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Some Rules for Marketplaces and Distributed Workforce Platforms

I've been getting involved with a couple of different models related to labor marketplaces and platforms lately.  My interest dates back to my 2010 investment in chloe + isabel back when I was with First Round.  I was still at FRC when we invested in TaskRabbit and Uber, even though I wasn't on those deals.  I've also run about 30 Kitchensurfing dinners across NYC for tech and startup folks in the last two years.  My two most recent deals involve a distribution of labor or direct sales, and two of my upcoming deals are similarly structured.  

Yet, I'm quick to turn many of these types of deals down, too--and I've started noticing which ones I like and which ones I'm less interested in.  

Here are my two main rules:

1. The labor supply has to get enough out of the platform not to want to go around it.  

Your Handy cleaner is undoubtedly going to want to get paid directly if you seem satisfied with them for sure--and why not?  Once you like them, you'll just want them to show up at the same time and day each week or every other week or whatever.  The platform is providing little value after the initial intro.

This is highly unlikely to happen with your Uber driver, however.   Who knows where they'll be the next time you need a cab, and you're not likely to use the same driver twice.  In this case, it's not about the cash, but about their ability to replicate the volumes off platform.

Recently, I've gotten interested in two models where the marketplace was cutting the provider in for a slice of the sales, whereas they used to just get paid a flat, hourly wage.  Being on the platform would be a huge boost to their net income.  

2. You need to get a nice chunk of the transaction to make it worth it as a marketplace.  

With some platforms, I can't help but think that a heck of a lot of human effort was expended to net the platform not a lot of cash.  If you're only taking a small cut, you've got to have huge volumes to make up for it, and that just takes a long time.

How can you provide enough to the labor so that they accept giving up 25% or more?  Otherwise, the land of the 5-15% cut is just really tough to make a lot of money on.  

I had some other rules down, but they really always seemed to come down to the two above.  

What Salary Means

When I was coming out of college, working in finance, I used to think a lot about my salary.  I wanted the best offer out of my classmates.  I wanted the biggest signing bonus.  I liked maxing out on raises and I liked the feeling I got getting to a six figure salary.  

The funny thing was that I didn't even particularly care about the money itself.  It was, in my mind, what the salary meant.  It was a way of measuring performance.  It was score keeping.

I missed the bigger picture of the other things that should go into career score keeping--autonomy, growth paths, equity/revenue sharing, the ability to gain public visibility, opportunities for learning, network building, etc.

As an investor, I get very involved in the hiring process of some of my earliest stage companies.  One thing that comes through consistently is that salary--specifically how someone goes about the salary negotiation process--can be a consistent predictor of performance.  

Nearly every time a company I've seen has had to stretch to accomodate someone's base salary, the person hasn't worked out.  When canidates have had the opportunity to choose between more equity and more salary, the people who equity greedy versus cash greedy tend to be better fits for a startup.  And when things at a startup aren't going well, it's your best employees that show up first with offers to cut their salary.

That isn't to say that you should accept getting underpaid just because you work for a startup--but acknowledging the reality that, especially early on, dollars given to you shorten the potential lifespan of this company, is key to understanding how things work.  

At the end of the day, we could all make a lot more money at hedge funds and banks anyway, right?  But, we value other things.  We score keep in other ways.  

Founders, I think the best thing you can do with your earliest employees is to be transparent.  Show your employees how their salary effects the finances of a company.  If someone looks at that situation, and requests a base pay that puts a serious strain on the company--then they're probably not a good fit.  The same is true when things aren't going well and your senior folks ride their pay all the way down without being flexible about trying to make things work.  

It's the equivalent of someone who sits down in the subway while watching an elderly or pregnant person stand right in front of them.  

They see what's going on and they just don't care.

Working at a startup means putting others and the company before yourself--because you know you'll have the best experience when everyone else wins, too.  It means being flexible about all sorts of things, like salary, that used to be your number one priority.

No one wants you to live in a barrel or your kids to go hungry, but startups are all about being a part of something bigger than money.  

Statistically, and practically, it's a bad way to make a lot of money, other than by exception.

If I was an Uber investor... (besides the obvious fact that I'd be rich.)

I like Uber as a service.  It just works.

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

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

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

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

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

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

I'd bow out.  

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

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

What would be the fallout?

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

Plus, the seed round valuation of his next company will be so ridiculous that my expected return won't be that much anyway.

Second, if you believe that the best companies going forward are more likely to be built be teams who try to build strong, positive cultures, the move would catapult me to the top of the list of VCs with the right internal true north to seek out for those deals.  Would another entrepreneur be more likely to want me involved in their company for drawing an ethical line or would they fault me for not sticking by Uber given the headlines?   I'd be willing to bet on the former.

Third, at the current valuations, even if I had to take a 50% discount, my investors would still be thrilled at the outcome.  Since I have a responsibility to be a good shepard for their capital, I can't imagine they'd be upset at me exiting at an $8 billion valuation and returning the fund several times over.  

You might fault me for not saying that I'd sell just because "it's the right thing to do", but honestly I'm not sure it is actually the "right" thing to do.  It doesn't actually do much to the company--and if all the people with strong moral compasses walk out, is that really the "right" and best outcome?  Wouldn't it be more "right" to try to effect change?  Wouldn't it be more "right" to speak out in public and be a thorn in the company's side?  (Because, that's probably about all you could do.  I don't see this as a company interested in getting "help" at this point.  Seems like they see these incidents as just impossible to avoid collateral damage on the way to building something big.)

When you're a minority shareholder, I'm not entirely sure there is a "right" in this situation.  It feels like a train that has left the station.

All I'm saying is that what some people are saying is "right" may actually be strategically attractive to a current investor at this point in time, which is interesting to me.  

Valuing My Own Time and Saying No

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

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

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

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


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

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

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

As always, I hope you are doing amazingly.


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

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

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

  • I won't do office hours anymore at incubators and accelerators.  You know those meetings where you get this endless parade of companies sitting with you for 20 minutes each?  I just don't think those are good for anyone.  It skips the whole vetting process for me--so I wind up giving time to a bunch of companies whose business model I might find problematic from the get go.  I'd rather get a list of all of the companies and then pick and choose who I'm actually interested in.  What I've been doing instead is doing a talk and agreeing to do a bunch of public Q&A that *everyone* can benefit from all at once.  Takes an hour or an hour and a half at most and everyone gets the benefit of a public conversation--versus three or four hours of pitches.  
  • Panel prep calls.  There's a special place in hell for panel prep calls.  It takes up a lot of cycles to schedule everyone and then we just kind of either a) awkwardly try to recreate the panel beforehand or b) each say what we think the panel should be.  If you're a good MC, you should just tell us what you want to hear from each of us and cut us off when we go off the rails.
  • No "Just 5 or 10 minutes" meetings.  So many entrepreneurs beg for just a few minutes of my time.  Those kinds of requests feel desperate and not only undermine their pitch, but it's still real time that adds up.  In 5 minutes, I could call my nana, answer some e-mail or help a portfolio company with some intros.  If I'm just not that into what you're up to, even one minute is too much.  
  • I only invest in NYC, so I won't take meetings with out of town companies or people "planning on moving".  Focusing on one geography saves me travel time and narrows the set of companies I'm looking at to the ones where I can get the highest signal earliest.  I don't know the startup networks in Chicago or Boulder, so it's that much tougher to filter the top of the funnel for out of towners.  Not only would it take me a lot more time in general to look at non-NYC companies, but even those individual deals take a lot longer.  It takes longer to get to know the founders.  It takes longer to diligence them.  These are cycles more effectively spent locally.
  • I rarely go to other people's after work events if I'm not speaking.  At this point in my career, I have to be pretty sure that I'm either a) getting exposure to a lot of people at once or b) getting exposure to really fantastic people and ones specifically relevant or interesting to me.  I don't really get that if I show up to an event where I'm just in the crowd and only get to meet the person next to me, behind me and in front of me.  Investing a few hours of time to meet five random people doesn't make a lot of sense.  Being on a panel or actually setting the event up myself might take more time, but I get a ton more out of it--and time management isn't just about cutting stuff out, it's about ROI.  As for learning, if I really want to understand a topic, I'd much rather just connect up with a panelist one on one.
  • I don't drink.  There are a lot of reasons I don't drink.  For one, I don't like the taste and I think I'm disproportionately sensitive to it.  Plus, I bike all over the place and need those reactive miliseconds to defend against taxi doors.  But, one big reason is time.  I really don't have the time to be fully awake when I wake up, nor do I have the time for headaches.  Any minute spent feeling less than fully "on" feels less than optimal.  
  • I take way less initial pitch meetings than the average seed investor--about 150-175 a year, which amounts to like 3 or so a week.  I know people who are taking three meetings a day.  That makes no sense to me.  There are roughly 400 venture deals being done in NYC each year these days, and maybe about 30% or so of those are seed financings.  That figure could be more if you're counting angel deals that don't really get reported.  In my opinion, if there are around 150 or 200 companies that get seed or pre-seed financing in NYC from *someone*, that's about how many meetings I could take.  If you're taking 300 meetings a year, that means that *half* of the companies you meet with never get financing from *anyone*.  That's a bad batting average and a lot of wasted time.  Just think about all the really terrible ideas that you see get funded.  Now think about how bad the ideas must be to not get any funding at all.  If that's half your meetings, you need better filters.
  • I don't take meetings just as favors for people.  One of my investors introduced me to a buddy of theirs in hopes that I would give them some feedback on their startup.  It wasn't the quality of deal I'd normally take a meeting with, so I turned down the opportunity to meet.  I gave the founder some thoughtful feedback, but declined the one on one.  I then explained to my investor that I felt like I was paid to find and invest in the best companies I could find--and if I took just one meeting a year as a favor to each of my investors, that would be an hour a week--almost 25% more initial pitch meetings than I take anyway.  That's a lot of time not spent trying to do the best deals on behalf of my investors and I'm sure if my fund performance wasn't up to par, they'd frown upon all those hours spent on favors.  

I'm sure there are other things I say no to, but I'm going to say no to writing any more than this.  It's more than enough for you to get the idea.

There are No Gatekeepers

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

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

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

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

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

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

I don't want to work with an investor who thinks that money should just open doors.  My time isn't for sale.  It belongs to my founders.  The really great thing about my fund now is that my investors are absolutely wonderful, respectful people.  I had one guy who was a managing director at a big asset manager write me like a full page and a half explaining why he wanted to meet.  

Maybe this person could have written a check for $5mm for my next fund, but then what would it have been like to work with them?  I'd rather spend the time finding 20 awesome people that I love to work with writing $250k checks.

The next time you don't like the way you're being treated, just walk away.  Your success is never going to come down to one investor, one employee, one reporter or one job.