To Fundraise While You're Not Fundraising or to Not Fundraise While You're Not Fundraising? That is the Question.

"I'm not raising right now."

When said to a VC, this is one of the biggest BS lines out there.  You're literally talking to an investor, and if they offered you a big check at a great deal, you'd take it, no?  So, how could you say you aren't fundraising?

On the other hand, some founders *literally* aren't fundraising.  They won't share any info on what's going on with their company, even with investors that are really excited about their concept.

Is this a missed opportunity or just insurance that they're going to put their best foot forward in an organized process?  After all, they have a company to run now and success at meeting your current goals is going to improve your chances of a successful fundraise later, right?

Well, it all depends, right?

Actually, I tend to lean more on the relationship building side, for a couple of reasons.

First, in the early stages, there's a lot more information that can be gleaned about you than we can know for sure about the success of your company.  How you think, what your plans are, etc. are all keys to helping VCs figure out whether they want to back you--and before a Series A, you really don't *know* for sure whether something is going to be a success, no matter how much data you have.  

That's why the first check for a Series A firm is so small relative to the size of their fund.  Think about it... if a $350 million dollar fund leads an $8mm round, they're probably doing about $6.5 million of it.  That's less than 2% of their fund, and of all of their checks were like that, they'd be doing 55 deals in a fund, or over 2x what you actually statistically need for diversification. You think you're getting this big fat check compared to the seed money you raised, but they're actually doing something more like dipping their toes in the water.  It's less signal than you think. 

They know there's not a lot of data yet and it's still more of a flyer, which is why I think putting your head down to optimize your company to 110% to try to get your next round isn't the right strategy--because it's not the mindset the investors are in.  It's a game you're the only one playing.  Not only that, it's a game that you'll never be more poorly equipped to play.  Company success is a function of resources--people and money, neither of which you have much of. 

It's showing up to a gun fight with a Pez dispenser.  

Given that so much of the bet at these early stages, even at the Series A comes down more to "Do I believe what this founder believes?" it strikes me that actually talking to an investor, sharing your vision, and actually starting to work together feels like a better strategy than going silent until "Pitch Day" when you show up all ready and prepared, expecting term sheets in just a couple of weeks.  

This is especially the case with a strong founder who has the best company in a space--because getting to know more investors wards off VCs from investing in your competitors.  You'll clearly come off so much better than them that no one is going to want to settle for second fiddle.  They'd just as soon go find another space where they can find the category leader.  

A lot of founders worry about information sharing.  The fact of the matter is that you're not the only one who has thought about this idea--and you'd have to be pretty egotistical to imagine you had.  What you should imagine is that you're the best team to execute on it--so that no matter what you tell an investor, it won't matter who knows what, because just knowing the plan doesn't mean executing on it.  

One thing going on behind the scenes that founders might not be conscious of is intra-firm dynamics.  One partner might want to meet with you while you're "not raising" in order to build the case inside their firm for doing this deal.  Maybe not everyone in the partnership is there on "Casper for Congressional Testimony Seat Cushions", so they're meeting with you to socialize the idea of the company ahead of you actually being ready for a check.  Keeping close to the vest in this scenario would make it impossible to get the partnership to a yes if you just showed up after running silent.  

Here's something else to consider--the getting to know you phase has very different expectations than the due diligence phase.  If your company is a work in progress and you didn't show up to "pitch" then an investor is absolutely going to understand if you don't have the perfect deck or all the customer acquisition data figured out yet.  Founders worried about this need to stop acting as if investors have never seen a startup before.  

Too often, because most investor conversations result in a no, founders start telling themselves all sorts of reasons what caused that result.  Thinking you were underprepared to discuss your company and that more model tinkering and deck stylizing is just bad thinking.  Investors have seen a wide variety of companies before at various levels of rough edges.  They can recognize a deal they want to be in versus not.

Besides, would you rather get a "no" after knowing that the investor absolutely understood what you were trying to do and you had enough time to share why you were excited, or would you rather walk out feeling like the pitch process was very rushed, and you didn't get everything out there in the shortened cycle you actually had to do the pitch?

On top of all this, what about your own due diligence as a founder?  Don't you want to get to know different investors over time to decide who you want to be working with?  It's like making a hire that you can't fire--so having the chance for multiple interviews over a longer period of time is important and to your advantage.

My advice is to work with your current investors, if you have any, to pick out a short list--maybe three or four investors--and gauge their interest.  See whose eyes light up when you tell them about the company or who gives you a reason why they've been looking at that space.  Have an introductory meeting, and if you feel like you would like working with them, get their feedback on what's going to be important and what should be a priority when.  Do some deeper dive working sessions that give that investor some insight into what it would be like to work with you.  Get them to do some homework for you, too--especially around hiring.  See what kind of candidates they send your way, or what kind of partner introductions they can make.  

Be cautious about your time, of course--cutting off these conversations if you know this is an investor you're not excited about or you're pretty sure they're not excited about you.  

I am convinced, however, that investors come on more because they believe your vision and trust you, conclusions that can only be reached over time through experience, than because you achieved some operational milestone.  

You're the CEO.

It's really hard to advise a company when you don't have all the information--and no one has more information than the CEO of the company.  Sometimes, you might believe the CEO is ill-informed, and you're a check on the amount of homework they've done to seek out solutions to a problem, or which metrics or signals they're paying close enough attention to.  That's a really useful function for any kind of advisor, be it a board member, investor, or someone advising about a specific aspect of the company.  

However, it's very tempting as an investor to get into the habit of telling the founder what you think about all sorts of things, before you've asked them for what they would propose as the way forward, or when you haven't even agreed on what's a problem.  

Following this strategy as the CEO means that you're taking the advice of someone who, at best, has 1 out of 30 days of experience with the company via a monthly board meeting, and two, might be pattern matching for a bunch of other companies that isn't the company at hand. 

Lots of different companies operate in lots of different ways--and they've done so across a lot of different environments.  If you started a tech company 25 years ago, you did so before the internet was really a thing for everyone.  If you started one 20 years ago, you did so before broadband was really a thing for everyone.  It was just 15 years ago that no one had smart phones.  It was merely 10 years ago that Facebook hadn't even cracked a billion dollars of ad revenue (It did nearly $40B last year).  

So, even when you're talking to smart people who already built their businesses, they did so in very different environments, with different teams than what you have now.  

As the CEO, you should be prepared to make decisions that you stand by and not have to go to advisors and investors with every issue.  We're here to audit your thinking, not to do it for you.

Here's a good way to do that:

1) Have a way to organize the company's priorities over time and measure results.  

Start with your long term goals, this year's goals, this quarter's goals, etc.  Drill that down to goals for various teams.  This is what's known as Objectives and Key Results.  It's never to early to start using them.  This way, everyone around the table, including investors, management, and employees can see the plans laid out, and have something to weigh in on.  

This way, we can all be standing on common ground and we have an objective way to discuss what's working and what's not.

Processes always trump "gut" when you have the time.

2) Do your homework.

If something seems not right, and you don't know why, you should sit down and talk to a few smart people who've probably been through something like this before--and if you don't know anyone, definitely ask investors.

You're much better off asking investors for resources to do your own research than just asking what the investor thinks.  If nothing else, it helps you build up a network of other founders and executives that you can count on whose experience dwarfs what the handful of your active investors have.

3) Present your observations, findings and proposed solutions.

It's not a useful exercise to just pronounce tactics at a board meeting without context, and certainly not to blindly follow advice because you heard it was something you should do.

What I find most useful is that you give us the opportunity to understand why you thought something was a) important and b) in need of change or improvement.  Hopefully, it traces back to your stated objectives--in which case, it's something we all agreed on prior.

It also allows for an investor to see why you're focused on something and help you with prioritization--because maybe it's not something that actually needs to be addressed right now given your limited resources.  

I want to hear what the CEO thinks first--before I respond to a question.  If nothing else, how else is a CEO supposed to learn the responsibility of setting direction and making good decisions?  It's too easy to just ask others for their opinions if you aren't required to make your case for something first.  

At the end of the day, there are going to be hundreds of decisions I'm not around for as a board member, observer, advisor, etc., and the best thing I can do for a company is help the CEO create a process that makes them the best decision maker possible.

The NYC Council's Ill-Advised Attempt to Legislate Work-Life Balance Should Be Voted Down

Recently, Brooklyn City Councilman Rafael Espinal proposed a bill last Thursday that aims to make it illegal for private employees in New York City to be required to check and respond to their work emails or take part in work-related electronic communications during non-work hours.  The idea is great--I'm sure everyone would love to live in a world where the moment we walk out of the office, the world just stops, and waits for us to return the next day.  

That's just not realistic at all.  Just ask his campaign staff.  Did he ever send an e-mail to them "off hours"? 

Hard to see how he'd win without doing so.

Don't get me wrong--work/life balance is really really important.  Firms recognize this.  They're doing more and more to facilitate healthy approaches to work, offering meditation classes, paying for gym memberships, creating paths for parents returning to the workplace to work flexible schedules, etc.  

Creating legislation around this creates move problems than it solves.  Plenty of perfectly healthy work environments occasionally dip into "off hours" time.  Maybe I've decided to work late because I took the day off tomorrow, but I need some bit of information from a colleague.  Maybe that person is difficult to work with generally, and is on the verge of getting fired.  A nice colleague might respond to my "Hey, what revenues were you projecting this year?" text with a quick response, but this person just ignores it.  Now I can't do my job because he doesn't feel like doing his.

After generally mistreating other employees, when they finally fire him, now he uses this law as his cover--and the company is potentially going to get fined.  

White collar workers connected by e-mail are quite capable of maintaining the proper balance here through clear communication of expectations.  This is why work hours aren't defined--because if I say 9-5, the person who likes working 10-6 is going to be less productive.  When you create a rule for everything, you lose efficiency.  When do work hours end?  5? 6? 7?  What about the day before a big client presentation?  What about when your co-workers are doing a presentation in SF and it's 7:30PM here?  They're working, but you're "off?"  They need the latest copy of the deck and they're trying to reach you, but you just sit there with your arms crossed because you're "off the clock?"  Is a sales pitch an "emergency?"  

Good luck enforcing this.

Trying to litigate what constitutes an "emergency" e-mail is foolhardy and isn't worth the government's time, not to mention that these mobile technologies actually allow people to be better at work life balance in many cases.  Do you need to be checking e-mail 24/7?  No.  Would it be helpful to respond to something after you've put the kids to bed, so that your earlybird co-worker has what they need on their 6am train ride into the city?  Yeah.  And if you're on your phone tweeting cat pictures, your co-worker has every right to get annoyed that you couldn't get them a quick answer on that memo if they're paying you over $100k/year.  

If you really want to go after abuse of workers, check out all the delivery employees who bring your lunch by bike without Worker's Comp insurance and without any Fair Work Week protections, because they're all 1099 employees.  

An Exercise in Startup Ambition: What's your ask of Obama?

Given that he doesn't have much to do these days, Barack Obama goes poking around Crunchbase one day and he stumbles upon your startup.  He finds your company, and obviously being super impressed, he reaches out and asks you what he can do to help.

What do you ask of him?  (Or anyone else on that level...)

This isn't an easy answer.  The truth is, you're probably not ready to handle whatever the former leader of the free world can do for you, but you're obviously not going to let this opportunity go, right?  You have to come up with something.

This is a problem of multiple dimensions:

First off, you have to narrow the scope of possibilities.  This is hard.  Obama could probably do just about *anything* for you, but you have to pick one or two concrete things.  You can't be like, "I don't know, what were you thinking?"  He doesn't know anything about startups and you're lucky he even thought of you at all.  You're going to now throw it back to him to plan out what he might do for you?  No, you have to make an ask.

Second, anything you come up with is barely going to register for him in terms of level of impact, but it's going to be more then game changing for you--it's going to feel ridiculous.

Maybe your company is seed funded, or has some friends and family, or is barely more than a Powerpoint.  Even if you have your Series A, the scale that you're operating on probably doesn't even come close to what he's been thinking about these days.  He's on the "ending malaria/making sure every woman in the world gets equal pay" kind of level", and you're out there building an app with three devs, some cheese dip and an office dog.  Even if you have a worthwhile mission, you're going to have to get over the fact that anything that he could come up with that he'd pay attention to is going to feel crazy to even ask of him. 

But this is how you make a leap as a startup.  

One of the easiest things you can ask of something like that is to invest.  Investing insures that someone is always part of your company.  It gives you an excuse to e-mail them and your updates keep you top of mind for them.  It gives you an excuse to ask for more later.  Getting someone to invest in your next round is like getting to wish for more wishes and having it granted.

Get over whether you know if this person invests or not or what size check they can write.  Any person who gets to this level of success could probably write at least a $10k check or maybe more than you think.  Remember that you're not asking for their money--you're providing them with a great opportunity for them to trade their wealth for interestingness.  This is something they do all the time in a variety of ways.  

Advisory boards are also a great way to rope people in that you probably have no business getting on boards.  The key is to make them about something bigger than just your company.  If you're a financial startup, make them about financial empowerment.  If you're a fashion company, make it about style trends.  If you're a consumer product, make it about world class customer experience, etc.  

It's really easy to be focused on short term goals as a founder--getting to that next raise, making that next hire, or just making sure your bills are paid.  The companies that make huge leaps in impact and value execute these kinds of headline making moves, leaving their competition far behind in the rear view mirror.  Knowing what these moves could even be is hard, and it's probably something worth talking to your investors or thought partners about, and definitely something to plan around.  This comes into play so many times.  People you know will say, "Hey, I know the former CEO of X and she's retiring and looking for something to do."  

Don't let those opportunities pass you by.

Find Success by Helping a Mom Find Success in Your Company

A few years ago, a friend of mine got hired by a company as a software developer.  She was an early riser and liked to get into the office around 8AM.  A diligent worker, she was super focused from the moment she sat down at her desk--and so by the time 6PM came around, she had gotten a lot of work done and ready to call it a day.  

Her young male colleagues had a different approach.  They strolled in at around 10 or 11AM, and didn't really get going for real until about noon.  They spent a lot of time distracting themselves, but worked deep into the night--doing the same amount of work as she did, but stretching it out until 10 or 11 at night.  

Because my friend would take off "early", she got a reputation for not working as hard as everyone else, even though the results said otherwise.  Eventually, they let her go.  

What struct me about this situation was that it was a culture that obviously couldn't scale past young, single people.  I thought, "Wow, there's no possible way anyone with a kid can ever work at this company."  

As I spoke with Adam Milligan about in the Startup Recruiting Podcast, tech companies are idea factories--and they win by bringing the best ideas to light.  That means that successful environments are ones that foster a diversity of perspectives, support great communication, and favor quality of solutions over the speed and hours of simply "typing" the code.

That's why a great barometer of your potential for success can be found in how ready your company is to support a mom (or a dad, of course) returning to the workforce after taking time off for family.  If your hiring process really does favor the people who can bring the best ideas to the table, statistically speaking you should have a lot of moms in that process, particularly when they're often your biggest customers.  The question is, can they find success in your environment, and what might hold them back.

That's where efforts like Path Forward come into play.  Path Forward is a nonprofit organization on a mission to empower people to restart their careers after time spent focused on caregiving--not just moms raising a kid, but all sorts of family situations. They fulfill this mission by working with companies to create midcareer internships — sometimes called “returnships” — to give women (and men) a jump start back to the paid workforce.

I interviewed Path Forward's founder, Tami Forman, on the Startup Recruiting Podcast (or here at Soundcloud, in case iTunes hasn't updated yet) to talk about companies can go about making their environments supportive of this transition and how the companies involved in the program have tapped this underutilized talent pool.  (Over 80% of the participants in their program wind up getting hired by the companies that they intern at.)

I'm a big believer that companies should rethink their purpose in order to achieve sustainable success.  What if the goal wasn't to create shareholder value, but to create the best place for the most talented team (not just individual people) to work?  Remember, teams are more than the sum of their parts.  Wouldn't product and sales success flow naturally from that?  So why not focus on it as a priority?  Seems to me that's something that should be done from day one, not just when you get around to hiring your first Head of People.