The Tao of Brad

Last week I was on a long mountain bike ride and wound up spending a few hours grinding away on a particular difficult situation one of the CEOs I work with was going through, when some advice Brad Feld gave me years ago popped into my head and I knew it was just what my friend needed to hear. I pulled off the trail, sat down in the dirt and called the CEO. As you’d expect, the idea was well received and I got a call the next day saying he’d already implemented it and how helpful it was.

It struck me how many often I’ve used something I’ve learned from Brad and I began to imagine how many times others have done the same; call it the Brad multiplier effect. I decided to reach out to folks I know who have benefited from a relationship with Brad and see what the most valuable insights they’ve gained from knowing him. What you’ll see here are the responses from a broad spectrum of entrepreneurs, CEOs, angel investors, venture capitalists and friends who’ve spent time with him. I can’t imagine how many more people have similar anecdotes and hope anyone who does will share them in the comments below. 

I’ll start with my own. Years ago, I was wrestling with a significant life decision that while incredibly important to me, didn’t have a sense of urgency attached to it. I reached out to Brad and the next time I saw him we went for a walk (another jewel I’ve learned from him; deep conversations seem to always have more value when away from desks, conference rooms, and other distractions). He listened carefully and when I was finished, he took a deep breath and said “You can’t process when you’re processing.” What he was telling me was that you can’t force a big decision and that the more you let go of it, the clearer it will become to you over time. Of course he was spot on and sure enough, when I stopped squeezing the decision, I ultimately arrived at (in hindsight) one of the best decisions I’ve made in my life. I’ve shared this wisdom with so many others over the years and it’s had as big an impact on them as it did for me.

Below, you’ll find all of the responses I received. Instead of giving attribution, I thought it would be more impactful if they were anonymous. Knowing Brad, he’ll have fun trying to connect the dots.

 

As an investor, I’ve learned from Brad that just as you can’t time the public markets, you can’t time the private markets either. I learned from him to invest the same amount of capital year in, year out, in roughly the same number of investments. Ignore the macros. Sometimes you’ll pay too much, sometimes you’ll get a deal and sometimes your investments will be priced fairly. If you do this over a couple of decades, it will all smooth out.

Don’t optimize on price. It never, ever pays off if you’re playing the long game.

Do or do not. There is no try.

I was talking with Brad about angel investing and he shared with me the importance of a portfolio approach and how anyone angel investing should plan for a minimum of 10 investments. “Take the money you have allocated to this asset class and divide by a number 10 or larger.  If you are not going to make at least 10 investments you should make zero.” I took it to heart, made 28 angel investments and have given that same advice dozens of times.

The long game is the only game worth playing

“Give First” — obvious? Yes, but you asked.  This is not something that he has ever said directly to me, but rather it has been my personal true north as it relates to giving first being one of life’s greatest journeys. Brad’s generosity of giving first is fundamental to his personal and professional ethos.  He gives first of himself as a friend, as a mentor, and with his wisdom. He gives first one the most special level philanthropically, not just in dollars, but with time and most tremendous impact.   Brad also gives first by “going first”— in one example, his openness of his own challenges makes him such a special friend in his empathy and understanding. Giving first has become a personal mantra — and it’s through Brad that I’ve fully understood that it’s not a business lesson nor a personal lesson, but a way of being that has created such a fulfilling life. This lesson has had the greatest impact on me in literally every aspect of my life.

Don’t ask me what I’d do. Do what you’d do.

To respond to everyone, no matter who it is or how big or small the ask is because you never know when you may encounter that person again. After 15+ years of working for Brad’s companies, I still don’t know how he does it!

The best advice and insights I’ve received from him came through his use of the Socratic method in our discussions. Two questions he asked me a long time ago still inform my journey in life: “Is this what you want to be doing 5 to 10 years from now?” and “Are you having fun?”

The best advice I have gotten is from simply watching him and I’m lucky to have had so much time with him.

While not advice, I think of the “Dairy Queen Lesson” a lot — one of my favorite things about Brad is how much emphasis he puts on meaningful time and deep dedication to his loved ones.  Meaningful doesn’t equate to big events, hallmark holidays, or occasions, but rather simply investing time with those who are the most important to us, even on the most simple level of sharing an ice cream.  The way he talks about his partnership with Amy and the tremendous respect and love he has for her.  This has helped shaped my own view of marriage and communication with my wife.  I call it the Dairy Queen lesson because of the photos of Brad and his dad through the years, each and always with tremendous smiles and ice cream 1, ice cream 2, and on even ice cream 3 in a day. Those smiles and that mutual love and admiration know no bounds.  This lesson has had a powerful impact on me and have informed my own approach to life as a husband, a father, and a son, a brother, and of course, a friend.

Be intellectually honest with yourself.

So much. However the one that sticks out is right before I became CEO of (xxxxx). I was struggling with maybe it was time to move out of Boulder. I just had my second failure as a CEO and I felt like I needed radical change – and he said “You can move, but that isn’t going to fix your issues – they are inside of you and they will travel with you wherever you go. Stay where you are, get super involved with Techstars and become the most engaged mentor ever and maybe something good will happen when you give more.” Of course I don’t recall his exact words and this is more like my recollection of an entire conversation is summed up in that one quote – but the essence is the same. So far it’s turned out pretty good 🙂

Strangely the best piece of advice I ever got from Brad didn’t actually come from him telling me something.  It came from watching him.  Brad’s willingness to help people without ever expecting anything in return really impacted the way that I think about giving my time to people I don’t know.

I owe my morning routine to advice I got from Brad and it’s had a major impact on me. I’ve found having a routine for getting yourself out of bed is a key part of being able to wake up early. Other wisdom he’s shared with me that I value include establishing a cadence to your life (weekly, quarterly, yearly) and his matrix on cultural fit.

Spend your time with A players if you want to become an A player. Watch them, study them, learn from them.

Doing something for myself on a regular basis. Not my company. Not my wife. Not my kids. Do something that nourishes me or I’ll be useless to everyone else. Took that to heart. Changed my life.  

That’s a hard one Mark – so much good advice from Brad over the years. The best may be something he actually said to someone else, which was the way to best help your community is to do what you’re awesome at (he was responding to someone asking him: “what can I do for you?”).

The good thing about venture capital is you can only lose 1x your money!

So much of the advice that I get from Brad is situation specific. I can’t say that I actually recall him ever giving broad advice vs highly specific advice. One generalization that I will make that I’ve noticed him do often though – when someone will come to him and ask about a tough decision where they are torn between various paths for all these intricate and complex reasons, he’ll cut through the fog and ask some incredibly simple question like “what do you actually want to do?” and then the rest of the discussion is about what if you just did that. He naturally challenges the assumption that these sorts of decisions have to feel heavy, and that’s been a valuable perspective for me to absorb.

To believe in myself.

Hmmmm. I think it’s the concept of taking care of yourself and being healthy; being true to yourself, as well. He’s always been a great supporter of doing what’s best for me even when it’s wicked hard.

Back when I was leaving (xxxxx), I barely knew him, but he took the time to go back and forth with me over email to help me think through some of the things in front of me and I think that email exchange was a big reason I didn’t go do another big corporate exec job. He talked with me about an offer I had at (xxxxx) to move to (xxxxx) and run (xxxxx) and their (xxxxx) business and how I’d spend my time dealing with their legacy tech and fixing old shit that other people broke and how depressing that probably would be, which really resonated with me.  It was the last time I ever considered any sort of bigco exec role.  We talked about viewing opportunities on a disruptive scale. I ended up choosing the “middle path” with that decision and joined (xxxxx), eschewing xxxxx which was on the more disruptive path. Of course, I ultimately joined (xxxxx) to be on the much more disruptive path 🙂

Guilt is a worthless feeling.

The importance of unplugging and being present.  In a fast-paced and sometimes frenetic world, the lesson of unplugging for a digital Sabbath, for time off the grid, and for time with family has been advice Brad has imparted on me.  In one instance, I shared with Brad that I was using social media more than I had wanted to, that I didn’t feel good about it, and I then riffed on a million excuses of why I still did it when I didn’t feel good about being “always on.”  Brad simply said, “why don’t you just stop? Take a break from it for a few months — honestly, what’s going to happen?”  Simple, to the point, and spot on.  The bigger lesson here was being present for our loved ones and for ourselves.  To enjoy life’s special moments. He was right. Stepping away helped me gain an entirely new perspective about letting technology be a tool and not a master.

Don’t get in over your head.  Figure out what you don’t know, and find someone that knows. Don’t fuck it up. Do the thing you love. The simple ones are my favorite.

Nobody stays here by faking reality in any manner whatsoever.

Gosh.  I feel like in so many ways he is another father figure for me. Our interactions over the years have been laden with advice and perspective that I have completely woven into my life. The introduction of the Socratic method into my life is probably the most significant impact he has had. It has changed how I process the world and how I interact with others. He has really shown me how my black/white tendencies can get in the way. Living with buffer around the edges makes things so much better. If you think you can sell something at $10 per unit, yet someone is offering 9.5, stop and think about whether or not a bunch more effort is worth the 0.5; 99% of the time it isn’t, and it’s ego that’s driving you to do silly things just to get exactly what you want. I find his advice is hidden… it rarely comes out as “advice.”

Give first with no expectation for anything in return. Good things always happen.

I have to pick just one? Brad and I went for a walk years ago. I asked him for advice/feedback on trusting myself as an investor. The gist of the advice was “figure out if you even like being an investor before you worry about your performance as one.”

“You would really enjoy mentoring at Techstars.” Brad gave me this advice during the first time we spent time together, on a walk with smoothies through Boulder Creek Park, many years ago.  This suggestion has changed my life in some of the most powerful ways possible. Many programs of mentorship later, I’m so lucky to be part of the Techstars family; from the people, to the companies, to the incredible friendships across the board. For that suggestion, I will be forever grateful to Brad, who plugged me into the Techstars ecosystem.

He told me I was lonely and didn’t seem to realize it. First time it occurred to me that you could be married and lonely.

I actually don’t think it’s anything specific he says but rather how he thinks about the world. He can look at situations intellectually, acknowledging the emotional charge, but not impacted by it. And he can tackle difficult subjects in non-confrontational ways. That’s pure art. He can, more rapidly than anyone I ever met, identify a situation’s biggest asset and also biggest liability, and reorient a path forward around its asset and minimize the liability.  I’ve seen him do this so many times in so many different situations in under 10 minutes. It’s mind blowing. He comes from a place of love and acceptance and generosity. Which is huge given the demands on his time and resources.  He’s probably the least religious person I know who most successfully embodies the teachings of most religions. He’s a philosopher stuck in a VC’s body. He is always asking why, about everything, helping to easily identify what’s important and what’s not. He’s curious about the world, and the space he puts between stimulus and reaction is what enables this curiosity and philosophy. It’s powerful and something I try hard (and often fail at) emulating. He inherently trusts people, which cause them to trust him, which leads to the attainment of their individual highest potential self.  Brad trusts the PERSON, not the outcome. So because he gives them that power of “I’ve got your back” they try risky things, and when combined with his ability to identify the assets and minimize liabilities rapidly, he and a founder is often a winning team. He lives his values. Most people I know speak their value, but act so differently. The hypocrisy has made me so negative on so many levels. But Brad is a breath of fresh air there and gives me faith that people in positions of influence, leadership, and wealth can and do act in the best interests of others. To sum it up, from my perspective, he has transcended the elusive barrier between knowledge and wisdom. I know a lot of smart people. Brad might be the only wise one I know. Wise, but still human. This email was fun to write and think about. If he ever decided to run for office or start a religion, or even start a country, I’d drop everything and support him. And I’m not the groupie type.

 

 

 

 

 

 

 

Financing Round Nomenclature Revisited

When I started investing in startups a long time ago, the labeling of financing rounds was as simple as the Sesame Street alphabet song – A is for Abbey, B is for Bert, C is for Cookie Monster; ok, you get it. The rounds were named for the purpose of identifying shareholder rights in a particular class of stock. The names weren’t used as a tool to avoid pigeonholing a startup into a particular stage of growth the way they are today.

The labeling of financing rounds has become silly: Seed. Pre-Seed. Early Seed. Gap. I’ve even seen a round classified as “Genesis” recently. To compound things, if you ask a dozen entrepreneurs or investors what each of these rounds mean, I guarantee you’ll get a dozen different answers.

I’ve come up with an idea to simplify this practice and ran it by a few friends. They all liked the logic and simplicity, so I’m throwing it out there. I propose that we start labeling rounds by the size & post-money valuation of the financing. Here’s a hypothetical financing history of a company using this method:

  • $500K/20% Discount Note round.
  • $750K/6.5M round.
  • $3.2M/17.8 round.
  • So on and so forth.

Using this process, when I look at the cap table as an investor, it tells me in an instant just about everything I need to know about a company’s financing history and eliminates all the nonsense about trying to properly name a financing round.

Whaddya think?

This Is What The Apocalypse Looks Like?

Back in Q1, you couldn’t swing a dead cat without hitting someone advising startups that the world, as they knew it, was coming to an end. Venture dollars flowing to startups had decreased from $16B in Q3 ’15 to $12B in Q4 and VCs were telling anyone who would listen that nuclear winter was in sight and funding would be drying up. The media just ate it up. Take a look at just a tiny sample of headlines from early Q1.

apocalypse

Imagine my surprise when I opened PWC’s VC Q2 Money Tree report on Friday (ok, I’ll admit that I wasn’t surprised at all). Take a look at the chart from their report below. Not exactly the apocalypse everyone was predicting, right? To be fair, while dollars have increased again, the number of deals fell by about 5% (suggesting that larger dollars were going into some later stage companies).

Q2 16

I wrote a post about all this in February and my advice to founders remains the same as it always is. Raise more than you think you need. Price your rounds to avoid the pain of stacked notes. Watch your expenses. But whatever you do, don’t pay attention to what anybody’s saying about the macro because they’re all full of shit.

Will the funding environment get worse for startups? Yes, of course it will. Eventually. Bill Gurley’s been telling us we’re in a bubble for years now. He will undoubtedly eventually be right. But there’s also logic supporting the notion that an entire generation of globally important companies will be born and go public by the time he is. We’ve now had ten quarters in a row of over $10B of venture capital flowing into the system. Venture Capital firms raised more money in 2014 than ever before in history and then they raised even more in 2015! All of those firms have a mandate to put that capital to work which means VC dollars will continue to flow liberally to startups at least for the next 3-4 years.

My $.02? I think we’re in the greatest tech innovative cycle in history and capital will continue to be available to fuel it. Technology is solving more problems for more people in more ways around the globe than ever before. I see it when I travel to our 24 Techstars accelerator programs and the hundreds of events we put on for entrepreneurs around the world in over 130 countries. Barring a global economic collapse (which certainly does seem like better than a zero percent chance given the events of 2016 and the potential fallout from our Presidential election this November), I think we’ll continue to see a healthy environment for startups for years to come.

 

 

 

 

Act Like You’ve Been There Before…

Recently, I saw someone share a tweet from a young, aspiring VC who posed a GIF on Twitter depicting an irreverent character in an effort to share his frustration that investors aren’t keen to invest in first time managers. My first reaction was to chuckle as it was indeed pretty funny. My second reaction was to think, “kid, you don’t get it yet and you probably need a mentor.” 

There are two short takeaways for entrepreneurs from this. First, that young VC was partially right;  LPs don’t invest in first time managers, that is until until they do (they just don’t do it very often). There’s been thousands of venture firms created over the last fifty years and I’ll bet there’s been a hundred started in the last two years. Somebody’s gotta be funding those first time managers, right? Create a compelling enough opportunity and someone’s going to invest. 

The second takeaway is very simple.  Every single LP I know tracks new and emerging managers on social media. What do you think happened to this young VC’s stock when they saw that post? Think they said to themselves “hmm, here’s someone I want to track?” Nope, me either. I’m sure some LPs probably stopped following him then and there. Always remember that all investors (angels, VCs & LPs) use social media to try and get a better feel for people they’re interested in potentially investing in and if you don’t think they’re they’re paying attention to what you’re posting in your various streams, you’re not just naive, you’re dumb. 

Founders, rest assured that investors are paying attention to your social behavior. Don’t put anything out there that you wouldn’t feel comfortable saying to them in a meeting. Social media represents an incredible tool to allow people to get to know you better. Use it wisely. One of the top LPs in the country recently told me that he seeks to invest in people “who are better versions of himself.” Investors want to invest in others that they trust and believe will be good stewards of their money. As the immortal Vince Lombardi one said, “When you get in the end zone, act like you’ve been there before.”

Who Benefits From Your Success?

Since I started mentoring at Techstars back in 2007, I’ve sat and talked with hundreds of founders trying to raise seed rounds and I’m often left scratching my head at the lack of strategic thought that goes into figuring out who to pitch. Most founders defer to attacking a list of known investors with little or no thought given as to what motivates those investors, what excites them and what sectors they understand. They wind up competing with every other startup in their community trying to raise capital at the same time. I learned a long time ago that trying to raise capital from people who A) understand the industry you’re trying to disrupt, B) benefit at some level from your success or C) at least have some emotional connection to you is far easier than pitching investor after investor that you first have to educate about your market and somehow must create some trust and common ground in a compressed time period.

I started learning these lessons when I became a stockbroker in the early 90s. After a month or two of training at company headquarters on Wall Street, us rookies were expected to hit the phones and start “cold calling” 10 to 12 hours a day, every day, to get meetings with strangers and convince them to let us manage their money. It didn’t take me long to figure out that I needed something to differentiate myself or this was going to be a short-lived career (which it actually was as I moved into venture investing in 1995 but I digress). I was living in Boston and decided to buy the heavy bound books from my university and my fraternity consisting of the names, addresses and phone numbers of every alumni, sorted by state. I sat down with a highlighter and highlighted every single name of an alumni within a hundred mile radius of Boston. I developed my own script leaning heavily on that one sliver of a connection and lo and behold, my appointments grew by orders of magnitude. Then, when I sat down face-to-face with them, I spent as much time as I needed to build a connection revolving around our school or our fraternity. It was only after I felt that connection did I allow myself to start talking about stocks, bonds, and wealth management. You would be floored at how many successful people began giving this kid a chance to begin managing a portion or all of their wealth because I created an emotional connection with them.

Let’s get back to fundraising. First, who should you pitch? When I started raising capital in 2000 for our first fund ($25 million) at Highway 12 Ventures, I began with the usual institutional suspects. It only took me a few meetings to figure out that we were not what they were looking for and I quickly shifted gears based upon the lessons I learned above. I had just moved to Idaho and as you might imagine, there weren’t many alumni from my east coast roots living there. So much for that strategy. I switched gears and thought, “who would benefit from Highway 12 Ventures’ success?” I started meeting with people from local institutions and business owners who would benefit from having a more vibrant startup community, and painted a picture of how beneficial our success would be for them. Once again, a dramatic increase in the quality and the success of the meetings.

These lessons are easily applied to raising money for your startup. Selling software to make doctor’s lives easier or create greater efficiencies in hospitals? Pitch doctors, not people who made their money in real estate. Is it easy to get meetings with doctors? Probably not. But I’d sure as shit figure it out if I was in that position. Got the next great solution for enterprise HR? I assure you, there’s hundreds if not thousands of senior HR execs who could write a check for $50k. Easy to find them? Nope. But I promise you that with some effort, you can. It’s never been easier to have a conversation with somebody that you’d like to. Tools like LinkedIn, Conspire and hi def video didn’t exist when I was raising money earlier in my career. With a little bit of creative thought and a good deal of effort, any founder can talk to many potential investors who understand the problem you’re trying to solve with your startup and/or would benefit from its success. You’ll be amazed at the difference in the tenor of your meetings. Founders put such Herculean efforts into building remarkable and unique products yet so many of them attack fundraising with little or no strategy. If your startup is genuinely solving an important problem, I promise you that there are many people out there willing to invest in that problem being solved. Start thinking creatively about how to find those folks and get in front of them.

Lastly (and in my opinion and most importantly), There are many so many perceived reasons why people invest in startups, but it really comes down to one thing. Emotions. Even folks like Brad Feld and Fred Wilson only invest when they find a quality in a founder that touches them deeply. Something personally meaningful. In order for your story to resonate with someone, you have to touch their heart before their head. If there’s one thing to remember when sitting down with a potential investor for the first time it’s these words from Maya Angelou – “I’ve learned that people will forget what you said, people will forget what you did, but people will never forget how you made them feel.” After 20+ years of raising capital and helping people raise money for their startups, I still believe this is the single most important ingredient to successful fundraising. In fact, it’s so integral to that it deserves its own post. Stay tuned…

 

 

 

 

 

 

 

The Case For Priced Seed Rounds

When I was a kid, there were a series of memorable commercials from a company called Fram which made automobile oil filters. The message behind all of their commercials was that you could pay $4 for a quality oil filter today or pay hundreds or more to fix your engine later. If you’re over 45 you’re smiling now. If younger, here’s an example:

These commercials come to mind as I’m witnessing the effects of the proliferation of capped convertible note seed rounds. Mark Suster, Brad Feld, Duncan Davidson and others have written insightful pieces lately about the downstream challenges these notes are causing entrepreneurs when it comes to raising subsequent capital. Click on their names above to read them.

When I started in the venture business, you rarely if ever saw a convertible note. Today, it’s the priced seed round that’s rare. There’s no doubt that a convertible note makes life easier for a founder when raising a seed round. First, most founders believe their seed-stage startup is worth more than they could fetch in a negotiated priced round and the capped or (god-forbid) uncapped note is a great vehicle which allows an entrepreneur to grow their company into a higher valuation. Second, it allows them to delay what they perceive to be an uncomfortable valuation discussion. Solution? Throw a cap on a note and kick the can down the road.

Sadly, I’m watching this strategy come back to haunt so many founders going out to raise their seed extension or Series A rounds because of the inflated post-money valuations their companies are now sitting at as a result of their capped notes. Most entrepreneurs I know haven’t taken the time to fully understand the implications of these notes. Even at Techstars where we teach our founders about this, I still see mostly capped-note seed rounds. I get it. It’s easier.

My advice? Price your seed rounds. It was done for decades and it worked. It leaves no ambiguity and all the investors know exactly where they stand. Most importantly you’ll have no cap table issues when it comes time to raise your next round of capital. Is it a little more work to get this done? Yup, but tell me anything worthwhile that doesn’t cause some discomfort. Most founders I know don’t take the easy route when building their products because they know there’s negative downstream effects of that strategy. Why do it when raising capital?

What’s the cost of doing a priced seed round? Well, you’ll have to find an investor who will A) be willing to price your round (usually your largest investor) and B) you might not get the valuation you were hoping for. The former shouldn’t really be all that difficult and there’s reams of great posts out there supporting that the latter is irrelevant if you build an important, long-lasting company. So like the Fram commercial says, you can pay now, or you can pay later…

Drink When Served

There’s been a lot of buzz the last few days about the piece in the WSJ on Monday featuring Bill Gurley warning that it’s starting to feel a lot like 1999 again, including a follow-up article yesterday in which other VCs echoed Bill’s sentiment to varying degrees. There’s certainly no denying that it’s been a pretty good ride since 2009. Bill’s one of the smartest guys I’ve ever met but I don’t know if this party’s just begun, halfway over or they’re about to turn the lights and music off – I’ve heard valid arguments supporting each scenario. I’ve old enough now to have been through a number of cycles in my career (starting with the crash of ’87, just month’s after I started my first job on Wall Street) and the only thing I’m sure of is that each downturn is different. They’re driven by different factors and it’s almost impossible to predict one based on historical data. If it were easy, timing the markets would be a piece of cake.

I’ve noticed one trend lately though which gives me pause; a growing hubris among entrepreneurs when it comes to the amount of capital they’ll need. I’ve had no less than five conversations with startup CEOs in the last couple of months where the CEO had an opportunity to raise more capital than they set out to and they were reaching out to me for advice on whether to take it or not. In each case they were leaning against it. To give some context, I’m not talking about setting out to raise $5 million and having $15 million in interest. All of these discussions were with seed or early-stage founders raising between $500K and $2 million and having investor interest that would allow them to raise an additional 25% – 50% more. All of them had strong conviction in their company’s ability to execute and hit the metrics needed to raise larger rounds of capital in 2015 and they were concerned about the dilution of taking more capital today.

I’ve been around long enough now to have seen what happens when macro events affect a company’s ability to raise capital and it’s not pretty. I also know that’s not the only reason to consider taking more capital than you think you need at the seed or early-stage. It’s an immutable truth that unexpected bad things happen inside all startups, even the great ones. Key customers and employees leave unexpectedly, competitors come out with new offerings that temporarily paralyze buying decisions, DOS attacks, negative press and a hundred other things derail startups. Having some extra cash in the bank to survive these episodes can be the difference between survival and shutdown. A great serial startup CEO once said to me “my job is to make sure we’re around tomorrow, a lot of days in a row.”

My advice to all of the CEOs I spoke with was the same. Don’t over-analyze the short-term dilution when you have the good fortune of increased capital availability. Think about the value you can create with the extra capital and how that might positively affect the valuation you might be able to command in your next round of financing and factor that in to the overall dilution analysis. A long time ago Jane Martin (one of my mentors and a long-time successful General Partner at USVP) taught me that startups should always “Drink When Served.” It was great advice then and it still stands true today.

Don’t Let The Bastards Grind You Down

For years, I regularly contributed to our firm’s blog at Highway 12 Ventures. Some posts were timely, others more timeless. I had an experience recently with an entrepreneur who was dejected over the challenges of fundraising and it reminded me of this post I wrote a few years ago. I think the advice still holds true.

And you can dream
So dream out loud
You know that your time is coming ’round
So don’t let the bastards grind you down
 – U2, Acrobat

After literally thousands of meetings with entrepreneurs in my career, one of the lessons I’ve learned is giving an entrepreneur a quick “no” is much more beneficial to someone than stringing them along. Even better is if I can give them some honest feedback about why I wouldn’t invest. Saying “no” over and over and over again isn’t the most pleasant part of my job and it’s taken me a long time to learn how to do it gracefully. (It’s hardest when I like the idea, but don’t think the person pitching me is the right one to execute on the idea…). Given the sheer number of opportunities that I look at (and a better sense at this stage in my career of what I’m looking for), if I know right away that I’m not interested, I’ve taken to give an entrepreneur a “no” in the first face-to-face meeting instead of false hope about conducting some “due diligence” and getting back to them. It’s been rewarding to see how well that’s been received.

Last week I met with a young entrepreneur who pitched me on his idea for a startup. I knew fairly quickly that it wasn’t something that I’d be pursuing and after 20 minutes I spent some time explaining to him the reasons why. This particular young man took it fairly hard. He kept trying to re-convince me and his body language suggested that he was pretty defeated. It was at that point that I said to him (rather forcefully) “Who the hell do you think I am to tell you that your business won’t be successful?”  His eyes widened and I could tell that I had surprised him. I went on to tell him about some of the great companies that I’ve passed on in my career and how often I’ve been wrong.

saynotono2

I happened to grow fond of this young man during our meeting and after some reflection, decided to share the following story with him which I haven’t told very often. When I moved to Boise in 2000 and decided to start a venture fund, there were an awful lot of folks I met with who thought that my idea had little merit and they were very willing to share their thoughts with me. As a matter of fact, I had over 300 meetings with potential investors. Given that we only had a couple of institutional investors and about 30 individuals who invested in our first fund, it’s safe to say that I had a few hundred respectable people tell me what a bad idea it was to raise a venture fund in Boise, Idaho (Now that I think of it, I’m certain that some thought that the idea might have merit, but that I wasn’t the person to execute on the idea!).

There were many days where I’d come home to my wife after a day of “nos” fairly dejected. She’d kick me in the ass, tell me how much she believed in me, and send me off the next day to pitch a few more people on my idea. Raising the fund wound up taking 18 months. That’s 18 months in a new town with two toddlers and no income. There were more than a few days when I thought to myself that it would never happen. On the other hand, I believed in it and with each person who told me that they thought my idea didn’t have merit, it added fuel to my fire. I’ll even share with you that today, thirteen years later, I remember almost everyone who said “no” to me and proving them wrong still motivates me to this very day.

So my message to this young man and every entrepreneur who reads this is simple: Don’t let me or any other investor who tells you that he doesn’t think your idea is worth investing in dampen your enthusiasm. I guarantee you that anyone who regularly invests in startups has said no to many entrepreneurs who went on to build wildly successful businesses. You and only you will know when and if it’s time to shift gears. Until that time, don’t let the bastards grind you down…