Category Archives: Startup Pro Tips

The Proper Way to Do an Email Introduction #STARTUPPROTIP

Today’s StartupProTip regards the proper way to tee up an introduction.  I had thought the “opt in” protocol was pretty well understood out here, but I’ve seen at least a handful of violators in the past few days, so I thought it’d be worth a revisit.

First some background.  In the tech startup world and ecosystem, people are constantly looking to get introduced.  Introductions to potential hires and cofounders, potential customers, potential investors, potential investment opportunities, etc.  And often, there will be an intermediary, the referrer who knows both parties, who can connect the person  seeking an introduction and the person being introduced.

In these cases, the proper protocol is what I call the “opt in approach.”  Recently, though, I’ve seen many who’ve gone what I call the cold intro route.  Here’s the “cold intro” route, and its to be avoided:

From Susie

To: Jay & Bob

Re: Intro Jay & Bob

 

Hi Jay & Bob,

 

I think you two will enjoy meeting each other, so I’m connecting you here.  Bob, Jay is a vc at BlueShirt VC and he’s invested in our company.  Jay, Bob is starting a company.  I’ll let you two connect and take from here.  Hope you can connect!

 

This is a cold intro.  Don’t do it.  Neither party has a great sense of the other person, nearly impossible to prioritize.

Instead, use the Opt-in Approach.  When Susie offers to connect the two nodes, she should first contact privately the person who would be the receiver of the introduction.  The referrer provides some context for the sought introduction–who the person is, why they want to be connected to you, etc.  This gives the person being introduced the opportunity to vet and prioritize this slightly; he or she can respond with a direct email then helping guide the referrer on how to tee up the introduction, etc.

Here’s how it works with the same hypothetical example..

From: Susie

To: Jay

Re: Potential referral

 

Hi Jay,

 

Hope you’re well, great seeing you last week.  A former colleague of mine, Bob, is starting a company and I think you’d enjoy meeting him.  Company is involved in spaces you care about, and he’s a star.  Let me know if alright to connect you.

 

Thanks,

 

Susie

 

***

 

From: Jay

To: Susie

Re: Potential Referral

 

Hi Susie,

 

That sounds great.  Please connect away!  I’m out of town next week but happy to meet up–any referral from you is always welcome!

 

BR, J

 

See how easy that is.  Now when Susie tees up the intro, we are all on the same page.  She can even let Bob know that I’m out next week.  No fuss, no muss.

 

 

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#STARTUPPROTIP : Have (& use) an email signature

The problem: I’m running late to a meeting at a location I’ve not been before.  I’ve parked my car, and I’m on foot.  I want to call the person and tell them I’m running late, that I’m just around the corner.

From my iPhone, I open my calendar invite or the email thread confirming the time, and in the signature line of the other person is the simple, informal signature:

Thanks,

Chris.

No phone number.  No address.

Kind of a bummer.  Must spin up web browser and hope I remember name of company that you’re at and that the company has a web site with address.

The solution: set a signature that includes your name, your phone, and your physical business address.  Email is still an important product, useful to use it well.

 

 

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UberConference’s Awesome Video

For founders seeking funding and investment, one of the most common pieces of advice is to start a pitch by answering this question:  ”What problem do you solve?”

It’s good advice–the last thing you want to do is launch into some obtuse description of your game-changing, proprietary, patent-pending, SaaS-based architecture with a REST API thingamajig without providing any context for the pain that your thingamajig will ease.

For pitch days, top tier startup incubators like Y-Combinator, 500Startups, and AngelPad do a terrific job getting all their founders to describe cogently and quickly what’s broken and what they aim to fix.  It’s grounding, it builds confidence and credibility in the team.   One of the many, many reasons that these and other incubators are providing so much value and usefulness.

One of the challenges though is to understand at what altitude to fly with these problem statements.  Do you just go with “Job hunting sucks,” or “We find your lost socks!”, or is there something more to it.

In general, I’d say stay high-level.  Fewer words are better.

At the same time, in a longer pitch, you are going to want to show concrete and clear understanding of the customer pain point you are trying to solve.  In my mind, this speaks to the product chops of the team, and the depth of understanding of the opportunity.

For a *GREAT* example of this depth and concreteness of understanding, check out Uberconference’s video.  It’s 90 seconds of awesome.

It frames up as well as anything I’ve seen in a while the problems with Conference Calling that the team is seeking to solve.

 

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Advanced StartupProTip: Real Time Metrics

Speed and responsiveness are key requirements for any company, for startups in particular.  Recently, I came across a startup that has taken these traits to an interesting and useful extreme.  Specifically, they’ve got a real-time dashboard that tracks every material metric for their business by the minute.

Every minute of every day the metrics for the business are updated.  How many users, how many views, how much revenue.  It’s a really simple concept, but as I’ve thought about it and as I’ve talked to the founders more and more, I’ve been more impressed with how astute and savvy they are about their users and their customers.  I believe this is not simply because they have achieve product market fit.  I believe an element to this is that every minute of every day they have a real sense of what’s happening with their service.

So the StartupProTip today is to challenge yourself to see whether you can get your scorecard into a real-time view.

 

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BizWorld

BizWorld & The Lean Startup

My son, Hobie, and his fourth grade class recently completed a mock business and entrepreneurship class called BizWorld.  I had the good fortune to visit and mentor these 10 year old would-be founders.

It was a blast to watch these kids work through the different steps of the business.  Three highlights worth calling out, as lessons and perspectives to startups at any stage.

First, don’t run out of cash.  BizWorld is a turned based simulation.  The kids are split into teams all building, marketing, and selling little friendship bracelets.  Buying materials and doing marketing costs money, which they have to get through early stage investment from mock venture capitalists.

At each turn, the instructors/facilitators would have the kids work through their P&L for the turn and build a rudimentary balance sheet.  Watching the teams argue about why their ledgers didn’t reconcile was hysterical.

The message I reinforced to them was that pointing fingers at who spent what didn’t really matter at the end of the turn.  What mattered is understanding (a) how much cash was on hand; and (b) what spend they could avoid or trim in the next turn so that they could preserve capital.

Don’t run out of cash!

Second, just go.  Kids are fun to watch, because when you ask them to say, build a marketing and promotion campaign in 10 minutes, they just do it.  Not much time, they just start slinging. Obviously with some stuff in startups, deep and careful thought and design is required.  With most other stuff, especially very early on, taking a ready, fire, aim approach works just fine.

Third, a critique of BizWorld, don’t raise first! I started my mentoring and guidance at the BizWorld by helping a team of kids assess the order of stuff they had to do, based on a worksheet the BizWorld moderator was making us fill out.

The worksheet had a set of steps that the kids were supposed to discuss and put into order.  The steps were things like:

  • Market and sell your product
  • Design your product
  • Raise money from investors in order to buy materials
  • Count up profits

The kids first thought was that they needed to raise money.  As a coach mentor, I suggested to them that maybe they’d want to actually design their product a bit first, so that they’d have a better chance of getting capital from an investor.  They thought this made sense, so they decided to put “Design your product” as the first step, with “Raising Money” coming later.

I stood back and beamed at my good mentoring, thinking we’d have a good discussion about what to do first when he called on us.

When he did call on us, and we said, “Design Product,” was our first step, he kind of rocked on his heels and said, “No, in this case, we need to Raise Money first.”

I gasped a bit, and the facilitator guy moved right along…  Raise Money, then Design Product.

A good thing he’s not raising money from me!

This is a light critique, as we did eventually return to this topic and discuss the reality that ‘it depends’ in terms of when a company raises money.  But for all you founders out there, raise as late as possible!

 

Support info for Anatomy of a Pass

I’ve recently written an analysis of pitches I’ve taken in the last several quarters and what drove whether I invested or passed.

Below is a more detailed description of the scoring rubric I built and used.  Happy to take questions and receive sugestions on how this could be improved in the future.  Also, on Scribd, I’ll post the raw data anonymized and this scale, so that people can dig in.

Again, hope this is useful.

 

 

 

 

 

Score

Team Market Traction Product Likelihood of Term Sheet

5

Founder(s) are known entities, prior CEO startup experience.  E.g., Max Levchin, Mike McCue, etc.  No questions on character, work ethic, etc. Firebreather.  If achieved, opportunity would change the world, change an industry, etc. Breakout market traction.  Most likely shown not just through Unique Users or Downloads, but also through engagement (time on site, repeat visits) and user growth. Market leading product in market. Agree to invest & offer term sheet

4

Founder has strong technical chops, startup experience, and unfairly specific subject matter expertise on the business and customer s/he’s chasing.  Core foundation of team is in place.  Highest calibre of work ethic, character, etc. Exciting.  Opportunity to build a significant business, and potentially very interesting independent company. Early indications of strong market traction.  May be on a short time horizon, or after a short burst (e.g., getting featured on iTunes App Store), making telemetry a bit early. Product in market, getting traction, vision towards market leadership Pass, but with close monitor

3

Founders have strong tech backgroudn, may or may not have startup experience.  Team may be incomplete.  No quesiton on work ethic, character, etc. Medium.  Some opportunity to build an interesting business.  Some question about the size and scope of the opportunity. Early indications of product/market fit, though too early to tell.  Usually very shortly after launch. Product in market, getting traction, vision towards market leadership Pass, passive monitor

2

Founding team has some specific background shortcoming, which they are prepared to address.  (E.g., too few technical people, overabundance of MBAs and/or Advisors.)  May have an open question on work ethic, capacity, character. Weak.  Difficult to see how achieving business success with the opportunity yields large scale disruption, impact, or opportunity. Zero or very early market traction, with founders showcasing compelling model and approach towards how they plan to address and adjust. Product in demo / alpha/non-public form. Pass, cold

1

Founding team has significant credibility isuses in terms of core skill set and requirements, may also have core issues on work ethic, basic organization skills, character, etc. Missing totally. No or weak market traction and weak understanding of how important focus on market traction and product/market fit is. No demoable product. Pass, avoid

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Don’t Go All In, Unless You’re All In

With last week’s monster acquisition of Instagram by Facebook, much discussion ensued.  Is it the dawn of a new bubble?  What happened to RIP Good Times?  Is now the time to start a new company?  Or is Instagram/FBK just too much of an anomaly for us to draw anything from?

FounderInstitute’s Adeo Ressi penned on TechCrunch Instagram Aftermath: It’s Time For Entrepreneurs To Go All-In, which argued that the good times were now in full roll.  Now was the time to start a company, take the leap, etc.

One of the first comments however came from 500startups’ Dave McClure, who basically said, hey don’t go crazy, dawg.

I consider both of these guys terrific for startups at a global scale.  You won’t find two more dedicated to helping founders build and scale their businesses.  So that’s great.

In my own view, I’m more McClurian in my views.  Before I get into the substance of my current views, I do want to provide some historical perspective.  I was in tech during the first bubble, working for Microsoft.  What I saw during the run up of Bubble 1.0 was a lot of people who had no real interest or business in getting started in startups, they just read a bunch of magazine articles and watched CNBC showing the huge pops of an overinflated IPO market and the riches that founders were attaining.  This drew a glut of folks who weren’t really involved in startups for the right reasons, they were interested in getting rich really really fast.  Nothing wrong with that desire per se, but frankly SV appears to be a magnet to this type of thing, and I want to be a caution against it.

So learning from the  97-00 run up, I’d say here what should have been said then: don’t come out here just because it seems like the market is great.  A small group may get lucky, but more likely, you’ll not be one of them, and you’ll be wasting precious time chasing a dream that’s not really yours.  Instead, come out here if you really believe in startups and if you can’t be stopped–by anyting, least of all the state of the market.

OK, history lesson over, now on to my substantive views on the Instagram / Facebook deal as it pertains to whether you should go “All In.”  This is basically just a bit more detail on what I’ve already said, but here goes.

On the one hand, Instagram / Facebook signifies that for truly extraordinary, breakout products, the big guys are going to have to pay up at real prices.  Its also all the more notable given that Instagram didn’t have any revenue.  With the thawing of the IPO markets that we’ve seen in watching Groupon, LinkedIn, and Zynga go out, we’re seeing more paths to liquidity.  All this is good and supports that the market is improving.

At the same time, I’d not go so far as to say that now is the time to go “All In.”  Starting a company is really, really hard for the vast majority of companies.  Finding and building the right founding team: difficult.  Building something that people want : difficult.  Figuring out how to recruit and keep the team on board before you have money to pay them: difficult.  Growing your measly user base: difficult.  Etc.  Etc.  Even in a *GREAT* market, its difficult.

So while FBK-Instagram is exciting and signals an increasing momentum in the marketplace, it doesn’t really change the reality of startups, which is that they are really difficult.

Given that startups are really difficult irrespetive of market, then my view is that you want to think much more about whether you are really well-suited to be involved in startups before you get into starting a company.  If you are wired for the hard work, for the uncertainty, etc., then I’d say anytime is a great time to start a company.  I’d say that you’d probably want to start with Paul Graham‘s blog, which I think is the most useful and concrete place to find useful advice.  And then I’d figure out how you go about getting involved in startups.  Again, irrespective of market.

 

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How to Get a Job in Venture Capital After B-School

Aside from receiving a lot of pitch decks (which I generally love receiving), the second largest category of emails I get are from MBA students (and recent grads) asking how to get a job in venture capital.  This post is for you.

The emails I receive generally take this form:

 Dear Jay,

I’m a second year student at XYZ MBA program, and I’m interested in getting into a career in venture capital (or private equity) after I graduate.   I believe that with my strong analytical background, intellectual curiosity, and leadership skills that venture capital would be a great fit for me.  I would appreciate learning whether BlueRun Ventures has any plans to hire an Associate, and if so, whether I could speak with you about this opportunity.

Sincerely,

Joe (rarely Jane) MBA

 There are a few parts to my answer to this type of approach.

The first question that I would discuss with you is whether working as an Associate help you build a career in venture?   I don’t think that this is at all clear.  The most common post-MBA entry-level jobs are  investment banking or consulting, and both have very established Associate programs.  You join the ‘i-bank’ or consulting firm, and you work at a certain level, and things follow a well defined pyramid of ‘up or out.’  After 12-24 months, you’re either promoted up to the next level of the pyramid, or you move on.  And the skills you learn as an Associate, generally help and prepare you to be a Vice President, which in turn prepares you to become a Managing Director, etc.  Very clear and generally well understood processes exist there.

In venture, this defined process doesn’t broadly exist.  While some firms take an approach similar to what an I-bank or consulting firm would do in an Associate program, most especially in early stage investing don’t take that route.   Instead of setting the Associate up to become a Principal or Partner, the firm asks the Associate to get out into the startup community and meet as many founders as possible, to see everything.  Generally this involves a very large expense account and lots of parties and networking—a job that can be fun as all get out, but not one that necessarily sets you up with the skills you’d need to be value accretive to the firm or the venture industry long-term.  More often, these Associate roles are kind of a two year hiatus of meet a bunch of founders and build your network, help run due diligence, and give input at partner meetings.  Then after two years, you’re meant to get out into the ecosystem to ‘build operating chops.’

This is certainly a route, and to be fair, some who start as Associates do end up climbing the ladder to become Partners.

At the same time, if you’re going to consider doing the Associate gig at a firm, it’d be useful for you to know whether there is a track record at that firm of Associates moving through the ranks or whether it’s more a 2-years and out program.  So that’s the first thing.

The second element to this though is probably even more important, and deserves deeper consideration.  That is a more strategic view of how do you as an individual add sustainable value to a venture firm, thereby giving you differentiated substance as to why you should earn the role relative to your competition.  This is important not only to land a role in venture; its important to think about how you add value over time once you’re in a firm.

To me this is all about what is the equation of value creation in venture, and how you showcase it.  To me there are three elements of value that really matter: (1) proprietary deal flow; (2) credibility; and (3) value add with founders.

Deal flow is lifeblood to a venture capitalist.  And proprietary deal flow is about how do you get access to great deals.  The more of the great deals you can bring to the firm and get done, the more valuable you are.   This is true for anyone in the industry: top partners at the top firms, all the way down to first day on the job associates.

If you don’t have a network in tech startups, you’re at a severe disadvantage IMHO, and you need to work on remedying that.  One MBA candidate who contacts me every few months to look for a job in venture attends a top B-school in the Midwest.  Every time we speak, I tell this person that he’s got to get out here and get to know people and get a network.  Sitting in b-school class in the Midwest does nothing to get him any network or any insight as to what deals are interesting or what teams are worth watching or knowing.  Why wouldn’t a venture firm just hire some kid from Stanford who’s worked on their on campus incubator?

If you’re a b-school student who’s not out here in the Bay Area, then find ways to get out here.  Do a summer internship out here.  Visit during breaks.  Get involved in any way you can so you can meet people and start building a network.

Credibility is also important to build: both with the partners of a certain firm and with founding teams.  This is also a challenge for most MBA candidates targeting early stage firms.  The challenge most often is that the MBA candidate lacks both technical skills and insight and concrete experience working in a very early stage company.  While the MBA candidate may be analytically rigorous and a quick study, their inability to approach a partner or portfolio company founder with credibility of having been in the environment or having had strong technical skills makes it difficult to convey value to stakeholders key to your career.

So my recommendation here is that if you have no operating background in the high tech startup world, then get some.  Work for a small company or even work for a larger established company, e.g., Facebook, Google, etc.  The most important key here is to establish that you have operating chops and you have a perspective formed around getting products into market and getting users interested in what you’re effort has produced.

Finally, and related, you’ve got to have credible value add for founders.  If founders think you’re a joke, you’re not going to survive in the industry.  The good founders all know each other and your reputation in the industry is mostly controlled by these folks.  If you’re useful and effective, then they’ll say that.  If you’re not, they’ll let the network know that too.  Whenever I speak to an MBA candidate about getting a job in venture, I’m visualizing what an interaction with that candidate and one of our portfolio company CEOs would look like.  Too often, my assessment is that the CEO would basically ask me to never put the MBA candidate in the room with them again  as they would be a time waster.

With these as the core components of creating value in venture, then my recommendations to MBA candidates seeking to build a career in venture are basically the following:

Don’t limit yourself to looking for a venture role right out of B-school, look also at operating roles at tech companies.  Especially as so many Associate roles are 2 years in duration and then you’re bumped out into industry to gain operating skills, why not just start by building the operating skills?  In an operating company, you’ll have the opportunity to build a network.  You’ll gain opportunities to create real value and gain experiences that give you credibility in your industry.  This helps you gain credibility with the partners and the founders in your space.  And when you start interacting with rockstar founders, they’ll see you as someone who’s accomplished something, who knows what you’re talking about.

Get out to the Bay Area.  New York and Los Angelese are both surging as startup areas and I don’t mean to take anything away from them.  If you have strong proprietary networks and connections in either place, then sure, consider those markets carefully.  But all things being equal, more venture firms, more startups and more people in the industry are here in the Bay Area.  If you want to build a long-term career in this industry, the smart bet is to come out here.

Evaluate your progress on the 3 elements of value I describe abve, and commit to joining venture in the long term.  I’ve described above what I think are the 3 core elements of adding value in venture.  If you’re really passionate about joining this industry, then commit to getting there in time.  Understand that irrespective of when you join the industry, it will be important to always be making progress on these 3 elements of value add.  In my view, you want to track progress on these 3 elements before and during your career in venture.  So I’d say get started, build your network, build your credibility, and figure out how to add value to founders.

 

Good luck!

 

 

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#STARTUPPROTIP — Inevitability

Last month, I had the good fortune to host a group students from Duke University who had come out to SF & Silicon Valley for their spring break to get exposed to the startup world here.  We ended up at The Counter on California Avenue in Palo Alto, and the folks there at the Counter really took great care of us (topic for another post).

During our time together, one of the students asked me “What exactly are you looking for in the people or the teams you invest in?”  This student then followed it up saying he wanted to understand how what he’d need to do to break-through and gain the attention of an investor despite being just a student.

Now before I go off on my thoughts on this, I’d say that “being just a student” isn’t an obstacle to investment, at least from what I consider the best venture investors.  Benchmark Capital’s Bill Gurley’s recent post, Why Youth Has An Advantage in Innovation & Why You Want To Be A Learn-It-All, illustrates why it’d be a sucker’s bet for venture investors to look past an investment opportunity purely based on the youth of the founder.

Net: if you’re a student and you want to start a company and need to raise money, my view is that you have the same challenges that every other founder faces—you’ve got to build something people want and you’ve got to blast through whichever walls are in your way.

So with the being just a student thing set aside, then to the heart of this guys question, namely, what am I looking for?   If there were 1 single word that I’d site as the thing I’m looking for with the people that I invest in, it’d be this….

Inevitability.

Inevitability means that no obstacle will be too large.  Inevitability means you have a vision of where the world can go that you see, and that you’re the unstoppable force to get the world to buy in to that world.  Inevitability is about focusing on not stopping until you get any number of commitments that are needed—the code written, the product shipped, the customer sold, the investor closed.  Inevitability.

When I think about the many CEOs we are actively working with at BlueRun Ventures, we see different personalities.   Some are very technical, some business driven, some both.  Some are extroverted, others are introverted.  Whatever, there really isn’t a template in my view, different folks thrive at running different types of companies.

But a common thread that I definitely see is a push that drives for inevitability.

So don’t worry about whether you’re still a college student or whether you’re even in college.  (Believe me, having a college degree does not correlate to startup success, just ask Bill Gates, Mark Zuckerberg, or Michael Dell.)   But do worry about how much inevitability you are driving in your business effort.

 

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Advice for Founders: Consider The Efficient Frontier

I’ve gone off on this riff several times in the past several weeks, and so I wanted to turn it into a blog post.  Caveat that I am an MBA, and this will show here.

the Combination of Risk-Free Securities with t...

the Combination of Risk-Free Securities with the efficient frontier and CML (Photo credit: Wikipedia)

According to Wikipedia, the efficient frontier

The efficient frontier is a concept in modern portfolio theory introduced by Harry Markowitz and others. A combination of assets, i.e. a portfolio, is referred to as “efficient” if it has the best possible expected level of return for its level of risk (usually proxied by the standard deviation of the portfolio’s return).[1] Here, every possible combination of risky assets, without including any holdings of the risk-free asset, can be plotted in risk-expected return space, and the collection of all such possible portfolios defines a region in this space. The upward-sloped part of the left boundary of this region, a hyperbola, is then called the “efficient frontier”. For more information see modern portfolio theory.

Put simply, the efficient frontier is saying that any well done investment opne makes matches the risk with the potential reward or return associated with it.  Very low risk investments (e.g., US Treasury Bills) basically assure a return, but a small one.  For risk investments, in junk bonds or startups for example, investors should demand a higher rate of potential return.  The efficient frontier basically illustrates that it is irrational to invest in high risk investments if the expected payout is very low, or conversely that one had better think twice before making an investment that appears very low risk but promises high expected returns (e.g., Bernie Madoff).

Here is why I find this concept useful.  Most of the time, the big issue that drives me not being willing to invest in a company has to do with the fact that the idea and the market opportunity is just not all that big.  Even if the idea became a monster of a hit, the market size and the potential reward wouldn’t be all that interesting.  As a VC, I’m by definition putting capital into very risky investments, and as such I’m not doing my job efficiently, if I’m not looking for huge rewards.  

This thinking is useful for founders, I think.  As a founder, your most precious and valuable resource is actually your time.  Time you spend working on your business idea is time you cannot get back and spend doing something else.  Given that life is short and time is precious, I recommend that people think about the deployment of your time on a risk-reward continuum.  The higher the risk, the higher the potential reward should be.  And so any startup endeavor that you undertake–even if everything goes perfectly from Day 1–is going to be incredibly difficult and fraught with risk.  Very high risk means you need to have the oportunity for very high reward.  

If you are working on a business or startup and you’re not aiming very high in ambition and effort, then I’d probably suggest to you that you’re not deploying your time all that efficiently.  The risk will basically be constant.  Either aim higher in terms of potential reward and ambition, or frankly, de-risk the effort and seek a less dangerous path.

 

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