Tag: Venture Capital

On Staying Relevant

Over the years I have put away thousands (approx 12,000) of business cards from people I met since I impulsively moved here in 1996. Among the many engineers, marketeers, investors, and press, only a few have stood out. Not for the CxO or MD or GP designations noted on the cards, but for the quality of the individuals that has held over time.

A few days ago in a conversation with a few founders, the discussion turned to AngelList and Naval and how it was changing the landscape of innovation, financing, and startups. To the amusement of others, I recounted the very first time I met Naval.Naval Ravikant & Elad Gil business cards

The top business card you see here is from a meeting with Naval and Milo, both of @home, in 1998 (I think) at KPCB. We had just been funded by Kleiner and MDV and this was one of the meeting our VCs arranged with a portfolio company of theirs. Milo did most of the talking I remember – about their grand plans for taking over the world through high bandwidth cable broadband. A few years later, Naval was in a meeting again with us – this time as a co-founder of Genoa making and selling semiconductor optical amplifiers. His business card had changed but he was passionate about how that device would change the network despite our concerns about Gain/Noise-figure vs. optical fiber amplifiers. Then a few years later, I heard of him again – this time in a Sand Hill boardroom regarding epinions and the legal wrangling.

In 2011-2012, I joined AngelList and yes, Naval is still relevant – perhaps with more impact than ever. As I meet founders enamored with the latest valley exit still fresh in their mind, I encourage them to ask themselves a simple question – Are you relevant in ten years? How do you plan to stay relevant to yourself and to the community around you? If you haven’t thought about that yet, please consider asking yourselves the question.

The other business card in the scan belongs to Elad Gil. I first met him in 2000 when he was a graduate student who had organized (w/ Pavel) the MIT $50K competition and I was honored to be the opening keynote there. Later that night, he spoke of his research, and his interests in multiple areas including devices and networks. The year after, I met him again – this time along with Gokul Rajaram – as representatives of Onetta – a smarter optical amplifier for networks.  And then in 2004, at Google cafeteria where he talked of Google Mobile and how mobility is the eventual frontier for information. Now, after founding Mixer Labs and a few years at Twitter, he is planning on reinventing himself again while continuously giving back to silicon valley.

Yes, a lot of people in the valley and elsewhere have stayed relevant, learnt constantly but very few have also given constantly – Naval and Elad have openly and continuously shared their learning with others around them and made everyone else a little smarter.  Their impact on our valley is not just measured in dollars or exits, it is compounded through their contributions to amplifying the potential of others.

This is my definition of ‘relevance’. It is not just something you do when you’re successful, it is who you are – for others – constantly. I guarantee that whatever technology or market you happen to be working on will change multiple times in your career.  If you learn and help others learn, you will change too – for the better and you will still be relevant in 10, 15, 20 years – to yourself and to those around you.

 

On Taking Risk

As part of any entrepreneurial pursuit, founders and VCs engage in various mating rituals that are as much about judging risk as they are about judging opportunity.

Over the weeks and months of pitching, founders and VCs manage to assign some subjective meaning to various parts of the risk stack.

Risk stack for startups

During most of this process, your pitch is that each of these is either

  • solved,
  • understood, or
  • will be managed so as not to hurt your chances of success.

However, your reality is that risk along each of these axis, if not taken earliest possibly opportunity will GROW exponentially. Risk is good when quantified early and taken early. Unknown risk equals infinite risk for startups.

The risk stack is contained only by explicitly addressing each component of it as early as possible – before or at least at the first financing.

Another danger is that risk not taken turns toxic in startups. What I mean is the effects of that risk will start to influence other areas. For example, if user related risk is the highest risk not taken, lack of knowledge about how users perceive your product or interact with your product will quickly seep in to other decision-making. In this instance, not knowing the user’s ability to understand the value will invariably lead to sub-optimal decisions across design, features, and operations.

If there is anything I have learnt in the past few years in my experiments in small investments and working with early stage teams, it is that I am learning how to help founders figure out risk and perhaps help them take more risk as soon as possible.

My mission statement as an individual investor is that “Hello, my name is rohit. How may I  help you take more risk.”

p.s. Business model intentionally not part of the risk stack. That is a composite risk which merits more thought before I can say anything meaningful about it.

 

my values as an investor: an open letter to founders

dear founders,

over the past few years, i have invested small amounts of money where the founders have given me an opportunity to do so. for each such opportunity to share in their quest, i have learnt something – and i am thankful.

as i talk to the founder(s) and the team, i find that some teams are naturally curious and want to know why i’d invest and what my relationship to that startup would be. one word that rarely gets used in these conversations and questions is ‘values’. i have written previously about startup values and as an investor, want to make sure that founders talking to me about angel/seed investments understand my values.
values
my values are expressions of some simple viewpoints and actions i strive to live by and bring to the table as an investor. these are:

  • are you taking enough risk?
  • optimize for the long term – always.
  • do I identify with, understand, and agree with your mission, not just your idea, technology, products, and startups.
  • the small amount of money ($5K to $50K) i invest carries with it the ability to turn to zero or be padded with zeroes. if it enabled you to make an effort you couldn’t otherwise make, it will be well spent.
  • while i will make an effort to help whichever way I can, you should understand that:
    • i am not your product manager
    • i am not your rolodex. access without context means nothing.
    • i am not a visionary. i am investing in your vision which is tuned constantly, by every day interaction with your users, technologies, products, and your peers. chase what you see, not what i or others ask you to chase.
  • i have failed many times at many things. i have learnt from failures. successes taught me more, but failures caused me to learn more.
  • while you focus on user growth and customer associated metrics, don’t lose sight of personal growth metrics.  i pay particular attention to personal and inter-personal growth within your startup.

and finally, the most important metric for me – your success as a founder isn’t measured in dollars raised or valuation or money earned for investors, it is measured in how many other people did you make successful. this is my yardstick for a founder.


 

The best question VCs can ask you and you can ask VCs.


When founders and startups meet with Venture Capitalists, Angel investors, or potential advisors, most of the time is spent talking about the founder’s insights, technology, product, or the market they intend to innovate, disrupt, or create. In my experience across both sides of the money-table as a VC and as a founder, the hardest and the most insightful question is often not about the knowledge founders or startups have, but rather, what have they learnt. This concise question embodies just about everything the VCs want to know about you as well as your company.

What you “know” is the platform that you stand upon and the framework for building your product. What you “learnt” is the  valuable part that allows you to create something of value, hopefully – a lot of value – for your customers. This is where you have the opportunity to figure out something that others have not understood yet. Thus, ‘learning’ is your unfair edge in an otherwise irrational pursuit where the odds are against you most of the time till you trump them with your learning, not knowledge.

If knowledge is velocity, what you have learnt determines your acceleration, i.e. the second derivative.

(Thanks @jessefarmer)

This seemingly simple question is in fact quite complex. When a VC asks you this question, they are judging multiple things at the same time:

what does it tell them about your learning style and pace of learning
what does it say about your willingness to learn
what does it say about your willingness to fail while learning
how does it educate them about your market, your technology area, your competitors

And when VCs ask this question of their portfolio companies, they are keenly focused on the acceleration (or deceleration) of your company, not the somewhat static ‘knowledge’ you started off with when they invested.

I also think this is also the question founders should ask potential investors. Rather than talk about fund size, investing philosophy, market-trends,.. (all things you must know before meeting them), ask them the following two questions:

1. What have they learnt in the past 2 years.
2. What new behavior, investments, or market developments do they expect to occur given that learning.

If you hear answers that are rambling, unfocused, or evasive, it will tell you more than their past record or their current investing ‘thesis’.

When you hear clueful answers, it should signal to you that the VC asking this question is more likely to be thinking ‘long-term’ vs. ‘flavor of the day’. VCs that can discuss what they have learnt and how they see it influencing the next few years are rare and good for early stage startups.

p.s. The words ‘learnt‘ and ‘learned‘ are interchangeable here. i have a preference for using ‘learnt’, having learnt my english language skills reading newspapers and listening to the BBC in India and later during graduate studies in Canada. “learned” is the more commonly used form of the word in U.S.A.

 

 

Facebook Lessons for Startups & Founders

Facebook filed their S-1 with SEC on February 1, 2012 and triggered yet another round of discussions in the valley digirati and digirazzi alike.  From computations of founder stakes to opinions on investment, tech and popular media made sure no one missed any aspects of the filing.

So what does it mean (If anything) for current and future founders of tech startups? Success at this scale – adoption, financial success, and pioneering a new segment of communications is rare and deserves much praise. The founders in this case – from Zuckerberg to Parker, Moskovitz, and even the Winklevii deserve all the praise they get for playing a role in the success.

Your first few employee matter a lot more than you think

I would also like to point out the critical role played by the first tens of engineers (hackers if you will) in building Facebook. Less heralded and often ignored all together by the media, this corps of engineers in my opinion deserves as much praise as the ones grabbing headlines in the press. Without the efforts of this group, Facebook could not have made it – founder foresight/passion/skills notwithstanding. Referred to as ’employees’ this group is as much of a co-founder as ‘the founder’ himself. They took nearly the same risks, likely contributed as much to product, platform, and technology, and helped it get from its early success to a product whose expansion beyond .edu domain was one of the most eagerly awaited consumer product introductions ever.

For founders, the aspects worth emulating aren’t the ones highlighted by blogs and media today – try and focus on the early parts of the arc of Facebook’s success. You will find many of the traits espoused by Eric Ries and Steve Blank when you examine the first year or so at Facebook (2004-2006). Some of the ones that stood out for me:

Build fast, release early, Find your Market-fit.

Famous for putting out the first iteration of the kernel of ‘TheFacebook’ in a week, this is a great example of lean development and testing market-fit. It wasn’t the first iteration either – Facemash which was a hot-or-not style site/application that Zuckerberg built prior to Facebook at Harvard and saw immediate adoption. Remember that hot-or-not was a circa 2000 phenomenon and Facebook’s first iteration was in 2004.

Focus on Users; user-adoption, user-experience.

In 2005, the valley was hearing whispers about Facebook and how Accel “went and got the deal” at an unheard of valuation (remember we were just coming off the dark years of 2002-2003), no one talked about Facebook’s technology or its platform or how it may one day be the dominant social-connector and app-platform.  But the first line one heard about Facebook was how many users they had, how much time these users were spending on Facebook, and the rapid growth rate that was easily the highest for any consumer app. This was a dramatic contrast with Google where the talk was about the outstanding infrastructure and how that gives them a unique advantage vs. everyone else in search and advertising. Unless you are building an application that needs to invent new systems and infrastructure, stay focused on users. Adoption will enable you to invent a platform and plenty of technology once you’re successful.

Surround yourself with people smarter than you

Graduating from a Harvard dorm room to University Avenue in Palo Alto, Facebook continued to find and learn from some of the best in their domain – whether it was Zuckerberg learning from Don Graham (Washington Post) or the stellar list of its board members and investors, it didn’t just happen by accident. I am not saying Zuckerberg is not smart, I am saying one of his smartest moves was to find people smarter than him at that point in time about an aspect of his startup. For founders, the clear lesson is find and pitch the smartest people you can find. I suggest a simple approach to accomplishing it:

When you meet prospective VCs (Partners or Associates) or Advisors, ask them to introduce you to two other people that they think are the smartest in the business.  Be persistent and chase down these introductions, turn them in to meetings, and ask them to introduce you to two more in turn.  In a few months you should be able to meet with enough people to learn from and who can be potential investors, advisors, or informal-advisors to your startup.

Think long term

This one is the easiest point to state and the hardest to follow. I believe there is a fair value at every step for a startup  if they have taken angel/venture money. And  they must be responsible in considering any offers that come their way. I also believe there is much (realizable) value in finding a way not to take that offer. Each such situation is unique but do consider that if you can find a way to build more value, you will have a chance to deliver life-changing rewards for yourself, your team, and your investors.

You know what’s cool? A Billion users. 

Building a startup that delivers a Billion+ in profits eight years after starting is Cool. But do you know what’s really cool – that Zuckerberg’s efforts changed and enriched the lives of thousands of employees and millions of users. A founder’s measure isn’t the capital they return or create, it is the number of lives they touch, improve, and change.

If all you wanted to make was money, there are easier paths to realize that goal. Be a founder if you want to make a difference. Money will follow.