Five Pitfalls of Seed Round Hiring

Most companies don't get to do more than a handful of hires during their seed round--so the idea of a "recruiting process" might seem a little bit heavy handed.  However, these early employees will not only have a lasting impact on the DNA of the company, but hopefully they'll be some of the most important hires you'll ever make.  (If they turn out not to be, you probably hired poorly.)

Startups that don't create a process tend to fall into the following traps:

1) They never identify values and therefore fail to use them in the screening process.  Are there things that you want every last employee to care about?  Did you ever bother writing them down, telling interested hires about them, or using them as any kind of meaningful filter?  There's a saying that goes "If you don't stand for something, you'll fall for anything."  As keepers of the brand, what your employees believe in will ultimately be reflected in how people think about your company as these values make their way into your products and marketing.

2) They hire a guy they know.  Most venture backed startups are started by men, and one's network tends to look a lot like them--so when guys start companies (and often when women do, too, especially on the tech side), they tend to make the first few hires from their network.  Every single time you add someone who looks like the person hired before, the chances that the next person will look and think differently decreases.  How excited will a female engineer or a marketing professional of color be to be the first non-white male hired when the team is already ten or fifteen people?  If you don't go out of your way to not only create an outbound recruiting process, but track its metrics, you'll be fishing in only half the lake, or less.  

3) They run out of leads.  You might know a lot of very talented people, but once you put them through your hiring funnel, you probably don't know as many as you think.  Some just took a new job and others aren't quite the right fit.  Even if you do know a lot, if your company is successful, you'll need to know a lot plus more tomorrow, and even more the day after that.  Maybe you can hire your first five employees from your network, and maybe even ten or twenty, but then what.  What happens when you start making ten new hires per month?  When do you think that lead generation process should start?  Answer: As early as possible.  Not only are you going to need to sift through great numbers of people if you're ever going to build a company of any kind of size--but to make sure you get the *best* people, you'll want as many people in the top of the funnel as possible.  Just like in sales, if you don't put in lead generation tools for talent as early as possible, and start tracking it, that well is going to run dry very quickly.

4) They underhire.  Startups don't have much money in their seed round, and so they tend to be very cost conscious around salaries--even though they say that talent is the most important thing in their company.  They'll even tell themselves a narrative that unless you're willing to accept below market wages, then you're not the right fit for a startup.  First off, how many founders are taking below market wages?  If you're 25 and you're making 80k, plus, you own 75% of the company, that's a pretty sweet package compared to your peers who teach kindergarten or work in book publishing.  Maybe you should raise a little more money, take a little more dilution, and get out there with fair offers to the people you've identified as the people most able to make your disproportionate ownership of the company worth millions (especially since their share isn't likely to be worth millions).  The area I see the worst underhiring is in marketing--where the first hire has likely not done more than pitch for PR or worked a few years at an agency.  They've never built a brand or thought strategically about what a marketing team should look like or that it's their job to generate enough customers to build one.  

5) They hire for the wrong set of needs.  I encourage all startups to build out at least two or three years of an org chart, identifying which hires should come in when.  What I should also encourage is for someone to line that hiring plan up against a product plan and a sales plan.  When seemingly great hires churn out quickly at companies, the complaint I most often hear is that "They didn't need me" or "I could have helped them earlier, but now it's too little too late."  Identifying what you need when is one of the biggest startup challenges, which is why founders should spend a lot of time networking with other founders who have built similar products.  That's how you learn when a COO should come in, or that you need a release engineer when you're managing a suite of apps, or when a second PM can be helpful.

 

The Only Thing an Investor Can Give You that Matters

VCs promise a lot of things.  

We've got all these platforms, advisors, special partners, communities, networks...

...special economic bells and whistles, spaces, programs, partnerships, etc...

Meanwhile, they most useful thing we can give you when you're first starting out seems to be the hardest to get:

Honesty.

VCs see a lot of deals.  We see successful companies and others that fall on their face--so getting our actual opinions about something, pass or fund, can be really useful.  If nothing else, we're seeing what's out there now and so we can give you a sense of how it compares to what we're currently seeing.

Instead, what the average VC provides in terms of feedback is about as committal as the answers given at a Senate confirmation hearing.  It's generally some form of "interesting"--supportive but not decisive, with some extremely vague indication of what more they'd like to see before writing a check.

The other day I told a founder that she was missing a marketing lead and that I didn't think her team was capable, as currently composed, of launching product successfully her market.

Right after that, I told some another founders that the money they were raising wasn't enough to really get them off the ground.

Last year, I told a founder who had previously sold his company for $400 million that I didn't think there was a mainstream consumer need for what they wanted to build--and even if there was, I didn't see a path to making enough money from it.  

As the end of the day, all I really have to give is my honesty.  If I don't give you that, then I've given you nothing.

That's why so many founders walk away from VC pitches feeling like they wasted their time--because they have no idea what the investor really thought.  You can get money from elsewhere, and you'll make the hires you need to.  You'll sell what you need to sell and connect to who you need to connect come hell or high water.  But an honest opinion--that's a rare find in your early startup days.

What I ask in return is that you come in with honesty.  Don't try to blow smoke.  Be honest about what you know and what you have yet to figure out.

And be honest about whether you're the best person to start this business, or have the best team, and whether or not you've really done enough work to decide if this is worth doing.  

There's nothing more a founder can do to help their cause than to be honest with themselves from day one.

50 Deals In

In January of 2010, just a few months after I joined First Round Capital, I got to back my friend Rob May and his company, Backupify.  Five years later, he sold that company to Datto, and I got to back him again to build Talla.

Backupify would be the first of what is now a 50 deal track record across my time at both First Round Capital and my own firm, Brooklyn Bridge Ventures.  Yesterday, I closed on this "golden" opportunity and so I thought I'd reflect a bit on how the 50 looked as a group.

Screen Shot 2016-12-16 at 12.00.20 PM.png

Well, most of them are still alive, so that's cool.  Some of those acquisitions were awesome, like GroupMe, Singleplatform and Backupify were wins.  Others, not so much. 

More than half the time, these companies have gotten follow-on capital--and another third haven't needed to raise yet.  Only a small handful have crashed and burned on just one round of funding.

A lot of the deals are in the "Business pay us directly" space, but most of them are not.  

Not a lot of geographic diversity, but I can bike to nearly all of these places, so that's good.

At least 44% of the companies I've invested in have had at least one female, person of color or LGBTQ founder.

Most often, I'm investing in pre-seed rounds, especially since I won't invest when the company has already raised $750k in a prior round.  

Most of the time, I'm investing in teams with ideas, not quite products.

Like most VC's I'm mostly investing in software and internet technologies, but about 22% of the time, I've invested in companies that make physical things--from food to physical spaces to consumer electronics.  

Mixing up these different categories has not only provided great return opportunities, but it's also a really interesting experience for me.  I'm looking forward to the next 50!

 

 

 

Being in the Minority

Over the last couple of weeks, I've been to a couple of tech events that were sparsely populated by straight white men.  

Yeah, can you believe it?  

One was a careers panel aimed at women in tech held at Flatiron School and the other was Alterconf.  The goal of Alterconf is to provide safe opportunities and spaces for marginalized people in tech and those who support them by highlighting positive initiatives of local community members.

I think there might have been more trans and gender fluid people in the room at Alterconf than there were straight white men.  That's not something one experiences in tech that often.

At each event, I felt my behavior change.  

Normally, when you're a VC, lots of people are coming up to you, asking your opinion on things--you cannot help but feel a sense of belonging in the room.  You're supposed to be there and there's an unmistakeable power dynamic in the room.  It's all too easy to get a sense of self-importance and to feel like you have a disproportionate influence on the room.

I didn't feel that way at either event.  I didn't feel like I belonged--despite the best efforts of both events to make everyone feel welcome.  It wasn't anything that anyone else did.  It was all in my head.  By being consciously different than others, I felt like maybe I shouldn't be there.  Unlike other startup events, the dynamic wasn't set up for me.  

It's undoubtedly a lot closer to how a big chunk of the population feels than I'm normally accustomed to feeling like.  

Would I say or do the wrong thing?  

VC's don't usually worry about saying the wrong things--maybe that's why we disproportionately seem to have built a reputation for saying the wrong things. 

Nor do we ever feel like we don't have anything to add to a conversation.  

In all honestly, that was a pretty good thing.  Feeling uncomfortable because you're in unfamiliar surroundings is a great learning experience.  It makes you hyper aware of everyone around you.  You can't generalize people so easily and you don't have easy language and anecdotes to fall back on.  You have to treat everyone as an individual, listen, and be really thoughtful about what you share and how you share it.  

Just yesterday, I was speaking to a founder who told me that if they raised a seed round, they'd hire "another guy or two on the tech team."

"Engineers, not guys."

"Huh?"

"They might not be guys...the best people for the job."

"Oh, yeah, sorry."

"Don't apologize to me.  Just be conscious of it."

I probably would have let that go had I not been to these events and I'm glad I went.  I'll never know exactly what it's like to be a marginalized person--but situations like this help make life more relatable to a wider group of people.

Plus, from a pure business perspective, if you're not going to stray outside the communities that hold the most power and influence, you're going to miss out on opportunities and talent from at least half the community, if not more.  

The future will look less and less like me than ever before.

There's less competition in these spaces and where there is great talent, it's my job as a "first check" investor and part time recruiter for my portfolio to be where other investors might not be. 

How to Perform Inception on a VC

One of my favorite phrases is "performing inception".  Inception is one of my favorite movies and I love the idea of meticulously planning out the placement of an idea in someone else's head.  

That's basically what founders have to do when they fundraise, because you'll never be more successful with an investor who thought it was their brilliant idea to invest in your company, not yours.

Remember what we learned from the movie.  Ideas that stick well in other people's heads have to be simple, and they're better when based on positive emotions.  

Who invests is also important--these are people who want to make money, but also be seen investing in the "hot" companies.  Sometimes, just proving out a business model isn't enough.  

Are you creating a company that looks like something they'd be excited to share?

So what ideas are you trying to place in your next round investor's heads?  And how do you do it?

It has to be simple.  

If an investor had to believe one simple thing about the world that would eventually lead them to investing in your company, what would it be?

That very idea should be at the heart of all of your PR.

Is it that there is a lot of money to be made in your sector?  

Is it that your team is the best out there?

Is it that your business model rises above everything else or is really innovative?

Maybe you're the next obvious iteration of a model that works?

Customers need your product to live happy lives--perhaps that's it.

How many times can you repeat that, and where, and who can you get to repeat it for you?  What relationships does this VC have that can help reinforce the message?  Content you create, interviews, podcasts, speaking engagements, survey data you research and disseminate, events, engagement over social media...   VCs need to see your message time and time again. 

Founders should also be spending time in networks of other venture-backed founders--not only to learn, but to have their message and reputation echo back to other VCs.

"Have you met so-and-so?  They're really impressive."

Simplicity, consistency, repetition and pervasiveness.  That's how to get an idea to stick in a VC's head.