Community is vitally important to the game and we want to embrace that from day one. There’s nothing quite like it out there… and there are some really cool parts we’re not talking about yet. This is going to be a fun ride… “Do or do not. There is no try.”
Rewind to five years ago
Brad was my first VC man-crush. About five years and a couple of startups ago, I mercilessly tracked him down and he was good enough to meet and hear the pitch for the startup I was with at the time.
To say we were excited was an understatement. This was the guy that we wanted to meet. If he heard our pitch, the infatuation would be instant and we would walk away with a nice big check. We were going to score!
Sadly, I can say with some confidence that it was the worst pitch I have ever given. Everything that could go wrong did. We crashed and burned as badly as possible and Brad and his colleagues were as gracious as they could be. I even made the “oh no you didn’t” mistake of mis-dialing after the meeting and accidentally calling Brad as he went to the airport.
But as an entrepreneur, you move forward by getting up after you fall down. That startup died, but I stayed in contact with Brad and we’ve chatted many times since then.
MoveableCode is my latest startup and it’s been getting some great early traction. He’s now a backer of our Kickstarter project and I couldn’t be more pleased.
As the saying goes… Never give up, never surrender
Monthly Financials, Quarterly Board Meetings, Continuous Communications
I’ve been writing about boards of directors some lately – both changing my behavior as well as thinking out loud as I explore reinventing how boards work for the book “Startup Boards” that I’m working on with Mahendra Ramsinghani. All fit in the context of continuous communications as I believe three things about early stage companies and their boards.
1. Board members should be actively engaged with the company on a continuous / real time basis.
2. Existing board meeting dynamics are often an artifact of how they’ve been done for the past 30 years.
3. The way most board meetings are currently conducted is a waste of time for management, significantly inefficient, and generally ineffective.
One of the very simple tactical things I’m shifting to is a totally different board rhythm. Historically, many of the companies I’m involved in have been on a board rhythm of meetings every four to six weeks. As they become more mature, these board meetings shift to quarterly, although many of them have mid-quarter update calls. The board meetings themselves are long affairs (even the monthly ones) – often lasting three or more hours.
At some point I’ll dissect one of these board meetings and explain all the things that are artifacts of the past. These artifacts are a result of the communication methods that existed 30+ years ago that required paper and face to face meetings and resulted in very structured communications. But for now, I’ll give you three specific things to change.
1. Separate the monthly financials from the board meeting. Send out monthly financials (Income Statement, Balance Sheet, Cash Flow) with a written analysis of them. This written analysis should be done by the CEO (or president / COO), not the CFO, and should be in English, not accounting-ese.
2. Have quarterly board meetings. These should be in person meetings with no laptops, smartphones, or iPads in the room. Give the people pads of paper to write on if they don’t bring their own (I don’t carry paper). 100% attention for the meeting. Arrange the meeting so you can have a dinner the night before or after the meeting. The meeting shouldn’t last more than four hours but should be fully engaged.
3. Provide regular weekly CEO updates, to all board members. The best entrepreneurs I know communicate regularly with everyone in the company and have a structured update process of some sort. The best CEOs send out short but focused weekly updates to their boards. These are not “templated updates” – they don’t necessarily fill in a set of things that they update each week. Often they are just a “sit in front of the computer and send out an email update” type of update full of substance, whatever is on the CEO’s mind, and requests for help. My favorites have typos and look like a blog post of mine (e.g. it looks like someone just wrote it rather than struggled over it for hours to get it just right.)
While my 2012 board meeting schedule is locked in, I plan to shift to quarterly meetings in 2013 for every board I’m on. I’m sure some of my co-investors will still want monthly meetings, but that’ll be up to the CEO to ultimately decide and I’ll commit to being in person for one a quarter, but fully engaged on a continuous basis (like I try to always be.)
This morning I had a gritty, sweating, damp, dirty run down Bowery through Chinatown and back. It was a short run – only 30 minutes and my coach’s note for me was simple and clear: “One of those “throw away” runs that mean a lot to long term fitness improvement.” So I did it.
I’ve never run down Bowery. I’ve done the East River many times and ended up under the Manhattan and Brooklyn Bridge, but I don’t recall ever seeing them from the top. The Manhattan Bridge totally surprised me – as I approached it I had a sudden flashback to running in Paris around the Arc de Triomphe.
As I was running, I realized that I’ve learned many cities by running them. I used to be terrified of Paris – now I love it – and I attribute that to running all over the city. Rome fascinates me and I can run through it forever, always discovering new things. I’ve figured out how Manhattan works through all of my runs over the years. San Francisco is less of a mystery to me now that I’ve run all around the city. And I’ll never get lost in Boston or Cambridge because I’ve ran the damn thing so many times.
After my run I had breakfast and then walked from the East Village to Times Square in the rain for a meeting. Muggy, damp, soggy, dirty, grimy, splashy, gritty New York. Lots of construction, lots of noise, lots of people. But something magical about it. The perspective on foot is always powerful, at least to me.
tl;dr – Yes.
I’m on the all@company.com list for a number of the companies I’m on the board of. CEOs and entrepreneurs who practice TAGFEE welcome this. I haven’t universally asked for inclusion on this list mostly because I hadn’t really thought hard about it until recently. But I will now and going forward, although I’ll leave it up to the CEO as to whether or not to include me.
In an effort to better figure out the startup board dynamic, I’ve been thinking a lot about the concept of continual communication with board members. The companies I feel most involved in are ones in which I have continual communication and involvement with the company. This isn’t just limited to the CEO, but to all members of the management team and often many other people in the company. Working relationships as well as friendships develop through the interactions.
Instead of being a board member with his arms crossed who shows up at a board meeting every four to eight weeks to ask a bunch on knuckleheaded questions in reaction to what is being presented, I generally know a wide range of what is going on in the companies I’m on the board of. Sure – there are lots of pockets of information I don’t know, but because I’m in the flow of communication, I can easily engage in any topic going on in the company. In addition to being up to speed (or getting up to speed on any issue faster), I have much deeper functional context, as well as emotional context, about what is going on, who is impacted, and what the core issue is.
Every company I’m involved in has a unique culture. Aspects of the culture get played out every day on the all@company.com email list. Sometimes the list is filled with the mundane rhythms of a company (“I’m sick today – not coming in”; “Please don’t forget to put the dishes in the dishwasher.”) Other times it’s filled with celebration (“GONG: Just Closed A Deal With Customer Name.”) Occasionally it’s filled with heartbreak (“Person X just was diagnosed with cancer.”) Yet other times it is a coordination mechanism (“Lunch is at 12:30 at Hapa Sushi.”) And, of course, it’s often filled with substance about a new customer, new product, issue on tech support, competitive threat, or whatever is currently on the CEO’s mind.
As a board member, being on this list makes me feel much more like part of the team. I strongly believe that board members of early stage companies should be active – and supportive – participants. My deep personal philosophy is that as long as I support the CEO, my job is to do whatever the CEO wants me to do to help the company succeed. Having more context, being part of the team, and being in the flow of the all@company.com communication helps immensely with that.
There are three resistance points I commonly hear to this:
1. “I don’t want to overwhelm my board members with emails.” That’s my problem, not yours, and the reason filters were created for people who can’t handle a steady volume of email. If you are a Gmail user, or have conversation view turned on in Outlook, it’s totally mangeable since all the messages thread up into a single conversation. So – don’t worry about me. If your board member says “too much info, please don’t include me”, ponder what he’s really saying and how to best engage him in continuous communication.
2.”I don’t want my board members to see all the things going on in the company.” That’s not very TAGFEE so the next time you say “I try to be transparent and open with my investors”, do a reality check on what you actually mean. Remember, the simplest way not to get tangled up in communication is just to be blunt, open, and honest all the time – that way you never have to figure out what you said. If you don’t believe your board members are mature enough to engage in this level of interaction on a continual basis, reconsider whether they should be on your board.
3. “I’m afraid it will stifle communication within the company.” If this is the case, reconsider your relationship between your board members and your company. Are you anthropomorphizing your board? Are you shifting blame, or responsibility to them (as in “the board made me do this?”) Are you creating, or do you have, a contentious relationship between your team and the board? All of these things are problems and lead to ineffective board / company / CEO interactions so use that as a signal that something is wrong in relationship.
Notice that I didn’t say “all investors” – I explicitly said board members. As in my post recently about board observers, I believe that board members have a very specific responsibility to the company that is unique and not shared by “board observers” or other investors. There are plenty of other communication mechanisms for these folks. But, for board members, add them to you all@company.com list today.
Over the past year, I’ve been systematically trying to change the way the board meetings work for the companies that I’m on the boards of. I’ve done a bunch of experiments and continue to learn what works and what doesn’t work.
Ever since I started investing in the mid-1990’s I’ve been exposed to a concept called “board observer rights.” When we did investments at Mobius Venture Capital, in addition to a board seat, we always got board observer rights. This was a way for us to bring another person to the board meeting other than the board member (usually an associate or a principal but sometimes another partner), or have someone sit in for the board member if the board member wasn’t available.
Early in the life of a company, this often seems manageable. But after several rounds of financings with new investors, I’ve often found myself in board meetings with ten or more people. I think the most I’ve ever seen was about 25 people in the room for a board that had five board members. As you’d expect, there was very little critical thinking or real discussion in these board meetings; instead, the management team just presented to the mass of people in the room. And, in this context, the board members rarely formed a tight and effective working relationship.
Over the last few years, I’ve become very anti-board observer. I’ve been on several boards where the CEO didn’t allow board observers in the meeting. I’ve been on several boards where there were observers in the room, but they weren’t allowed to sit at the board table and could only “observe”. In both cases, the quality and level of discussion in the board meeting was dramatically higher.
I’ve come to believe that formal board observer rights shouldn’t exist. Instead, they should be voluntary and controlled by the CEO. In some cases, the CEO will want observers at the meeting; in other cases he won’t. But it should be up to him.
The best board meetings I’ve been at have been ones that only have the board members and select participants from the management team in the room. Casual discussion, either through dinner the night before or lunch after the board meeting, with an extended group including people from the management team and any other investors, is an effective way to engage everyone else. But the 25 person board meeting is rarely effective.
My long time friend Chris Moody, president and COO of Gnip, has offered to write some guest posts on management – we’ll call the series Moody on Management. In addition to being an outstanding early stage / high growth executive, Chris has made a study of management in startups and is extremely thoughtful about what does and doesn’t work.
His first post is aimed at anyone looking to get a job in a startup and talks about how to be effective at interviewing for a job. Feel free to weigh in if you have other “Stop, Don’t, Nevers” or “Pleases”
I love interviewing people to work at Gnip. Unless I’m having a really crappy day, I enter each interview full of hope and optimism. I’ve done countless interviews in the last 20+ years and I can easily slip into autopilot mode if I’m not careful. In order to avoid this trap, I mentally prepare by reminding myself “today could be the day I’ll meet the next great team member.” I’ve found this mental pep talk helps remind me that there is no better use of my time than investing in the interviewing process. In other words, the next interview could be a company game changer and I need to be 100% engaged.
Most interviews don’t directly lead to someone joining our company. Often the person doesn’t have the right skills or experience. There are plenty of cases where it becomes clear to the candidate that we can’t provide them an opportunity that meets their interest/needs. Both of these outcomes are normal and healthy. Unfortunately, I often find another outcome can occur which is frustrating and deflating. This situation occurs all too often when a person is so poor at interviewing that we’re unable to determine if there is a potential match. I’ll invest up to an hour in an interview trying to peel back the layers. However, I’m frequently unable to get to a substantive layer of discussion that will help both parties determine if there is a potential match. I’ll leave these interviews thinking, “Maybe that person was great, I’ll never know”. Over time, I’ve started to referring to these as the “who knows?” interviews.
The good news is that I think job candidates can follow some simple guidelines when interviewing at a startup that will help avoid the “who knows?”
Stop, Don’t, Never
- Stop selling and start engaging. In order for this to work, we both have to determine if there is a match. The best way for us to determine the match is to have a thoughtful/engaging discussion. If the interview process only involves me asking questions and you giving answers that you think will impress me, we’re going to waste a perfectly good hour.
- Don’t talk in sound bites and buzz words. You might think they make you sound smart, but they don’t because they lack substance. We need to have a real discussion. If you find yourself rehearsing answers before the interview even starts, we’re almost certainly going to have an unproductive meeting. Speak from your heart and your experience not from a script.
- Don’t agree with everything I say. I’m wrong… A LOT. I once went on an all beer and water diet for a week. Challenge me. Startups thrive when each person hired is smarter than the person hiring them. If you agree with everything I say in the interview, I’m left wondering how are you going to contribute when we are working together trying to solve tough problems.
- Avoid talking about past individual results. I know this sounds unconventional, but as the interviewer is often very hard to contextualize how these results might translate to our business. I’m much more interested in discovering what you learned in your last job that we might leverage at our company. For example, telling me you increased sales by 300% isn’t that helpful. Telling me how you learned to handle customer objections around price could prove to be very useful.
Please
- Be honest
- Ask lots of questions about stuff that matters to you. Reviewing a company’s web site before the interview will give you some reasonable background. But, I can assure you that no company web site answers all the questions about a business. It is often the case that an interviewer can learn more about the way someone thinks from the questions they ask than from the answers they give.
- Ask tough questions. You are considering investing a huge portion of your waking hours at our company. Think about the risks and the downsides of the company or the role and freely express any concerns.
- Figure out if our company is a good culture and values fit for you by asking tough situational questions based upon your past experiences. Questions like “Can you give me an example of how the company handled a situation where a customer had a bad experience with the product?” can be very revealing about how the company acts/thinks.
Ask CEOs of successful startups about their biggest challenge and they’ll often cite the inability to hire great people. My theory is there are plenty of great people, but many are just terrible at interviewing. Hopefully these few tips help lead to more great matches down the road. By the way, Gnip is hiring!
When you support a family member in need, you’re doing the right thing. The community you are part of is counting on you, and fulfilling your obligation to them is part of being a member of that community.
What happens, though, when you help someone you don’t know? What happens when one community deliberately seeks out someone who needs a leg up and attention and support and reaches out – with no possibility of reciprocity? That feeling is extraordinary, and as I run the 29 marathons I’ve got left to go to make my 50 marathons by age 50 goal, I have been thinking harder about fundraising as part of this experience.
After my close friend Andy Sack was diagnosed with testicular cancer, the impact of a medical emergency really hit home for me. Andy’s fully recovered after surgery and a 62 day chemo regimen – the experience caused me to think a lot about what families go through when a loved one is ill.
During this time, I met Ethan Austin, the co-founder of GiveForward at Lindzonpalooza. I was blown away by what they are doing and decided to team up with them to do 29 random acts of kindness over the next few years.
For each of my upcoming marathons, I’m going to run in support of one of the GiveForward campaigns. Amy and I will kick off the fundraising with a commitment of at least $145,000 ($5,000 per marathon) and encourage our extended community to contribute whatever they can. We may increase this amount in the future ($5,000 will always be our minimum) depending on the total level of contribution (more contributors = bigger contribution from us.) I’m also going to do some random things for the people who contribute on a marathon by marathon basis – look for me to have some fun with this rewarding my community for helping with a random act of kindness.
The people we will support will not be people we know. Rather, they will be people who inspire us and who we want to shine a random act of kindness on. Our fundraising efforts will be a complete surprise to these families, and our hope is that we can create a little unexpected joy for the people we support.
The first random act of kindness is Justin Salcedo from Devine, TX who has testicular cancer. I’ll be running the Missoula Marathon on July 8, 2012 in Missoula, Montana for him. His family friend set up a GiveForward page for him and wrote the following description:
Justin Salcedo is from a small town south of San Antonio, TX. We live in Devine, TX. He is a good athlete, a good son, and a good friend to everyone. Always has a smile on his face. He just recently found out he had testicular cancer. His mother is the one who told me the story of how he found out about his cancer. I have known him for about 17 years. My sister-in-law baby sat him when he was little. My son and Justin were in pre-K together, they were in little league baseball, our local youth basketball league, Middle school athletics and 2 years highschool athletics. So for this news it was a shock to me and I am not his immediate family. It feels like dream…..
The GiveForward campaign is called Kicking Cancer. Our goal is to raise at least $10,000 by May 31st to help out Justin and his family. Let’s do this for Justin and show the world how the power of a community can deliver random acts of kindness.
PS – if you can’t afford to donate, I urge you to share Justin’s GiveForward page on your Facebook wall or give Justin a “virtual hug” by leaving words of encouragement on his page. Neither of these things will cost you a dime but they might mean the world to Justin.
Yesterday I sent emails out passing on participating in two seed rounds for companies I really like. They had lots of investors trying to invest and each company was competitive with two other seed stage companies we’ve seen in the past 30 days. All are exciting, all are working on something that we like, and all of them are at the starting line with different strengths and weaknesses.
So far this year the number of high quality seed investments we are seeing in themes that are relevant to us is overwhelming. This is an awesome situation – for us and for entrepreneurs – and something I’m extremely excited about. But it forces us to think about our strategy, especially at the seed stage, and make sure we are comfortable with it. We are, but it occurred to me that it’d be worth putting it out there both so it’s known how we are thinking about seed investing and to get feedback on how we are approaching it.
First, some background. We’ve made a conscious decision as a firm never to grow – either number of partners or size of fund – so we are limited to the number of new investments we can make a year based on our approach. This translates into about a dozen new investments a year plus or minus a few.
Our strategy is “early stage” – so we are comfortable with seed investments, first round investments, and what might in the past have been called Series B investments if the company hasn’t raised much money to date (less than $3m). We summarize this as saying to entrepreneurs that if you’ve raised less than $3m so far, we are a target for you; if not, we aren’t. We are willing to invest as little as $375k as our first investment (e.g. Next Big Sound) or $15m as our first investment (e.g. SEOMoz).
We only invest in companies in our themes and only invest in US-based companies so we can say no in 60 seconds to 99% of the companies we see. Our goal isn’t to invest in all of the great companies; it’s to invest in around a dozen great companies a year. We are geographically agnostic – anywhere in the US – about 33% of our investments are in Colorado, about 33% are in California, and the rest are spread around the US. We are syndication agnostic – happy to invest alone and equally happy to invest with firms we like to work with. And we are very patient – we’ll lead our own follow-on rounds (at markups if warranted), are willing to invest up to $10m in a company before we declare “the moment of truth” as we’ve seen many companies break out in year three or year four of their life, and play for many years with the goal of building meaningful companies.
Finally, we believe strongly in active engagement as a seed investor. It’s not natural to us to make a bunch of passive seed investments or to toss $100k directly into a company without engaging with the company at the seed stage. We don’t have a seed program, nor do we expect to – if we invest, we are in for the long term.
So – what do we do?
1. Pass on the cluster: Per the intro to this post, if we see a cluster of seed investments in an area that we like, we are passing on all of them and trying to engage with them with the goal of leading the next round for one of them. Our belief is that we have to earn the right to invest and we want the entrepreneurs to choose us. At the same time, we want to invest in entrepreneurs who want to work with us and view us as a unique resource for them rather than just another check. In almost all cases like this, the seed round is easy to raise right now, which is awesome for the entrepreneur and gives her more choices downstream. We hope to earn our way in as one of these choices, while at the same time getting to know the entrepreneur better over a reasonable period of time. Of course, part of this is keeping the individual entrepreneurs plans confidential so we are very careful not to share any information between companies, although we’ve found several clusters where all of the entrepreneurs know each other and are already friends.
2. Support accelerators – especially TechStars – to create more seed opportunities: We co-founded TechStars and are investors in the program. Last year we helped put together (and invested in) Star Power Partners, which invests $100k in a convertible note in every TechStars company. As a result, we are tiny indirect investors in all of the companies that go through TechStars. Many of these companies raise less than $3m coming out of TechStars – all of them are subsequently in our zone for the next round financing.
3. Support other seed stage VCs: We’ve actively supported (as investors in their funds – individually, not through Foundry Group) many seed stage VCs including Jeff Clavier (SoftTech), David Cohen (Bullet Time), Manu Kumar (K9), Chris Sacca (Lowercase), Dave McClure (500 Startups), Eric Norlin (SK), and David Beisel (NextView). We don’t expect anything for this other than a role as a typical LP, but we view it as increasing the seed ecosystem.
4. Stay firmly focused on our strategy: We’ve seen strategy drift destroy VC returns, create chaos within VC firms, and make a mess of many VC / entrepreneur relationships. We know what we do well and are intent on continuing to do it for a long time.
As I mentioned at the beginning, we’re always thinking hard about how we do things and would love any feedback.
At the HBS VC Alumni event I was at last week (no – I didn’t go to HBS – I was a panelist) I heard a great line from a wise old VC who has been a VC about as long as I’ve existed on this planet.
“VCs only need three rights: Up, Down, and Know What The Fuck Is Going On”
If you’ve read Venture Deals: How To Be Smarter Than Your Lawyer and Venture Capitalist, you already know that Jason and I agree with this statement. And even though a term sheet might be four to eight pages long and the definitive documents might be 100 pages or more, other than economics, there are really only three things a VC needs in a deal.
Up: Pro-rata rights. When things are going well (up) a VC wants the ability to continue to invest money to maintain their ownership.
Down: Liquidation preference. When things don’t go well (down), a VC wants to get their money out first.
Know What The Fuck Is Going On: Board seat. Beyond demonstrating that older VCs also swear in public, many people believe that with a board seat comes great power and responsibility. In reality it mainly gives one the ability to know what’s actually going on, to the extent that anyone knows what’s actually going on in a fast moving startup.
As I was writing this up, I remembered that Fred Wilson had a post about this a while ago. I searched his blog (using Lijit and the term pro-rata) and quickly found a great post titled The Three Terms You Must Have In A Venture Investment. He attributes this to his first VC mentor, Milt Pappas, and the three terms are the same ones referenced above. It’s a great post – go read it.
Entrepreneurs – don’t get confused by the endless mumbo-jumbo. If you haven’t read Venture Deals: How To Be Smarter Than Your Lawyer and Venture Capitalist grab a copy. Or read blogs. Or do both. And VCs – don’t forget what terms you really care about – focus on making it simple.