Are those people idiots? How to think about competition.

A lot of founders who pitch me tell me that they're the only ones doing something.  They're in the same ballpark as a major player, doing something just one tiny bit off from what they are, and they expect this company to get their lunch eaten over the next seven years while an IPO-sized company is grown right under their noses.

The people who work at your competition...   Are those people idiots?

So there's this super obvious key to victory that doesn't require more than a seed round to prove out, and you've got someone already in the space with all the connections and awareness they need, but... what... They're just twiddling their thumbs like idiots?

I can't tell you how many times I've asked people that question.  It's not that I think competition really matters a whole lot in the early going--but what matters more is that you understand your market.  

I want you to be able to thoughtfully articulate why the competition is hamstrung.  Maybe you differ in your view of where the future of this industry is.  Maybe they got caught up using the wrong technology.  Maybe your whole design DNA is different.

Maybe it's just that they just don't care, or that their people aren't good enough to execute what you can execute.

Or, maybe their team is actually stupid.  That could be your bet--but if it is, own it.  Make it an intentional bet, not your fallback bet because you were too lazy to do any real market research or that you're not a team who knows enough about a market to be in it.  


Writing Checks Doesn't Make You an Investor

I met with a family office investor yesterday and we were talking about his family's interest in diversifying their investments into early stage companies.

They mostly participated in real estate transactions--an asset class where actual due diligence is conducted, deals take months, even years to close, and assets are sometimes held for decades.  It's an asset class built on relationships.  You become a steward of not just property, but of neighborhoods, homes, offices--the places where people conduct their lives.  These are incredibly impactful relationships dependent on trust.  You might work with the same group of investors, contractors, agents and management companies for decades.

A lot of these people have started getting into the angel investing world.  The growth of co-working shed light on just how big an impact thousands of small startups can make on a market--and when these companies make it, they take down some significant space.  Participating in the upside of a company that started out as three people and now has a full floor in your building seems attractive to many.  

Something he said at the meeting struck me.  He said that he might like to get into the business of investing, but if he's going to, he'd actually like to get into the business, and "just writing checks doesn't mean you're in the business."

Here's what it means to me to actually be "in the business" of investing:

It means building long term relationships and acting in such a way--professionally--that you care about maintaining your reputation.

It means establishing a track record of not only success, but of trust.  This includes transparency around what deals you've worked on, and what your role was.  

It means having a strategy that leverages advantages and resources you have, and doing your homework.  

It means actively trying to learn and improve.  

You might not have a year to close a transaction, but that doesn't mean you can't be smart and professional about how you go about your business.  

Anyone can write a check--chasing the "hot" deal like a dog chases a car.  Without a plan, without a network, without trust, without transparency, or a path to learning that doesn't mean you're an investor.  

That makes you a gambler, or a hobbyist.

If you're a VC, you should do whatever you can to make your limited partners feel like investors.  Aim for engagements that make them more than just check writers.  You can do this through transparency, communication, opportunities to meet companies, like co-investing, talks, content and networking opportunities. 

It's better for them and for you--because check writers come and go, but investors are much more likely to see things play out over the long term.



Are you FOR or AGAINST hate in all forms?

Cue the news cycle again.  Mass shooting.  Guns.  Terrorism.  Blame.  

It's all hate.  Are you for more of it or against all of it?

Cue up all of the anti-gun, anti-muslim rhetoric.  

Let's find out if the shooter ever knew anyone from the Middle East.  Let's trace the NRA money.

Let's make some laws.  Ban the guns.  Ban the muslims.  

These aren't the causes--they're the outlets and the catalysts.  It starts with feeling like an "other".  You feel disconnected from the oneness of all of us.  Maybe you felt shame.  Maybe you felt alone.  Someone didn't like who you are or you didn't think it was ok to like who you are.  

Whatever the seed, it was planted.

America, as it turns out, is a very fertile place for the seeds of hatred to grow.  No matter who you hate--women, gays, Muslims, blacks--you can easily feel quite justified and be surrounded with more love via shared hatred than at any moment in your life.  

There's a togetherness in targeting "others".  This is exponentially true on the internet.  

Are we really that surprised that such a violent, insensitive culture gives birth to such horrific acts at a rate that far outstrips any other first world country?

Just look at how badly this snowballs after the fact.  Blame is placed, and we are divided further.  Nothing gets us angrier than hate--and the cycle continues.

Too many people have an incentive to keep the cycle going--the media, the gun manufacturers, the prison-industrial complex, and conservatives.  They perpetuate the notion that the world is a zero sum game where there are winners and losers, and someone else is trying to take from you all the time, and if you don't fight them, you let them win.

Donald Trump is the personification of these forces.  He is a perfect storm of fear mongering, 24 hour news cycles, and xenophobia.  

They're coming for you.

They're not like us.

They want to end our way of life, so we need to end theirs.

Hate them.  They hate us.

Do you really think your hate is "better" than their hate?

Who is "us" anyway?

Who are "they"?

Nearly every terror attack on US soil since 9/11 has been carried out by American citizens, most of whom have had little to no official training or contact with Al Qaeda or ISIS.  

They may think they're part of a cause--but no more so than Trump's hate is part of some kind of American "patriotism".  

We have a hate problem in this country more than we have a gun problem or any kind of problem with religious extremism.  People who fail to see that we are all part of a whole can't find their way to a state of connection with others.

You're either working for or against this hate.

It's that simple.

You're hypocrite if you hate all Muslims because one Muslim hated gays so much, and probably himself, that he took a gun into a gay club and started shooting.

Your hate is no better than his. 

Hate is never just.

Anyone who makes you feel less connection with the world around you--who tells you that there are vast numbers of people who are very different than you--isn't someone to be trusted or followed.

They are perpetuating the biggest lie we have going--that we are not all the same.  Somewhere along the line, the man who walked into the club this weekend could have used an embrace and he never got it.  

No one is born wanting to bring an assault rifle into a gay club.

The world doesn't need any more anger.  It doesn't need a leader who divides.  If we don't support someone who can bring us together, we will all fall apart.  

We are the shooter and the victims.  


Be Honest on VC Reference Calls

A friend of mine running a very successful company found himself conflicted over an upcoming reference call.  It was from a top college endowment that was taking a look at the next fund of a widely known VC who had backed him.

The truth of the matter is that their experience with this VC hadn't lived up to the hype.  The VC firm was growing quickly, having raised two funds in just a few years, each quite larger than the previous one.  At first, they seemed engaged, but they really didn't come through on the "rolling up their sleeves" approach that was promised during the fundraising.  

In fact, the main partner became increasingly difficult to reach, and a junior person started interacting with the company more and more.  Less than a year in, both had disappeared from board participation entirely, letting the other VC firm in the deal take the reigns.

The last thing this entrepreneur needed was to make waves.  Reference calls to potential limited partners seemingly have no upside to founders.  These investors are never going to fund them directly, and it probably helps in some way for the LPs in the funds who backed you to keep pouring money into those funds--regardless of how little the VC might have been helpful.  You don't want to see your main VCs go out of business while you're still running your company.

There is a downside, however.  It's not for you, but for the next founder down the line who winds up with them.  Many founders realize the hard way that reputations of many "top" VCs are little more than smoke and mirrors.  When I talk to founders about the VCs they really love--the ones who are working hardest for them--the first ones who come to mind are never the most widely known investors.  I don't know what's going on at a lot of the brand name funds, but it seems like a lot of VCs are kicking back and letting their past successes carry their effort--or perhaps they never were that helpful in the first place and just happened to be great at picking companies.  

Either way, when Limited Partners keep investing in VCs that aren't helping their founders, the life of founders across the board gets harder.  You want the system to be efficient--that the VCs working the hardest get to keep working--and the ones half-assing it go away.  When that Ivy League endowment comes calling, be constructive.  Tell them exactly how much time the fund is spending you and whether or not you are getting what was promised.  Institutional and professional LPs will keep confidentiality and they're dying for some real insights into who is really working for them out there.  

The same goes for VC references by other founders--which I hope founders are asking for.  If you're going to take someone onto your cap table you should talk to other people that VC has invested in.  Ask them direct questions about time spent and what the founders have asked for--and whether they've come through.  Look, we can't solve every one of your problems as an investor, but it's helpful to know who's really engaged and trying versus just spraying and praying with some option bets.

I've been running group reference calls around the fundraising for Brooklyn Bridge Ventures.  I'm very conscious of not demanding too much time from my founders with LP references, so I've asked a few of them at a time to join a group call.  I'll get 2-3 founders and a couple of existing investors and put them all on one conference call line.  I don't participate in it nor do I record it.  

When I have enough investors ready to do references, I'll batch them all together and send them onto the call.  So far, we've gotten great feedback.  The calls have become real conversations--and the founders and investors can either echo each other's sentiments about their experience or show that perhaps I'm not being consistent.  Either way, it becomes more obvious to the prospective LPs what's going on across the portfolio.  It would be easier to BS your way through a 1:1 reference call--but it's tougher to do in front of other founders who have the same relationship with you.  

At the same time, less sophisticated LPs gain the benefit of the questions asked by people who know what to ask.

Every VC should aim for their reference calls to be where the rubber meets the road--because reputation is really all you have in this market.  If your founders don't go out of their way to speak highly of you, you're  not going out of your way for them.  

You Don't Need a Co-Founder

...but you do need a team.

And if you happen to find someone amazing you want to partner up with, that's fantastic.  Just don't go picking someone who really doesn't compliment you just because it's some kind of VC rule.

I've heard a lot of VCs tell founders they need co-founders--and that they wouldn't look at a business at a very early stage without a co-founder.  A lot of accelerators treat solo founders the same way--making it an implied requirement to participate.  

Would you have not wanted to back Jack Ma at Alibaba because he didn't split the majority of his equity with a partner?

The same holds true for VC funds.  A lot of limited partners wouldn't participate in funds run by a solo GP--despite the success of solo funds run by Steve Anderson, Shana Fisher, and that really scrappy Brooklyn guy.  As with most things in Startupland, there are numerous exceptions to rules around success.  

Experts will trot out tons of examples of businesses with co-founders and they'll say it proves some kind of rule--because there are way more examples of success with multiple founders, then you must need a co-founder to be successful.

After all, they'll say, there are too many things to do in a startup to do on your own.  

Well, of course there are.

That's why you need a *team*.

That doesn't mean the first person on the team besides you also needs a board seat and 40% of the common equity to do it.  I'm pretty sure they also don't mean someone who came up with the idea, put in some initial capital and did some key initial work while doing another job--because then you'd have a Co-Founder along the lines of Garrett Camp at Uber.  He was instrumental to the founding of the company, but didn't work fulltime on it for a prolonged amount of time--because he had his own company to run.  I don't think you can get into YC with this kind of "Godfather"-type co-founder as your partner if they're not going to be there day in and day out.  That's not what people mean when they say you need a co-founder.

We don't really even have a consistent definition of what a co-founder is--so it seems preposterous that there could be such universal agreement that everyone needs one.

To me, a co-founder has a shared responsibility over the direction and vision of the company.  To me, the test of whether someone is truly your co-founder is if you'd give them one of two board seats and whether they'd run the business if you left.  Otherwise, you're more of a key founding employee.  You'll probably get 5% of the equity or so, and while you did important work, it's likely that the company could have been created without you.

These kinds of co-founders are awesome, but you can get into trouble when you start giving them huge chunks of equity or they think they're going to be in it for the long hall.  They're often not the people who have the ability to scale up and lead teams, finding themselves without a role as the company grows and evolves.

That makes it really tough if there comes a point when they're not the right person to fill a role.  Because of the misnomer "co-founder" title, they feel like it's their company, even though it's not--and no one likes to have to leave something they feel ownership of.

Co-founder disputes can be emotionally draining and disruptive--and they can tear companies apart.

Therefore, it's not only key that this is a person you really *want* as your co-founder (as opposed to feeling like you need them), but that their role reflects what they mean to the company.  Too many people pick the person who just happens to be the #2 person at the company, especially when it's the other side of the business person + technical person combo as their co-founder.  In reality, this person isn't in any way going to be anything like Co-CEO.

Differentiate between founding board members, founding employees, and true partners--the kind of co-founder who could run with the company if you weren't around.

Completing your team as much as your resources allow you to is a critical strategy--and it should be carefully considered, planned ahead and constructed to scale  Jumping into a co-founder relationship is like jumping into a marriage where the plan is to have as many kids as possible ASAP.  

This is someone you should take the time to find someone great for--who compliments you and brings out the best in you--because that's what's best for the company, not because some VC told you to pick just anyone.