April 16, 2013

I am a Bostonian

I was born and have lived in the Boston area almost all my life.  I went to school here, met my wife and married her here, built a family and pursued my career here.  I am a rabid fan of all the sports teams and love exploring and connecting with every nook and corner of this community.  Never have I been more proud of the resilience of my home town.  Never have I felt more meaning in the statement:  "I am a Bostonian."  

In the Flybridge partners meeting this morning -- which was held at one of our homes as our office is a part of the crime scene and in "lock down" mode -- we discussed where we were when we learned of the horrible events, how we felt, who we know who was touched by it all.  We checked in with loved ones throughout the meeting and fielded kind notes from friends and colleagues.

For those of you who have written, texted, tweeted and called with words of solidarity and support, thank you. The sensitivity and tenderness that my kids' schools have shown is another reflection of what an amazing community we live in.  We are all more bonded together by this sad experience.

The talk in the town is that next year's Boston Marathon will be the greatest in history.  Many of my friends who have never ran before are thinking seriously about running in it.  Many vow they will be at the finish line cheering the runners on.  Many more still vow that the fundraising efforts next year will dwarf years past.  The theme throughout the city today is "we will perservere, we will thrive, this will not slow this great community down." 

The world is watching us and we intend to step up.

I am a Bostonian.

April 12, 2013

Raising Your First Round of Financing

I gave a talk at Harvard Law School this week to a VC and Entrepreneurship class on raising your first round of financing.  It was good fun and forced me to rethink my usual presentation and add some practical elements.  You can view the presentation here:

My other SlideShare presentations are here.

April 01, 2013

Seeking A Job in Start-Up Land

My first time jumping into the start-up world was as a freshly minted Harvard MBA in 1995.  As my classmates were rushing off to high-paying, high-powered jobs on Wall Street, I joined a Series A start-up with 30 employees as a product manager, making $65,000 per year - lower than my pre-MBA salary at management consultancy The Boston Consulting Group.  Since then I've had a terrific ride, but I often think of that fateful decision when I get asked, repeatedly, by other freshly minted MBAs:  "How do I get a job in a start-up?"  Or, more generally, "How do I even begin to find and assess start-up job opportunities - I don't even know where to start?"

The start-up universe is a large one and can seem overwhelming and impenetrable to the uninitiated.  In order to narrow things down, I recommend following a simple, four-step heuristic.  Here's the advice I give:  

  • Pick a Domain.  First, figure out your passion in terms of domain.  Are you more of a B2C type or a B2B type?  What blogs are you reading?  What articles in Techcrunch or the Wall Street Journal capture your attention?  What companies are your dream companies to work for?  Answering these questions will help narrow down a set of domains that you are excited about.  It can be more than one, but it shouldn't be more than, say, three.
  • Pick a City.  Next, figure out where you want to live.  Again, there may be multiple options, but ideally one or two favorites.  Each start-up community has its own plusses and minuses, quirks and idiosyncracies.  I find that once young people choose a particular start-up community, they stay there.  It's a natural phenomenon - they build relationships over time that lead to one opportunity after the next.  Your co-workers in one start-up become your co-founders in another.  Thus, young professionals should be thoughtful about choosing a city early in their career because of this "settling in" phenomenon.
  • Pick a Stage.  Next, determine what stage company you prefer to work in.  Do you want a company that is still in the jungle phase (hacking through and trying to establish a path to success), the dirt road phase (established initial product-market fit and now trying to execute and scale in a relatively clear direction) or the highway phase (optimizing and scaling along a well-trod path)?  This decision should be made somewhat based on risk appetite and somewhat on personal makeup and preferences.  If you are a risk-taker and enjoy the challenges and roller-coaster ride, then the jungle phase is for you and you should bias towards seed funded or recently Series A funded companies that are pre-revenue.  If you are more conservative, want a good salary and prefer to pick a "safe" winner, then a highway phase company that is pre-IPO or recently IPO'ed is the right choice. 
  • Pick a Winner.  Now that you have your target domain, geography and stage, focus on picking out a few winners - the hot companies that everyone thinks has great momentum and potential.  After all, why would you want to work for anyone other than the absolute hottest company in a given category?  How does an outsider figure out who the winners are in a given domain, market and stage?  Ask a handful of insiders.  Find the top 3 VCs, angels, tech lawyers and headhunters in your target geographical market and ask them for the two or three hottest companies that match the domain and stage you are interested in.  Compile this list, pressure test it, and see what patterns you find.  The firms who get the most mentions with the most compelling underlying evidence will naturally rise to the top.

Below is a sample chart that I put together answering the question for someone interested in either e-commerce, mobile or SaaS companies in SF/SV, NYC or Boston.  The first company listed is an earlier stage company (either jungle or dirt road) and the second company is a later stage company (either dirt road or highway).  This list is illustrative - just to make the point - not in any way attempting to be comprehensive.

MBA blog 3-31-13
(full disclosure:  tracx, 10gen and Savingstar are Flybridge portfolio companies)

Once this heuristic is complete, you now have your target list.  The next step is to get warm introductions to the target.  This is easier than you would think.  LinkedIn is an incredibly powerful tool, as are the various alumni databases.  VCs are often happy to pass along your resume and background to their portfolio companies - after all, they are doing them a favor by sending them highly qualified talent.

In general, the start-up community is so incredibly generous with its time and has such a strong "pay it forward" culture, that with tenacity and time, you can get to almost anyone.   In fact, I recommended you aim high.  Use this heuristic to narrow down your search and then list out the 10 people that would be your absolute top choices to sit down for 30 minutes with face to face.  Then, go after those 10 people in any way you can (without stalking them or being a nudge!).  These networking meetings will help you establish valuable relationships, even if the job fit isn't there.

In short, be organized, focused and tenacious.  Aim high, seek out the incremental networking meetings and pick yourself out a winner.  Things may not work out, but at least you're putting yourself in a position for a little positive serendipity.

March 18, 2013

No Denying Deflation: Will It Eventually Kill Content?

In classic economics, deflation - a downward trend in prices - is a dangerous force that leads to recessions (see:  Japan, economic disaster - a case study).  In the world of the Internet, deflation viewed as a positive force, leading to massive consumer gains.  How can we reconcile these two competing beliefs?  And what impact will this deflationary pressure have on the production of high quality content?

I've been thinking a lot about deflation and its impact on the Internet economy since reading two articles in two different newspapers this last week.  The first was this article in The Economist about the music business.  The article contained a chart showing music industry revenues peaking in 1999 at $27 billion and dropping consistently as a result of the disruptive power of digital music and iPods/iPhones.  Industry revenue may have finally flattened out at $16.5 billion, but the bigger story is that over $10 billion of value has been taken out of the music business thanks to over a dozen years of digital disruption.  Artists are still producing a ton of music (I would guess music proliferation has grown during this period, although I haven't seen the data), yet the Internet has produced massive deflationary pressure.

The second article that I was struck by was in the Wall Street Journal, depicting the explosion of online video.  Titled, "Web Video:  Bigger and Less Profitable", the article reports on the rapid growth in online video views (39 billion in December), yet the fact that prices are dropping rapidly due to the oversupply of video inventory.  The CPM (cost per thousand views) that advertisers are paying has dropped from $17-25 in 2011 to $15-20 in 2012.  Advertisers and content producers are used to this trend.  Whenever a new advertising medium emerges, prices are high at first, and then steadily drop as inventory swells (I wrote about this in a post that provided a bearish analysis of Groupon back in 2010).  Every content business today faces this rapid drop in CPMs across every category, resulting in severe cost pressures.

So if the producers of music, video and other content are getting hammered on deflation, who is benefiting?  Consumers.  Consumers are getting access to music, video and other sources of content for less.  They're also getting subsidized by business advertisers through social networks and search.  McKinsey did a study a few years ago that sized the consumer surplus from the Internet at over 100 billion euros.  Interestingly, they concluded that in measuring this surplus, consumers have benefited 85% of the gains from the Internet as compared to 15% for producers.

Thus, while the business press is full of stories of disruptive gains in business transformation, the real story of the Web is the power of the consumer and the massive gain consumers are receiving.

Although I am thrilled with the consumer surplus, I struggle with where this logical chain is eventually leading us.  I worry that if there is too much deflation in content, that this consumer surplus will hit a natural limit.  That natural limit will be that content producers will stop investing to produce high quality content.  After all the inefficiencies have been wrung out of the system, eventually fewer producers of content will be willing to produce great content because the rewards just are no longer there.  If this were to happen, consumers would be all the poorer for it.

My conclusion:  although deflation has produced awesome consumer gains in the last decade, it is emerging as a real threat to content producers.  But at some point, perhaps soon, it will tip to being a negative force that will cause high quality content produers to turn away and pursue other methods of financial gain.  If that were to happen, we might regret allowing deflation to run rampant on the Web.

March 05, 2013

The Religion of Entrepreneurship

All the focus on the Pope's departure from the Vatican has got me thinking about the meaning of religion.  Those ruminations have led me to a surprising conclusion:  one of the reasons the force of entrepreneurship has become so powerful in recent years around the world is that entrepreneurship has evolved into a global religious movement.

Wikipedia defines religion as follows:

Religion is an organized collection of belief systemscultural systems, and world views that relate humanity to spirituality and, sometimes, to moral values.

Similarly, the start-up world has evolved into a set of shared beliefs and values.  For example, the notion of Pay it Forward has become a core part of the entrepreneurial ethos.  In religious communities, when someone is in need, the community rallies around them.  People do kind things to other people just because it is the right thing to do.  The start-up world has a similar share value - investors, CEOs and service providers throughout the entrepreneurial ecosystem are always willing to lend a hand, donate time and provide guidance and counsel.  When I talk to entrepreneurs I've never met before, I always have a sense that we are kindred spirits on a shared journey.  There is an immediate connection and mutual respect, just as I feel when I meet a member of my religion (Judaism).

The canonical texts of the entrepreneurial world are firmly established and widely read.  Although they haven't sold as well as the Bible, there are a set of books that nearly every member of the entrepreneurial ecosystem has read, including:  Crossing the Chasm, The Lean Start-Up and Four Steps to the Epiphany.  Even those who have not studied these books and their derivative works are familiar with the concepts.  

The cultural force of entrepreneurship is a powerful one.  This force and the cultural norms they impose can vary from the profound (it is no longer ok to look down on the "little guy/gal" in business, young people are now listened to more carefully and given more opportunities to have an impact) to the mundane (it is now ok to wear jeans to a serious professional meeting, it is no longer ok to pull out a Blackberry in a meeting as opposed to the iPhone).  The binds that tie the community together are strong.  I can walk into a start-up event in Sao Paolo, Jakarta or Little Rock and have the same dialog about the same concepts - just as I can when I walk into a synagogue on Friday night anywhere in the world and feel at home.

The prophets of entrepreneurship have been firmly established.  Paul Graham, Steve Blank, Eric Ries and a few others have risen to a status such that anything they say or write is followed closely by hundreds of thousands of followers.  The entrepreneurial community reads all the same blogs and debates the same issues around the world.  Certain corporate leaders, such as Steve Jobs (who, arguably, was practically deified in the wake of his tragic death) are also viewed with such reverence that they can command massive followings and sway opinion.

I could go on, but you get the point.  I'm not sure what to do with this observation, but I think it represents a profound undercurrent that drives the start-up system in a very positive way.  I'd be curious if others see it similarly.

February 27, 2013

Fred Wilson Returns to HBS

 

Fred and Jeff

Despite being a Wharton and MIT guy, my friend Fred Wilson has been kind enough to attend my class at HBS for the last few years.  Yesterday was another terrific one.

Instead of a final exam, I assign my students the task of blogging.  You can see the the class blog here, where the students wrestle with the limitations of the lean methodology, challenges in seeking product-market fit, premature scaling and other important startup topics.

I encouraged the students to live tweet the class and it was a huge success.  You can see the Twitter stream from the class here.  A few highlights/quotes that I thought were particularly salient:

"We should always bet on the team and, in this case, ignored that it looked like a niche market." (Fred on lessons learned on passing up the opportunity to invest in AirBnB)

 "It’s a lot better to fail with professional investors’ money than with friends and family money. We’re used to losing money."

"Don't let your own reality distortion field convince you, as a founder, that you've hit product market fit."

"As an entrepreneur, stay a 'free agent' as long as possible." (i.e., don't pick a VC  partner too early in your lifecycle - Union Square and Flybridge aside...:-)

"[When pitching investors,] focus on the big vision, how you will be the market leader in 10 years, don't get stuck in the operational details."

On career choices:  "You'll learn more doing your own startup [versus joining someone else's]. But doing a startup for the sake of doing a startup isn't a good idea. "

"VCs look for passionate, authentic founders who actually believe they can defy gravity" (I think this was me but Fred seemed to agree)

"There's value in having a founding team with a crazy person with vision alongside a cofounder grounded in logic and analytics."

Thanks again to Fred for coming out and helping make a memorable class experience!

 

February 10, 2013

Balance and StartUp Life

Living the startup life is a hard roller coaster.  One day you think you're on the verge of building a billion-dollar company, the next you wake up in a cold sweat, paranoid that you are about to run out of cash and have to shut the whole thing down.

There a lot of good books on how to develop a customer value proposition, rigorously test it and raise money.  But I have never seen a book address the hard issues of how to live your life while you're working 80 hours a week trying to do all those things.  Until now.

My friend, Brad Feld, has written precisely that book with his wife Amy Batchelor, called Startup Life. The couple tackle how to manage your relationship with your significant other while trying to live in the mad, crazy, demanding world of startups.  Nothing is off limits for this book - Brad shares how he screwed up his first marriage, how they manage their highs and lows together and even addresses the topic of how to find time for sex while running startup.

Brad asked me to share a few thoughts on my perspective on the topic and whether I had any additional tips.  I have been happilly married for 19 years and have known my wife, Lynda, over 25 years (we met our first day freshman year in college while moving in to the same dormitory entryway).  Like Amy, Lynda is not in the startup world at all, but rather has a completely different work and personal profile than I do (she is a former professional Broadway-style performer and is now a pioneer in the world of aging and multi-generational programming).  Additional context:  we have three kids (now ages 16, 13 and 10).  Brad and Amy don't have kids, so they were light on addressing this additional challenge - a topic I struggled with when I was an entrepreneur and still struggle with today as a multi-tasking, over-scheduled venture capitalist trying to be an accessible, loving Dad for my three high-energy children.  

Be Predictable, Even If It's Bad News.  

One of the hardest thing about being an entrepreneur is the unpredictable schedule you face.  A customer calls with a bug and there's a crisis.  A new product needs to get pushed out the door and it's a crisis.  Or you're trying to raise money and you need to prepare all night for tomorrow's investor meeting.  It would drive my wife absolutely nuts when I would say I would be home by a certain time, and then not show up until one or two hours later.  Dinner would be cold, kids would be mad and all hell would break loose.  

I finally swore I'd get better at is keeping track of time and setting expectations better with my wife about when I come home.  So we developed a system together:  at the beginning of each month, I email her when to expect me home at night that month (or not at all if travelling) with a 15 minute range.  Many nights the range is "945-1000pm" if I'm in NYC that day or have an evening event.  But it is what it is and I don't try to sugercoat it.  Then, I work very hard to stick to that hour, treating that deadline as if it were a meeting with an entrepreneur or a portfolio company board meeting.  If I know I am going to miss the deadline for being home (sure, stuff comes up), I always give her the heads up.  This creates a sense of predictability for her and the kids.  

If I see my kids in the morning (which is rare, although I'm working on that), I will tell them verbally what time to expect me rather than try to hide from the fact that I'm travelling or working late that day.  This avoids my family getting more frustrated with my unpredictable schedule than my actual schedule!

You're Just Not That Interesting.

In my early startup days, and the early days of the Internet, we used to refer to the crazy pace that we were living as "Internet Time".  There was this feeling that everyone else was living a slower pace than we were.  Indeed, to me, my 12-14 hour work day was chock full of a week's worth of stories, characters and drama.  Subconsciously, I thought my day-to-day was more exciting than my wife's and would come home eager to share all the drama.  After a few years, I began to realize that as interesting and dramatic as my work life is to me, it's really not that interesting to Lynda.  She cares about the big things, of course, and she cares about how I'm feeling about it, but the ups and downs about new product releases and who's missing the quarter and what competitors are doing are all just noise to her.

So my mantra now is, my work life just isn't that interesting to my family.  I share with them the top-line highs and lows, but I don't think my wife could name each of my portfolio companies.  Instead, when I come home, I focus on them:  the ups and downs of my kids social and academic lives; the ups and downs of my wife's work and social life.  In my head, I try to keep it to "80% them, 20% me" sharing time.  I'm sure it ends up more balanced, but if I aim for 20%, I know I'll come home focused on them rather than on me.  To be clear, I love my work and love being consumed in it.  It's just not that interesting to the four other members of my household.  And I'm ok with that.

Find Together Projects.

My wife and I operate in different professional worlds, but we have found that we love collaborating together on projects beyond the raising of our three kids.  Raising our kids takes an enormous amount of thought and energy.  The topic of our children often dominates our private time together.  We have discussions and make decisions each week about their activities, their school work, who to have a sleepover, who is picking them up when (during the weekend, we often switch to "taxi driver" mode) and what they should do for the summer.  But, we have found that having "adult projects" that we collaborate on is also very rewarding.  We have pored energy into various non-profits, our synagogue and our kids' schools as a way of making a difference, yes, but also spending our outside work time together.  Thus, although our professional communities are very separate, our personal and social communities are totally integrated.

In addition to those few tips and reading Amy and Brad's books, I recommend a few other books:

  • The Three Big Questions For a Frantic Family by Patrick Lencioni.  Lencioni is one of my favorite business book writers (see this blog post on his work on team dysfunction) and so this book was a refreshing way to apply some of his core business lessons to family management.
  • Raising Cain by Daniel Kindon and Michael Thompson.  I have two boys.  I have read this book twice - once when they were recently born and again recently as they move into the world of teenagers and found both sessions incredibly helpful and informative.
  • Nurture Shock: New Thinking About Children by Po Bronson and Ashley Merryman.  David Kidder of Clickale suggested this one to me and I have enjoyed it as a book that cuts against conventional wisdom in many areas of raising children.
  • The Talent Code:  Greatness Isn't Born, It's Grown. Here's How by Daniel Coyle.  My partner Jon Karlen recommended this one to me.  Jon was an all-American squash player and his wife was a 12-letter athlete (!) at Harvard, so I take his recommendations about raising talented kids seriously!

Good luck with your own journey for balance and happiness!

February 06, 2013

Leadership Lessons for Entrepreneurs from Jethro (Moses' Father-in-Law)

I was in synagogue last weekend for a cousin's bat mitzvah and was struck by the entrepreneurial lessons from the weekly Torah portion.  The portion was Exodus 18, where Jethro, Moses' father-in-law, sits down with him and gives him some mentorship:

What is this thing that you are doing for the people? Why do you alone sit, and all the people stand before you from morning until evening...The thing that you do is not good. Both you and these people who are with you will surely wear yourselves out. For this thing is too much for you; you are not able to perform it by yourself.

Moses is the ultimate entrepereneur, trying to do it all himself.  He leads the Israelites out of slavery from Egypt (nice vision!) and then is forced to execute on creating a new society and way of life for his people.  It's too much for one person to bear.  

So like any good mentor, Jethro gives it to him straight - you are going to burn out.  You need to delegate.  Find some good people you trust and let them deal with the minor issues.  Focus your energy on finding the right people, put them in a position to succeed and then save yourself for the really big decisions.

Pretty good advice for an entrepreneur.

January 23, 2013

Does DC Know Startups?

The short answer is no, but perhaps there’s hope.

The day after President Obama was inaugurated for a second term, I was invited to speak at the (MUCH smaller) inaugural meeting of the newly formed Congressional Caucus on Innovation and Entrepreneurship.  The caucus is a bi-partisan group, created by Rep. Jared Polis (D-CO), Darrell Issa (R-CA), Vern Buchanan (R-FL) and Gary Peters (D-MI), to focus federal policy efforts on supporting startups and innovation.

I have to admit my expectations were pretty low.  After my euphoria over the passing of the JOBS Act last year, the latest fiasco over the fiscal cliff have me pretty down on Washington’s ability to get anything done that will help create a more robust business environment.  I have been to DC a few times with the policy business group I helped co-found, The Alliance for Business Leadership, and every time I’m there, I’m struck by the contrast with the more thrilling, action-oriented world of startups and venture capital.

That said, the House Members and staffers seemed genuinely interested in the components of a vibrant start-up ecosystem.  I gave them a briefing of why Boston and NYC have such vibrant start-up environments, with the former being in the midst of a renaissance and the latter emerging from nowhere over the last 5-10 years to legitimately become one of the world’s major start-up centers.

I cited a few elements, which echo a presentation I have given in the past about Boston’s Start-Up Scene and that my NYC-based colleague, Matt Witheiler, has written about NYC.  Specifically:

  • There are four important ingredients for a start-up ecosystem to thrive:
    • Intellectual capital – Universities, young people, creative (whacky) people, expertise in multiple disciplines
    • Angels, Advisors and Accelerators – that first capital and good advice to transition from idea to reality and provide mentorship
    • Venture capital – the necessary capital to scale, advice, mentorship, guidance from those who have “seen the movie”
    • Successful companies – to inspire, partner with, poach from and/or sell to
    • I also observed the important cultural characteristics of successful start-up ecosystems.  They are open, diverse, inclusive, welcoming of outsiders/immigrants and creative types, and rich in information exchange.

Today, Boston and NYC are shining examples of these elements.  Boston has always had rich intellectual capital, but was historically weaker in the cultural characteristics than it is today.  The angel community has also stepped up in a more meaningful way recently, which has been very positive.

NYC has historically fallen short on intellectual capital, but that has changed dramatically in recent years with all the talent streaming out of Wall Street and Madison Avenue into start-ups.  Further, following the interesting entrepreneurs and ideas, there’s been an explosion in NYC’s angel community.  This has led to an environment that has never been more promising.

With the audience being a policy one, I gave some simple advice to policy makers:  avoid getting involved in areas where government doesn’t have a role (e.g., picking winners with targeted tax breaks) and focus instead on fundamentals (e.g., education, infrastructure) and policy issues that matter to entrepreneurs (e.g., immigration reform, reforming community and state colleges to fit the needs the start-up employers, and capital formation issues like crowdfunding).  I gave a nod to local government leaders like Governor Patrick and Mayor Bloomberg who have been terrific champions in their respective communities. When you ask local business leaders, they will all tell you that those two politicians “get it”.

I can’t predict whether this new caucus will have an impact, but clearly comprehensive immigration reform is on Congress’ short list for important initiatives in 2013 and Rep. Polis was one of the co-sponsors of the Start Up Visa Act, so he clearly “gets it”.  If every entrepreneur reached out to their House Representative and encouraged them to join this Caucus, perhaps it would have a small impact.  Meanwhile, I was happy to leave Washington DC and get back to action-oriented Start Up Land!

January 14, 2013

Do Job Specs Matter?

Today's post is brought to you by my friend, Paul Blumenfeld, a recruiter who is one of the most thoughtful people I know when it comes to hiring processes. Since the topic is so fundamental to the company-building process, I am pleased Paul agreed to share his thoughts.

When my wife and I got engaged, we had barely clinked champagne glasses when a friend asked when we would be visiting Crate and Barrel to register for wedding gifts. The idea sounded appealing enough, but we couldn’t think of anything we actually needed. So we created a wish list of things we thought we needed, like designer flatware, gold-rimmed china, and a blender that makes bread dough.

As it turned out, the best gifts we received on our wedding day were the thoughtful, unique gifts from people who knew us well and understood our day-to-day needs. We also loved the gifts we simply never expected.

I often compare our gift registry experience to the way many companies write job specs. What should serve as a helpful set of guidelines to find the right candidate typically devolves into an inflated “wish list” of qualities and talents that sound good at the time, but aren’t practical or even possible to find in one person. 

If I looked back at every job I’ve filled during my 15 years of recruiting and compared the company’s job spec to the person they actually hired, I suspect I would see a significant gap between their wish list and “the gift” they got.

 I see two reasons for this discrepancy:

  1. Static Specs.  Many hiring managers write a job spec that is heavy on wishes and low on real needs. They continue to use the same or similar spec throughout their search without re-evaluating it. With each candidate interviewed, the hiring manager learns something new about what they are looking for and what the real job requirements might be, but the job spec is rarely updated to reflect what they've learned.
  2. Like Pornography? Companies aren’t always clear on what they’re looking for until the right candidate walks through the door—which brings to mind Supreme Court Justice Potter Stewart’s “I know it when I see it” phenomenon. For many companies, the "best athlete" will get the job regardless of how closely they match the spec. 

It is frustrating when I learn that a client has hired a great candidate that I already knew, but decided not to send over because, judging from the job spec, they weren’t a great match. Needless to say, I’ve learned my lesson and now take the following five approaches to solve this job spec ambiguity problem:

  1. Archteypes. I ask clients to show me a bio or LinkedIn profile for a candidate whom they’ve made an offer to recently, or on someone they consider ideal for this position. Very often, seeing a real person’s bio is much more informative than seeing a job spec. Reviewing the details of a real person can help me better understand what the hiring manager is looking for, and I get a true feel for the person that would get the job, not the resume that would get the interview.
  2. Short and Sweet. I recommend that my clients boil down their job spec “must-haves” to only one or two items. I have a client who spends a lot of time creating very detailed specs for all of their engineering openings, and in doing so I find their real needs get lost. For example, “Candidate must have deep CS knowledge and know their data structures and algorithms inside and out” is a clear message and points me in the right direction. Based on those two imperatives, I can quickly find the best person out there with these skills and, because "I know it when I see it", the client likes the candidate and gives them the job.
  3. Be Open-Minded. I also ask hiring managers to be open-minded about their must-haves. A candidate’s experience may not match perfectly to what the hiring manager is initially asking for, but sometimes a candidate will have skills from a previous position that prove to be extremely valuable in a new position. For example, I was doing a search for a VP of Engineering for a company that was building a stock-trading platform. “Experience in financial services or a trading platform a must!” The VP of Engineering I placed there, however, had spent his entire career leading real-time software development at successful data communications startups. His real-time experience, and the time he spent at successful start-ups, proved to be his most valuable assets.
  4. Culture. I think of a company as a cultural community with social needs, not a machine that needs a specific part plugged in. Finding a candidate who is not only great at what they do but who also fits well into that company’s culture is going to have a better shot at getting the job and succeeding at the company long-term. For example, does the candidate rock climb or brew beer in her spare time? These qualities may not make her a better CTO or VP of Product, but they may make her “click” with a like-minded hiring manager and be more successful in a given company community.
  5. Hire Winners - If a candidate is coming from a winning environment, he or she is more likely to know how to win.  They will bring this culture with them when they join your company.   I look for candidates that have worked for companies that have built highly regarded products and have worked with people who have had previous, profitable outcomes.  The caveat there, however, is that there are often many people looking to take credit for a winner’s work. Like the old proverb says, “Success has many fathers, failure is an orphan.”

So how much do job specs really matter? They are an objective element to a mostly subjective process. They are also, however, an important starting point. And the more realistic, concise and flexible the job specs are, the more successful the hiring process will be. Just beware of the job spec “wish list.” After all, do you really want a blender that can make bread dough, or do you actually want a blender that makes really good frozen margaritas and milk shakes? 

January 07, 2013

2013: The Year of Grit

grit  

/grit/
Noun
Small, loose particles of stone or sand.
 
Verb
Clench (the teeth), esp. in order to keep one's resolve when faced with an unpleasant or painful duty.

2013 is going to be an "interesting" year (evoking the Chinese curse).  The macroeconomic environment looks spotty at best, with analysts like Jeremy Grantham predicting 1% growth in the US for decades to come.  Europe is still a mess and in a deep recession.  Japan is in a decades-long tailspin.  And the so-called BRIC countries are forecasting tepid growth (we could rename them "ICK" if we added in Borat's home of Kazakhstan and dropped Brazil and Russia...)

Meanwhile, in our little world of StartUp Land, things don't seem much brighter.  There are complaints about the Series A crunch, lamentations that the consumer Internet has matured ("tough sledding" says Fred Wilson) and fears that the overhang from Facebook's lousy IPO will continue to impact 2013.  What's an ambitious, hard-charging entrepreneur to do?

One word:  grit.  Tough it out, people.  This start-up stuff isn't easy.  It never has been.

Mark Suster captures this sentiment nicely in this post "Entrepreneurshit".  I won't repeat the feeling of dread, despair, humiliation and frustration that he so ably (and painfully) reviews.  Unfortunately, 2013 will see plenty of it for start-up executives.  So here are a few tips to help you grind through the coming year and come out stronger on the other side:  

  1. Maintain Your Foundation.  Whatever it is that allows you to find meaning in your life - your spouse, kids, parents, friends, a dog - nurture it and hold it dear.  Be maniacal about maintaining your health.  Even if you're travelling like crazy, exercise and eat well.  I find that entrepreneurs with strong foundations are able to focus much more effectively than those that are distracted with unhappy personal lives.
  2. Keep the End In Mind.  This piece of advice borrows from one of the late Steven Covey's 7 Habits of Highly Effective People.  Envision the ideal end state that you are striving for in 2013.  Write it down.  Write down the two or three subgoals that fit beneath this overarching goal, including two or three interim milestones.  Have it as a one-pager that you keep with you always.  It will help sharpen your focus day to day and prevent you from getting lost in the daily flurry of activity we all face.  And speaking of day to day...
  3. Be Great Every Day.  The thing that is hard about gritting through a tough year is that you feel that so much of it is out of your control.  But you can control what you do each day.  Don't allow yourself to sleep walk through each week, trudging through the muck in a daze.  Simply put, in the face of adverse conditions, be great every day.  End each day feeling that you delivered a great day against your objectives and don't allow yourself to settle for anything less. 
  4. Maintain Options.  When I first learned how to value options in the stock market, a light bulb went off.  Options have value!  When slogging through a tough year -- such as a new product that just won't ship cleanly, or a fundraise that just won't get traction -- remember to create options for yourself.  In addition to your plan A, develop a credible plan B and C.  Don't allow the failure of a single initiative to be a dead end.

Good luck.  As Ronald Reagan famously advised his White House successor (and one of my favorite children's animated authors captures in a cute book), Don't let the turkeys get you down.

What are some of your techniques for gritting through a tough year?

December 20, 2012

Finding "Investor-Entrepreneur" Fit (aka Avoiding the Series A Crunch)

A question I often get asked by entrepreneurs is what is Flybridge’s investment philosophy – do we make our investment decisions based on people or on themes?  The glib answer is both, but as I’ve thought more about this question I wanted to expand the answer a bit to help entrepreneurs understand how investors approach this issue in more detail.  I think this question has become more acute as the much-discussed shortage of Series A capital (the so-called "Series A Crunch") means that, going forward, too many entrepreneurs are going to be chasing too little capital.

People-based investing is an age-old investment strategy.  Bet on the jockey, not the horse, as the saying goes.  Exceptional entrepreneurs will always find a way to make money, so the job of the investor is to spot the exceptional entrepreneur and convince them to take your money as opposed to worrying about strategic trends and dynamics.  People-based investors focus their due diligence process on spending both structured and unstructured time with the entrepreneur, as opposed to analyzing the product, business model or interviewing customers.  People-based investors can be quite analytical, although often times it is more insinctual.  When they are analytical, people-based investors conduct deep management team due diligence, psychological profiles and a broad set of team interviews.  When they are not, they simply listen to their intuition as to whether the entrepreneur is a “money maker” and trustworthy.

Personally, I think this is a flawed investment strategy.  Building a successful startup requires more than exceptional people, because even exceptional people can find themselves the victims of market forces, competitive pressures and faulty business models.  I have seen many exceptional people execute beautifully, hire well, achieve operational excellence, but still fail to build a massive business.  These entrepreneurs are like the well-trained surfers who sit, frustrated, on their surfboards on a calm day because they can’t catch the right wave to propel them to shore.

A theme-based investment strategy requires the investor to have market knowledge and a strategic point of view.  Theme-based investors go deep in a particular sector, develop a hypothesis, and then meet entrepreneurs to test this hypothesis.  They build market maps, attend conferences, hire EIRs and cluster their investments and networking around a particular sector.  By building expertise in a sector, theme-based investors develop insights about where the markets are moving and where the opportunities are for disruption.  They like to “see everything” in a space before investing in something so that they are assured that they have picked the absolute best way to play the theme they have identified.

And here’s where the magic happens – referring back to my glib answer regarding Flybridge’s “both” investment strategy – when a theme-based investor collides with an exception entrepreneur who shares the investor’s vision for a particular disruptive opportunity.  I have heard many entrepreneurs gush when describing these meetings.  “It was like he was giving my pitch for me!” effused one entrepreneur after a VC she was pitching took over the meeting with their own passionate observations about the market opportunity.

We experienced just such an opportunity as part of a new deal we are leading in New York City that my partner, David Aronoff, recently alluded to.  We have a thematic focus on cloud computing and the consumerization of the enterprise.  It is an extension of our developer-driven investment theme, that led to portfolio companies such as 10gen and Crashlytics.  When we intersected with an entrepreneur who had a similar theme and had developed an emerging leader in a space we liked, we jumped at the chance to lead the Series A, following on with some great angel investors.

As an entrepreneur, those are the situations you want to find.  Seek out “Investor-Entrepreneur” Fit.  Find that investor who believes in you as well as the market opportunity and has already been thinking proactively about it.  Watch what they blog about, what their investment history looks like, and what conferences they are attending.  If you can find this intersection of compelling themes and people, you won’t sweat the coming Series A crunch.

December 12, 2012

The Search For Product Market Fit

I continue to be fascinated with the changing art of product management.  This week, I taught a class at Intelligent.ly on the topic.  Intelligent.ly is a new start-up led by Sarah Hodges, who used to be an executive at Run Keeper and Carbonite (full disclosure:  Sarah recently joined Flybridge Capital as a part-time advisor).  The company is part of a new wave of companies, such as Skillshare, Boston StartUp School and others, to provide "over the top" professional education to help chip away at the skills gap and enhance professional development.

The class was a blast.  After running through a series of slides reviewing modern product management techniques and the search for product-market fit (drawing from leading thinkers and a class I teach at Harvard B-School), I had the students break up into teams of 8 to create scrums to address a strategic question:  if you led product management at Blackberry, what features would you prioritize in the new Blackberry 10?  I had never tried a spontaneous scrum like this before and it was great fun.  The readouts afterwards were insightful and creative and it reinforced for me something I've seen work successfully at the Unconference - that creative energy can be released and improved learning can be achieved with a dynamic format rather than lecture-style.  

Below are the slides.  Did I leave anything out?

For more on this topic, you can follow the HBS class blog (we do not have a final exam - just blogging!):  Launching Technology Ventures.  We kick off the new class in late January.

November 26, 2012

Getting Back to Work - Multi-Dimensional Entrepreneurs

"I can't wait to get back to work.  This fundraising is a real drag on my day job."

- Startup CEO raising capital

We have a number of portfolio companies that are raising money.  When I talk to my CEOs that in the midst of this process, almost all of them complain about the same thing.  They dislike the fundraising process and can't wait until it's over.  They view it as a distraction from their day job and a non value-added chore.

I love the CEOs I work with.  But when I hear these complaints, which echo those of other entrepereneurs I know, I can't help but think how dead wrong they are.

Raising capital is a core part of building a valuable business.  Whether you are raising a $250K seed round or navigating a $100M IPO, the capital markets - in all of its various forms - are a fundamental constituent in the business-building journey.

Developing expertise in raising capital is more than a necessary evil, it's a competitive weapon.  If you have a stronger balance sheet than your competition, you can push off monetization decisions and focus on product-market fit.  You can take more risks on partner deals, focusing on long-term value creation, not short-term gain.  If you have a larger cash horde than your competition, you can make aggressive hires, attract better talent, perhaps even make acquisitions.  Adding some debt onto your balance sheet will lower your cost of capital and your dilution, which is better for existing investors and the management team.  In other words, being able to efficiently access the capital markets is as core to business-building as product management, go to market and your profit formula.

I admit that fundraising can be painful - and certainly I felt the pain when I was an entrepreneur and had to explain the same story over and over again to prospective investors of varying intelligence and sophistication - so, all joking aside, I am sympathetic to the complaints.  But in the process of fundraising, I always gathered valuable feedback from savvy investors who understood the market and had a broad perspective.  Seeing my firm through their eyes gave me valuable insight and often caused me to make adjustments along the way - in many cases, critical adjustments to our business model or approach based on the feedback.

A cynic might suggest that I'm supposed to have this perspective because, as a venture capitalist, I'm bound to think that my role in the start-up ecosystem is an important one.  But that's not entirely true.  For example, I have huge respect and passion for product development and the role of the product manager.  I spend alot of time with my portfolio companies on their go-to-market strategy, partnerships and scaling sales.  

But I do think the cultural pendulum in the startup world has swung too far away from requiring entrepreneurs to be financially savvy.  The best entrepreneurs develop acumen across a range of business-building disciplines, including general management and finance.  They view fundraising as one of the multiple dimensions that are a core part of their job, not an ancillary distraction or necessary nuisance.

Being an entrepreneur is a really hard and lonely journey.  Entrepreneurs need to "major" in some disciplines and "minor" in others.  They can't be so focused on, say, product development that they can ignore a major discipline like fundraising.  Whining about fundraising, particularly to investors in the midst of the financing process, isn't a winning approach.

November 07, 2012

The Product Manager

My first job after business school was serving as a product manager for an Internet commerce software company (Open Market, IPO'96).  Back then, we learned the "HP way" - methodical, waterfall, process-driven.  The art and science of product management has changed radically in the years since, with agile and lean methodologies replacing the more centralized, older methods.  One constant, though, is the centrality of the role - sitting in between the market and the engineering team, the product manager (or VP of Products or any other derivative title) is a critical component to a start-up's success.

Thus, when my friend and colleague, HBS Professor Tom Eisenmann, suggested we write a short piece summarizing the modern role of the Product Manager, I jumped at the opportunity.  We collaborated with NextView's Rob Go and drew on some of the work of author/consultant Marty Cagan as well as numerous others.  We interviewed dozens of product managers from the Valley, NY and Boston and debated the different ways product managers impact the business and drive operations.  We tried to capture the issues the role faces in business to consumer as well as business to business companies, very early stage to more mature, agile to waterfall and everything in between.  That research culminated in this note, which I'd welcome folks reading and providing me with feedback:

Product Manager - HBS

To explore more about the role of the product manager, there is alot of rich activity on Quora, including:

Finally, a few blogs that do a nice job covering this topic include:

 

November 01, 2012

StartUp Communities, Ecosystems

I participated in a WBZ radio breakfast panel yesterday on the Boston start-up community and recently delivered the presentation below at the Harvard Innovation Lab as part of an HBS Entrepreneurship Club Event.  It reflects a survey of the local start-up ecosystem that dissects what it takes to build a great ecosystem.

 

My friend Brad Feld talks about this topic in his new book on Startup Communities, as summarized in his fun Kauffman video "Sketchbook":


October 09, 2012

Software Is Eating Marketing

When I was a kid, "The Graduate" was a generation-defining hit movie, with Dustin Hoffman playing an aimless college graduate. In the middle of a graduation party, an older businessman takes the wayward Hoffman aside and delivers some wise advice: “plastics.” That should be the field his generation should focus on, the field that would shape the future.

Today’s advice for aspiring graduates is also a single word: “software.”  

In a sweeping Wall Street Journal article last summer, Netscape founder Marc Andreessen identifies the 21stcentury phenomenon of software eating the world. Software is disrupting industry after industry and transforming large swathes of the economy. When I was an entrepreneur in the 1990s, I would debate with my investors what sliver of the $70 billion U.S. software industry we could carve out. 

Today, as a venture capitalist, I meet with entrepreneurs who are trying to figure out what portion of the $70 trillion global economy they can dominate.

Within the $1 trillion marketing industry, the impact of software eating marketing has now reached the board room.  With the explosion of digital marketing, it is clear that technology is radically transforming the marketing function and the role of the marketing professional. 

The changes rippling through the marketing industry goes far beyond the simple mantra of “follow the eyeballs” to different screens.  Gartner analyst Laura McLellan predicts that by 2017, CMOs will spend more on IT than CIOs.  The repercussions of social, mobile, video, Big Data, CRM, cloud and other disruptive forces are impacting all aspects of business, but particularly marketing. 

As a result, marketing leaders and agencies now carry the burden of understanding technology’s impact on their business, the entire customer experience, and leading innovation within their enterprises, not simply following a course set by their IT department.                             

“Madison Avenue meets MIT” and “Revenge of the Nerds” are common themes in marketing circles as technologists are becoming the rock stars of customer engagement -- employing algorithms and analytics along with artistic creativity to win market share. In much the way Apple disrupted the music and phone industries with smart industrial design and clever software that shielded users from complexity, technologists are building sophisticated systems with interfaces that are as simple for marketers and designers to manipulate as their iPhones.

MITX, the Massachusetts Interactive Technology Exchange (and an organization I serve on the board of) is putting on a killer conference on this topic called FutureM that kicks off on October 22nd.  FutureM will gather marketing and technology leaders to address these challenges head on, exposing marketers to today’s most innovative thought leaders and companies who are transforming marketing.

Hosted in Boston, at the nexus of the technology and advertising industry, FutureM is a weeklong extravaganza that will bring together marketing artists and marketing scientists, left brain and right brain thinkers alike, to debate the most pressing issues facing the industry. FutureM is fast becoming the equivalent of SXSW, the place to get inspired and see what’s next, but focused on digital marketing.  

If you think the last few years were disruptive, imagine how much the marketing industry will be transformed in the next three years!

(a version of this post originally appeared in Mediapost)

September 30, 2012

Back to School Blog - Fall 2012

(Note: this post is an open letter to the approximately 400,000 members of the Massachusetts-based student community. Many of the messages apply to students in other innovation hubs.)

Dear student,

Welcome (back)!  Now that you have unpacked the underwear, laid out the futon, picked your courses and settled in a bit, I wanted to write to you about something important.

Just as you were selected by your school amongst many applicants, we know that you chose to make the greater Boston community your home in selecting your school. For that, we thank you.

But more than thanking you, on behalf of the Massachusetts Innovation Economy community, I wanted to make sure you understood something.  We want you.

We want you to learn, engage, show up, contribute and - most important - stay when you graduate. One of our core values in this community is supporting innovation and young people.  We have a long history of fostering amazing student entrepreneurs, many of whom you know all about (like Zuckerberg and Facebook, or Houston and Dropbox) to some you may not know about (like the three Babson students who founded IdeaPaint or the two Harvard students who started IP TV pioneer Tivli).  And everyone in the community is fired up to support you, from civic leaders to business leaders and fellow entrepreneurs.

At 600,000 people, this city is small. Even with a larger metropolitan area of 4.5 million, there is a strong sense of intimacy and community here. This sense of intimacy contributes to why the innovation community here is so accessible.  As you are out and about, you will quickly learn that this is a very open and friendly town, particularly for students who hustle.

So here are a few tips for you as you think about exploring what the innovation community has to offer:

  • Attend an event.  Greenhorn Connect is the definitive listing of all the local events in the entrepreneurial community.  My firm, Flybridge Capital, created a scholarship program to support local students who want to attend events called Stay in MA.  Take advantage of the free passes on us and law firm Gunderson Dettmer and get out there!
  • Invite an entrepreneur to speak on campus.  I am amazed at how accessible and giving the entrepreneurial community is.  "Pay it forward" is the local motto and entrepreneurs are always telling me they love meeting with students and speaking on campus.  If you read about someone you think would be interesting, reach out.

There are a few standout examples of students who are making an impact in the local community that are worth highlighting as role models for their peers:

  • Cory Botolsky.  This Northeastern junior decided that not enough students were finding jobs at startups.  So, he created StartUp Summer and helped facilitate over 100 summer internships to help students get exposed to the local entrepreneurial community. 
  • Scott Crouch.  A Harvard senior, Crouch spent his summer shuttling back and forth between Springfield and Cambridge as he collaborated with the police department and state troopers to use social media and pattern recognition software to combat gang violence.  His work was featured in this Boston.com article and the New York Times.
  • Anna Palmer and Christine Rizk.  These two Harvard Law School graduates have launched a new company called Fashion Project that is helping non-profits make more money by providing a marketplace to sell high-end, donated goods more efficiently.  They are a part of the Techstars 2012 class.
  • Zach Ringer.  A Babson senior, Ringer has jumped into the entrepreneurial community with two feet.  He secured an internship with a hot mobile start-up, Crashlytics, by merely aggressively tweeting and engaging in the community.  He is always attending events at Mass Challenge and the Cambridge Innovation Center and is leading a number of entrepreneurial initiatives on the Babson campus.

What will you do this year to get engaged?  I urge you to make your presence felt beyond the classroom and frat house. The local community you have chosen to be with wants you.

Have a great school year!

September 05, 2012

Scaling is Hard, Case Study: athenahealth

There are many companies that are competing to be the “operating system” for small businesses. The theory is that with the advent of the cloud in the digital age, small businesses can leverage a suite of services from a technology vendor to manage all aspects of their work – from payments to record-keeping to marketing to customer communications.  Among those competing for this vision are PayPal/eBay, Square and Groupon, with each struggling to pull together pieces of the equation and, importantly, reach the small business in a cost-efficient manner at scale.

One company in Watertown, Massachusetts has been executing on this vision for over a decade with a winning approach for one vertical slice of the small business market:  physicians.  Although this is not typically how athenahealth is described, it is one way to describe what they are doing that mainstream members of the technology community might understand.  I have found it pretty amazing that so few people in the tech community know their story or understand the scale and scope of what they have achieved.  That is why I’ve chosen athenahealth for the third in my series on scaling (following Akamai and TripAdvisor).

Founding Story:  A Pivot

Athenahealth version 1.0 was a complete failure.  The company was originally founded in 1997 by Jonathan Bush (1st cousin of George W.) and Todd Park, a pair of Booz Allen consultants, as a physician practice management company for obstetrics.  As they tried to execute on their original vision, the pair became incredibly frustrated with the difficulty of turning medical claims into cash.  Payers took months to reimburse their practice for patients' medical claims.  Park began to write software to try to speed up the process, automating countless manual steps and creating a user interface that would be simple enough for doctors and medical clerks to use.

It turned out, the physician practices loved the software, but didn't love the practice management services.  The doctors wanted to run their own practices, but use athena's software to speed up billing.  Bush and Park remembered the advice one of their early angel investors had given them:

"Get close enough to your customer to understand what they really want.  And once you understand what they really want; once that opportunity comes knocking on the door; for crying out loud, answer the door."  

The founding pair realized that they needed to pivot into becoming a software company, and in late 1998, completely shifted their focus to delivering athenaNet, their Web-based medical billing platform, as a cloud-based software service for all doctors.  Scaling Lesson #1:  get close to customers early, really close, to help inform your pivots.  And when you do pivot, pivot hard.

Over time, the functionality athena delivered to doctors expanded, all with the vision of simplying the administrative burden on medical practices.  From collections and revenue lifecycle management (called Collector) to clincial documentation and electronic medical records (Clinicals) as well as patient communication (Communicator) - athena now provides a full suite of cloud-based automation software for doctors.  In effect, they have become the Salesforce.com of the health care vertical.  Scaling lesson #2:  Once you find product-market fit with a customer segment, scale up by offering other products that solve other hard problems to that customer segment.

Athena's financial performance has steadily grown alongside their product footprint and physician penetration.  In 2012, analysts estimate they will do $425 million in revenue and $85 million in EBITDA.  The company's market capitalizaiton is $3.2 billion.  See chart below:

Athena Financials

The reach the organization has achieved is impressive, but still only a fraction of the market opportunity.  Below you can see the number of doctors in the athenahealth network - which is over 25,000.  There are nearly 1 million physicians in the US.

Athena Table

Athenahealth's Culture

For the 15 years since inception, CEO and cofounder Bush has run athenahealth end-to-end.  A remarkable entrepreneurial story, similar to TripAdvisor and Akamai, where the founder (or near-founder in the case of Akamai's Paul Sagan) lead the business over many years.  Cofounder Todd Park, who is now the Chief Technology Officer for the United States, joked in an interview that medical billing is hardly "sexy", but that by emphasizing the "doing well by doing good" aspects of their vision, athenahealth was able to create a powerful, mission-driven culture.  Bush and Park both emphasize culture in all aspects of the business.  Scaling Lessong #3:  A mission-driven culture (as opposed to green-driven or fear-driven) endures, particularly when the mission connects to a greater social good.

But athenahealth's culture is more than just a bunch of do-gooders.  Their performance management system is very sophisticated.  One former executive described to me how transparent the organization is with respect to goals and metrics and how well-designed their Balanced Scorecard is for each individual and department.  The company shares that Balanced Scorecard on each quarterly earnings call as well.  As a result, everyone in the organization has a clear view of what the priorities are.  The scorecard includes five major components:  stability, operational performance, client satisfaction, financial performance and growth.  Scaling Lesson #4:  performance management systems and communications systems need to mature and be implemented as the company grows to maintain clarity and transparency.

Visionary CEO

As anyone who has met him can tell you, Jonathan Bush is a unique founder/CEO.  He is open, transparent and (at times painfully) authentic.   I love that his candor and humor haven't changed, even as he has matured into the CEO of a multi-billion dollar market cap company.  Read the recent Q2 earnings call transcript, and you'll get a clear sense of what I mean.  During the Q&A, when he's talking off script, you'll see a few funny quotes:

Well, one of the great lessons that we all learned in The Princess Bride is never get involved in a land war in Cleveland. [in reference to a slow roll-out at a hospital]

Life, Anthony. It's a contract for life. All of our contacts are for life. They can all leave whenever they want, but hopefully, we don't get boring. We keep changing our outfits, and they stay forever. We cut our hair short, we let it grow long. We have contracts for life. [when asked how long the term of a particular large deal was]

 

Jonathan's humor stands out, but his willingness to put himself "out there" and be so authentic and direct is not unusual for many founders.  The athenahealth lesson is about passion, endurance and perserverance.  Much like Akamai and TripAdvisor.  Those appear to be the consistent attributes for scaling companies.

August 18, 2012

Dave McClure Misses An Additional VC Trend...Outside Silicon Valley

There is alot I like about Dave McClure's post on VC industry trends. It captures many of the trends of that are transforming the venture capital industry, particularly the bifurcation of "mega VC" and "micro VC" funds. But I think he's missing one important trend that is happening outside of Silicon Valley.

For those of us who practice the VC craft outside of Silicon Valley, it is clear that the mega VC strategy just doesn't work. VC can't successfully deploy $1 billion unless they are investors in mega hits like Facebook, LinkedIn, Twitter and the like that have the potential to generate > $10 billion exits. Nearly all of the mega hits have been Silicon Valley based. Most of the recent big successful exits outside Silicon Valley (e.g., Buddy Media, Demandware, Endeca, Millenial Media) have been in the $500 million - $1 billion range. If you have a $1 billion fund and need to generate 3x to be successful, that's $3 billion in returns. If you own an average of 15-20% per company, that's $15-20 billion in exits. You can't get there $500 million at a time.

The micro VC strategy also is particularly well-suited for Silicon Valley. The successful micro VCs get into the mega-successes early, and also benefit from the high number of quick flips. Some micro VCs are attempting to make this model work outside Silicon Valley (e.g., Founder Collective, Lerer Ventures, NextView), and are seeing early promise, but the results of that strategy is still too early to call.

What is working outside Silicon Valley is small, focused, lifecycle funds. $150-300 million in size, funds like Union Square (NYC), Foundry (Colorado), Spark (Boston) are among those that have generated the best returns for their LPs this decade. These funds, who are neither mega VCs nor micro VCs. They are in the middle. Outside Silicon Valley, being in the middle can work well because you can get in early with small dollars, like a seed fund does, but get fully behind your winners and own 15-20% for $8-12 million. When the $500 million exit is available, you take it and the fund is small enough that it has a big impact. When you have an opportunity to attempt a mega exit and it is time to raise a mega round of financing, you simply go to the mega fund.

A number of companies in our portfolio have followed this strategy. In our first round of financing, we invested $1 million in Open English, an English language learning platform. Over a few years, we kept investing as the company grew. Once the company achieved real scale, mega fund Insight came in and invested $43 million. Similarly, 10gen was at a very early stage when we and Union Square invested. As the company grew and achieved scale, it came time for a mega round. NEA led a $40 million round last quarter.

At Flybridge, we are trying to execute on that middle strategy outside Silicon Valley - a small, focused fund that will invest early and work hard alongside companies for their full lifecycle to generate solid exits sometimes and, hopefully, one or two mega exits.

So far, this strategy is working for us and others. Whether it works in Silicon Valley, I can't say.

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