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This blog represents my own views, not those of my employer, Brooklyn Bridge Ventures.

Do not pitch me a story or book review for me to write about. This is my personal blog. For more info on that, see this post.

 

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If you'd like to pitch your startup to me, there's no such thing as too early to talk. Drop me a line at charlie@brooklynbridge.vc or see if I want to meet in person at http://meetme.so/ceonyc.

 

 

 

 

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Faulty Logic in the Venture Capital and Female Founder Discussion

Let's get one thing straight.  The world and every individual in it is a biased place.  We all have our inherent biases and what I am not arguing here is that the venture capital world is a fair playing field for anyone.

I repeat: I AM NOT ARGUING THAT VENTURE CAPITAL IS FAIR TO ANYONE.

HOWEVER...

It weakens your argument, whatever it is, when you use faulty logic.  So, if you're going to argue that the process of venture capital is inherently unfair to women, here's the logic that you *should not* use:

"Less than 3 percent of the 6,793 companies that received venture capital from 2011-2013 were headed by a woman, according to a study from Babson College released Tuesday. That means that out of nearly $51 billion in funding that startups received over those two years, a comparatively teeny $1.5 billion went to women-led ventures."

Sounds awful, right? 

It may be.  It may not be.  We really don't know, because we're missing some critical information:

HOW MANY WOMEN ARE SEEKING VENTURE CAPITAL?

Unless you're tracking that statistic, there's no way to use *actual data* to prove how bad the bias is, or if there is any.  You can broadcast all the anecdotes you want about how badly women were patronized or not respected in other ways, but until you track that statistic, that's all they are--just anecdotes.  

I AM NOT ARGUING THAT WOMEN AREN'T SEEKING VENTURE CAPITAL.

They are, and perhaps not often enough.  There are studies that suggest that there are lots of perfectly fantastic female owned business that are undercapitalized because the founders aren't seeking it--perhaps they believe the system won't support it, perhaps it relates to perceptions of risk.  This is where I think there's a great opportunity for investment.  Right this very moment, I'm in the process of leading investments in two companies where I had to convince a team with a female founder to take capital.  

Whatever the case, the stat that just says that venture capital doesn't wind up in the hands of women is a very weak, incomplete story.

I repeat: I AM NOT ARGUING THAT VENTURE CAPITAL IS FAIR.

What you really want to know is, at the moment a founder pitches, can she get a fair shake?  Right now, half the companies I've backed at Brooklyn Bridge Ventures have female founders.  Does that mean I'm being fair and that I'm bias-free?

Nope.  It doesn't prove squat.  You don't understand basic logic and statistics if you think it does.

For all anyone knows, all things being equal, 80% of the BBV portfolio should have female founders in it because of the best deals I've seen, 80% of them were run by women.  Maybe I've missed out on some amazing opportunities because I'm being unfair and biased.  

You just don't know until you measure every part of the funnel.

It just frustrates me when super passionate people keep making a logically poor argument and get ignored because of that.  I want to see the playing field get more level, but it's not going to happen by just stating where venture capital winds up.

It's a bit like saying that because 99% of donated food winds up in the hands of the 1% poorest people, we've solved the hunger problem.  If you're not measuring how many people are hungry, and how much extra food there is, you're failing to tell the whole story.

I mean, we don't even know what the right number is.  Is it 50/50?  At 50/50, it still could be unfair.  We'd all be patting each other on the back on how level the playing field is, not realizing that its actually still way harder for a company with the same qualifications to raise money.  

Should it be the number that is reflective of how many women-owned businesses there are?  Would that make more sense?  I'm not totally sure of that either--because if all the guys own software companies and all the women own retail brands, and venture capital generally doesn't work for retail brands, then you wouldn't really expect venture capital to invest in women, would you?

And maybe all those steady growth retail brands are much better businesses from a cashflow perspective, but just not appropriate for venture capital where it's about the exit multiple.  

That would perhaps be a great argument for VC being a crappy asset class, but not necessarily an unfair one.  

Of course, that's a stereotype and a gross generalization--but the point is, we're living in a soundbyte culture around a very complex issue and it's really degrading the conversation.  

I repeat: I AM NOT ARGUING THAT VENTURE CAPITAL IS FAIR.

There is No Such Thing as a Great Team, Only Great Habits

Sometimes, an investor gets lucky.  They invest in a company with an idea that doesn't go anywhere, the company pivots, and you wind up in the next big thing.  

In hindsight, an investor will tell you that they knew they had backed a great team and that was the key to the investment.  It's never luck.  

I have a lot of trouble with the "great team" scenario, because it just doesn't seem to play out in real life.  What about when a company clearly makes a stupid acquisition?  When they spend hundreds of millions to buy you only to turn off your product and shut it off later, were you a great team, but you wouldn't have been a great team if you ran out of money two weeks earlier?

Is greatness innate?  Are you born to be an entrepreneur?  

Why don't all the people who have "great" entrepreneurial qualities succeed?  Wouldn't there be some test you could give all first time entrepreneurs to gage their entrepreneurial prowess to understand how good they'll be at running a company?

It feels like a lot of hocus pocus half the time--where we mistake agressiveness and ambition for qualities of good management in startups.  Maybe that's why half the time it seems that entrepreneurs are getting in trouble these days--because investors aren't as good as we think they are at funding the kind of people you want to back.

Adam D'Augelli, a very smart investor over at True Ventures, mentioned to me the other day something that rang true--that the best entrepreneurs update their investors with metrics, not stories.  That made a lot of sense to me, but what also led from that was the idea that watching metrics was a habit, not something you're born with.  It's something that anyone can get into the habit of doing.  Knowing your metrics and following them is a discipline and being disciplined is really what being a manager is all about.  Do you create processes that bring the right people to your company?  Do you create processes that allow them to communicate well with each other and execute?  The thing that makes a team more than just a collection of individuals is a system.  

The best entrepreneurs I've worked with have great habits and they create great habits in their companies.  They have a way to do just about everything--including how they go about learning what they don't know.  Good learning habits are key to success, because no one is born knowing everything.

I like this habit model of great entrepreneurs because it means anyone can get their given determination and discipline.  It makes greatness accessable.  

It's the same with culture.  Culture isn't innate to a company--it's a series of habits and practices.  It derives from conscious language choices when you hear from management both in public and private--from where incentives are placed, and related to how much emphasize is put on values, communication, and mutual respect.  It doesn't just happen.  It's a habitual practice.  

It's very similar to my own experience with running.

When you're younger, so much of your physical ability derives from the randomness of who sprouts up earlier, who was born just before the cutoff and happens to be almost a year older than everyone, etc.  Over time, those advantages disappear as the playing field evens out.  Your ability to be a good runner at the recreational level, as you get older, has more to do with your diet and exercise routine than it has anything to do with genetics.  In the top 1%, that might not hold, but I'm routinely finishing around the top 5% of my races these days without ever having been anything in the realm of being a top athlete when I was younger.  I'm just a lot more disciplined than a lot of my 30-something peers these days, and that's a big advantage.

Greatness is a practice that anyone can achieve.  I like it better that way.  

The Things that Will Break in My Lifetime

The Cost of a College Education

I just looked up how much my alma mater costs in tuition.  Fordham University, the 56th best college in the country, is now $44,000 a year.  That's a 6% annual increase since 1997 when I started and it was $16,000 a year.  Take that forward to when my future kid might be going to school and you're talking $141,000 a year tuition.  

What in the world could college possibly do for you to justify over half a million dollars in cost.  There's no way anyone will be able to economically justify that cost.  Hell, it would be cheaper just to hire private tutors in every subject and pay for the kid to live in a cheap apartment somewhere.  There's no way the college cost bubble won't implode.

 

Obesity

Diabetes rates, especially among kids, are off the charts and at some point, we're going to have to get serious about eating real food and exercising.  You'll see more and more companies like Tinkergarten that motivate kids and parents to get out of the house and out from behind the screen.  Maybe we'll figure out the ice bucket challege for heart disease, but if we don't turn our attention from long tail diseases that affect 30,000 people annually, a dozen potential ISIS trained Americans living somewhere in the US and the infintissimally small threat of child kidnapping, we'll figure out how to address the #1 cost burden on our healthcare system and actual killer of humans.  

 

Mobile Distraction

Look around the next time you go into a restaurant.  Both adults and kids are face down in their phones--swiping, liking, texting, etc.  Up to a quarter of auto crashes involve cell phones these days.  It's even causing marital difficulties as partners are complaining that their spouses just aren't present in the small amount of personal time they have together.  We're soon going to realize that we don't need every single notification at every single moment and the phones will get put away in favor of devices like Ringly that screen the world and filter notifications to right time/right place.

 

Cable Television

The idea of a channel that you pay for over and above just a data pipe is definitely going to go the way of the printed local newspaper.  When I can download any show, why am I paying for the channel that carries the show?  

 

The Release Cycle of Content

It's already happening.  Look at House of Cards--the full season gets released all in one day.  Soon, someone is going to enable me to pay $50 to watch Guardians of the Galaxy in my house the day it gets released.  Companies like Drip create a direct relationship between creators and content where you could send something to your fans every week instead of going through traditional channels to create and launch an album.  

 

The Job

One day, we'll mostly be freelancers, floating from project to project--and the idea that you only do one thing, working for a company will be the exception rather than the rule.  

 

Personal Lives

One day, no one is going to give a crap what you do on your own time.  You'll elect a single, atheist President or someone in an open relationship and it just won't matter to anyone.  The idea that we cared that anyone did anything that isn't any worse than stuff we've done will be a moot point.  

25 Pieces of Bullshit You Hear About Startups

This list needs no explanation:

1) You need a technical co-founder.

2) We're really interested in what you're up to, but would love to see just a little more traction before we fund it.

3) No one else can do this.

4) We decided not to charge our initial customers.

5) It's easier to get funded on the west coast.  

6) This is projected to be a $54 billion dollar industry by 2019.

7) Google can't do this.

8) We're oversubscribed in this round.

9) We wouldn't take $30 million if someone offered to buy us right now.

10) We only fund great entrepreneurs.

11) This accelerator is really hard to get into.

12) We're using lean startup methodology.  

13) Google will have to buy us.

14) I built that entire business for my previous company.  

15) We have an agency that is going to distribute us to all the major brands, so we fully expect huge distribution and revenue in the next year.

16) We're not raising money right now.

17) We have proprietary technology.

18) We need to move fast otherwise we'll miss this opportunity.

19) And we haven't even spent money on marketing.

20) We're getting a lot of interest from top investors.

21) Once these big customers start using what we have, they're going to switch right away.

22) Every small business is going to sign themselves up.

23) People need a convenient way to have everything in one place.

24) We won't need to raise any more money after this round.

25) Richard Branson is really interested in what we're doing.

Setting Kids Up to Fail

The nature of work is changing--we all know that.  You're required to be a lot more entrepreneurial, which requires you to build your own networks in order to get customers and collaborators, since these functions won't be under the roof of a big company anymore.

You'll need to be more mobile, nimble, and able to go where the work is.  You'll need to think globally.  

You will need to be a continuous learner, willing to pick up new skills as the world changes around you--meaning that your sources of education won't necessarily be accredited academic institutions.  

This is all pretty obvious, and has been for a while, right?

So how does this respond to how we seem to be teaching our kids?

Well, for starters, each generation seems to be facing a shrinking, not growing world.  Below is a graphic from a DailyMail article that shows how far kids in a family were allowed to roam as eight year olds.


From the DailyMail

Could you imagine letting an eight year old roam eight miles away these days?  You'd probably get arrested for child neglect.  However, how prepared was that kid for the rest of life after making those trips, compared to kids today that rarely ever leave the house on their own?  How prepared are kids today to face a global world when they can't walk off of their own block.

How likely are they to become lifelong learners when we've never had more emphasis on standardized testing, and therefore standardized learning?  The school we create for kids now makes them want to be done with school as soon as possible.  

It's like when people ask me how to get into venture capital.  They're always asking about the right way to do it, how to get an interview--all these very structured ways of approaching a system.  When I tell them stuff about adding value to the community, creating a personal brand, etc., it just doesn't compute.  Nothing that I ever did to get where I am in venture was difficult or special--but none of it was anything you really learn in a classroom.  

The world we're heading into requires a highly visible, highly network, flexible risk taker with a global perspective.  Yet, it feels like the US is churning out kids who never venture outside of their suburban housing development on their own who look for authoritative structures to fit themselves into and are taught to fear strangers, domestic and abroad.

Fail.  

Hopefully, companies like Tinkergarten and Tinybop can help expand kids' natural curiousity for the world around them.