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Charlie O' Donnell
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You may have heard that NYC is potentially going to cap the number of cars with Uber and similar services.
On one side, Uber is adding more cars to already congested streets--and taxi medalians have been capped for years.
On the other, you'll hear that Uber solves the transportation desert problem in NYC and also makes live easier for riders of color who are used to getting skipped over for rides.
I'm not there yet on whether I have an opinion as to what the right number of Ubers should be in NYC, but I do have a very strong opinion as to the treatment of drivers and other "gig economy" workers.
You see, Uber drivers, Taskrabbits, Relay bike delivery people, etc. are all 1099 workers. Each individual trip and task is treated as a gig--a one-off project not unlike the way you might, for example, pay someone to design your website or code up an app.
The problem is that 1099 offers near zero in the way of worker protections for anyone who does it like a full time job. So, while a W-2 worker has protections around overtime and being overworked, 1099 workers don't have any.
I spoke to an Uber driver the other day. He talked about the way Uber's rules deal with driving time versus total time. Uber has a 10 hour limit on driving time--i.e., time on the clock with a rider--but up until recently, had no limit on the amount of time you could drive around trying to get to that 10 hours. He said it would often take 15 hours to get 10 hours of rider time in.
A W-2 worker would have protections around 15 hour shifts and overtime requirements, but 1099s are SOL.
On top of that, when you take expenses into account like gas, leasing, and insurance, drivers are making below minimum wage.
It's been said that the city is considering putting in minimums for drivers, and I would say that before we cap the number of cars, we should be improving the lives of drivers. Let's measure time in the car and make sure drivers are *netting* at least the minimum wage for all the hours they're in the car, because you literally can't earn the income without paying the expenses.
This way, we focus on the first step of making sure Uber and others find a viable business model that doesn't involve abusing its workers. Then, if it finds it can still exist, then we should figure out how many cars there should be.
Interestingly, one of the ways it can do this is by increasing utilization--i.e. putting less drivers on the road, increasing wait times, so that each driver spends more time getting paid. Right now, it floods the system with drivers to decrease wait times for consumers. I, for one, would wait an extra couple of minutes if I knew that meant fair pay for drivers.
The City Counsel should use its leverage in this cap conversation to force Uber to pay drivers better. If they really want to avoid the cap, they should be held to a higher worker treatment standard.
She came in and shared all of the hassles that make buying paint a terrible experience--the difficulty in picking colors that actually look good with microscopic swatches, the need to go to a store and crossfit your way home with heavy paint cans, not to mention the harmful chemicals that are in so many paint brands.
She knew all this from being an influential interior designer and detailed how she believed there was a big direct to consumer brand to be built in the space.
Her plan was to close a bit first, first picking up $800k to start executing, and then fill out the rest.
I asked her how far she could get with it--and which milestones she'd be able to achieve. It only got her a handful of key features related to what she wanted for Clare. I encouraged her to go out for the whole thing right off the bat.
To a solo, first time, non-technical founder, asking for $1.6mm may have seemed like a lot to ask for for a Powerpoint--but it was so much better of a plan than launching something half as awesome for half the money. Talking about a stepped raise can confuse an investor (and we are easily confused) as to what amount of money matches up with what goals--when the founder knows what they really need.
It's so important for investors to recognize that different founders have lots of different views on how aggressive or conservative to be on a pitch--but underlying that sales strategy is a *real* plan that the founder knows they could succeed with if they could be successful with fundraising. As an investor, getting at that without knocking the founder for their interpretation of what you want to here is the key to getting some under the radar deals that others might have overlooked.
Well, not only did she raise that money for a full launch, but she was *oversubscribed* and picked up some amazing additional investors like Imaginary, First Round, Able and Bullish, as well as the founders of Casper and Harry's.
I'm excited to support Nicole, one of the most inspiring and dynamic founders I've met, and to be along for what promises to be an exciting and impactful brand in a huge space.
Decided to follow no more than 250 people on Twitter. If you got bumped, blame @willyf, who just made a good case for me to follow him. :)— Charlie O'Donnell (@ceonyc) June 30, 2008
Just about 10 years ago, I tried hard to keep my Twitter follows to a manageable amount--to people I actually cared about following and either already knew or wanted to get to know in person.
5000+ follows later and I've failed miserably.
It wasn't my fault, though--because the app itself, like all social networks, succeed around growth. Every single feature is optimized around growing the userbase and increasing everyone's follower count, which means everyone's following count. Networks are always telling you who from your contacts has joined and recommends you follow new accounts, even though you still only have two eyeballs in your head and 24 hours in the day. The end result is that each person's connection to you in an ever increasingly connected network becomes more and more tenuous.
A few years ago, I went to breakfast with Andy Weissman and he lamented Twitter's "Garyvee feature"--the turning off of the visibility of @ replies to people who weren't following the person you were messaging. Basically, Gary Vaynerchuk would use the @ feature to message a ton of people at a time as he was scaling his following to try and scale 1:1 conversation as much as possible. It wasn't particularly scalable as following him became a worse experience. It was a firehose of listening to him not talk to you and just give shoutouts and the like. However, when Twitter turned this off, while your stream became easier to consume (and easier for businesses or celebrities to interact with people en masse), it came at the expense of authentic discovery. You never stumbled into half of an interesting conversation with someone you might want to follow based on the topic.
There was a time when I thought Meetup Everywhere was going to be the next big thing--a social network that was dedicated to connecting people in real life was going to create a lightweight framework for people to localize the social network experience. If groups got too big, it would be easy to enable splintering. I don't know why it didn't take, but I've always lamented the failure of the web to create "neighborhoods" at scale that brought communities together (as opposed to just broadcasting to them like Patch).
For a brief moment, tech was able to make my world feel smaller and more accessible, but now it doesn't feel that way anymore--and I have a theory that I'm part of a very narrow generation that even cares or notices.
There's an age group where you are old enough not to have Facebook in college, but young enough to be an avid user of tech--and to have used the internet to meet new people, probably through AOL or other forms of chat. When we used dating apps, they weren't based around double opt-ins. You regularly heard from strangers. Ok, so it wasn't a *great* experience, but occasionally you'd find diamonds in the rough--and you had to take some risk around reaching out and getting rejected.
Roughly speaking, this group probably peaks around 35-43.
Not only did we straddle a unique time in tech, but we also came at the tail end of real life neighborhoods as well. When I was growing up, I would eat lunch and then run outside to play with my friends. There wouldn't be any coordination between parents to make this happen. I would just go ring doorbells to see who could come outside if they weren't already out. It was just assumed that *someone* we knew--a parent or next door neighbor--would be on our street somewhere to keep an eye out.
This experience made our local world feel very safe and accessible--where we regularly interacted with new people and made decisions for ourselves on who was safe and fun to play with. We had positive experiences of meeting new kids and becoming friends all on our own, outside the confines of institutions like schools, camps, or parent organized play groups.
Now, walking these same streets leaves you with a sense that someone stole all the children. I'm not sure whether it's screen time or parental fear of abduction, but the kids seem to have disappeared from the street.
It is this same age group that sought this out online--this same group that used Twitter to meet people and Foursquare to find where their friends were hanging out--in order to recreate the neighborhoods experience. They built Barcamps and unconferences--semi-permeable spaces that got enough scale, but not too much scale, to facilitate people discovery and high quality conversation.
I don't think we'll see a new form of social media ever attempt to make this happen again--because I don't think the builders of the next generation of apps ever really had this experience to know that it is missing. Those that experienced it are now at a different point in their life where they're building families or at least coupled off and not really in network expansion mode.
These days, people gather to play a sport, to protest, to play games online, or to watch something--mostly with people they know are already like minded--and maybe that's fine, albeit a little one-dimensional, but sometimes it's nice just to gather in manageable numbers with people you aren't sure agree with you on everything, just for the sake of gathering.
Can someone build that in a way that isn't contrived or creepy?
I've seen this so many times over:
A founder pitches a VC, or several of them, and then they come back from that process with all sorts of new strategy goals or worries that they need to be doing something differently. Nine times out of ten, if you're pitching more than one VC, the advice seems to conflict with itself, and the founder winds up playing Wack-a-Mole trying to figure out what to do next.
What's going on??
The fundraising process is not intended to be a feedback process. If it was, you'd run it very differently. Founders would ask for very specific pieces of advice on topics they thought that particular investor would have some insight into. Instead they often just dump everything they they know about their company on the VC's lap and ask for any kind of feedback whatsoever, leading to really messy data.
So why is this feedback seemingly all over the board?
First, let's be clear--when you walk out of a VCs office and don't get a term sheet in the next week or at least another meeting with the partners necessary to make a decision, it's a pass. Lack of a yes is a no--so anything that firm tells you should be taken with a grain of salt. They don't want to invest in your company. Any advice they have for you is going to be a bit broken. It's a bit like if someone doesn't like ice cream and then says your favorite ice cream is too sweet. First off, you need to drop that friend like a ton of bricks, and second, making that ice cream less sweet isn't a good idea. They don't like ice cream--so no amount of sweetness reduction is going to make them happy. That's not helpful feedback.
Second, the feedback is incomplete. Since you didn't ask the investor to write you a complete strategy guide, all they're doing is giving you *one* of the reasons they passed. There could be others--so many others that following up on just that one protest might still not lead you anywhere. Just the other day, I was talking to a founder who was told by a Series A fund that they normally invest in companies around $125k/month in MRR. She assumed that by getting to $150k/month, they'd automatically invest. What that investor left out was that before they were going to write an $8mm check, they'd also want to see a marketing funnel established to get leads, an actively growing sales team that showed that the process could be replicated, and growing revenues within each customer. Otherwise, one awesome enterprise salesperson in a market where contracts were big and good product would be enough--but no one is going to write a check that big to a virtual team of one business person and some devs.
Lastly, the most important piece of feedback--the team feedback--almost never makes its way back to the founder. Sometimes, VCs will walk out of a meeting thinking, "Ok there's no way I'm ever going to fund THAT guy," so they just make something up or make something small into something bigger. They'll never tell you to your face that you're pretty much unbackable, so focusing on any other advice you got from them isn't going to fix the issue.
How do you solve this?
We're working on something cool at Brooklyn Bridge Ventures to address some of these questions. :)
Recently, I helped one of my portfolio companies make a VP of Marketing hire. The founder asked me early in the process if I thought the candidate was good.
Having not worked with her previously, I didn't know how talented she was firsthand, but what I did have confidence in was that her strategy would be well thought out, and if it wasn't working, she'd analyze why, proactively address it, and describe what steps she would take to find a solution. She struck me as having an disciplined approach to her job, and over time I think discipline wins over raw talent everyday.
Discipline comes with a reasoned approach--a way of breaking down any situation into component parts, addressing each carefully, and sometimes finding help to address the ones you're not able to handle. Startup life comes with a ton of variables and if you're not trying to bring order to the chaos, you won't be able to scale your effort as things get bigger.
Discipline also helps take responsibility off of a founder's plate--and that's something every founder needs and welcomes. When you build in methodologies to your job, the founder that you work for can trust your approach in future situations, and they can make like for like comparisons in your performance over time--essential to oversight and process improvement.
Raw talent, on the other hand, has a limited shelf life. Things change very quickly--so while you might shine in a particular situation, that approach might not work in your next job. Someone who is great at writing blog posts might struggle in the shorter form media that has become more popular. A community manager of fans and users might not have the same knack for inspiring user-owners who are participants in a token-based ecosystem where they benefit from improvements in a system in which they are also stakeholders. A recruiter who is just really good with software developers might not be able to switch to sales recruiting when needed if they don't come with a disciplined approach that can be tweaked for a new situation.
Lastly, talent without explanation of approach and discipline can actually just turn out to be luck. When you hire the person that took X company to success, you might find out that if they can't tell you what it was that worked and why, and the logic of how they approached things when they first started, its possible that the company succeeded in spite of them. Perhaps they weren't really so much the driver versus just coming along for the ride.
Building a relationship with an investor, someone who is drowning in pitches and requests for their time, can be difficult. How do you cut through the noise? In this video, I share three ideas for kicking off a relationship with an investor you don't know.
Long gone are the days when NYC was just a place to build a fintech company or an ad platform.
In the first half of 2018, we saw Flatiron Health’s $1.9 Billion acquisition, Quentis Therapeutics picking up $48 million in financing, and Paige.ai raising $25 Million--all to fight cancer. Making cancer treatment easier to plan for clinicians was the goal of a founding team of three physicists who cold e-mailed me around New Years. They had unique insight into a tool that would save time, reduce errors, and improve quality in cancer clinics.
Part of my criteria at Brooklyn Bridge Ventures is trying to figure out whether the person sitting across the table from me has taken the right path to knowing enough about what they're trying to tackle and is eyes wide open about the challenges ahead.
Radformation, founded by Kurt Sysock and co-founders Alan Nelson and Elisabeth van Wie, is an early-stage oncology software company that works with state of the art radiation equipment. They began laying the groundwork for Radformation in 2016, after all three left their jobs working as medical physicists in the cancer clinic. It was during their time working in the cancer clinic that they saw first hand the frustrations of manually putting together complex treatment plans for patients. Having this in-depth knowledge as potential users of the product helped them get nearly 100 clinics using their platform in just their first year of having a product. Radformation's FDA 510(k) cleared software allows clinics to catch errors quickly at the source and automate generation of high quality treatment plans much faster than today’s current manual methods.
No amount of Googling around on my part is going to catch this team sleeping on what's going on in this space.
Finding this is more rare than you think it would be--as many pitch meetings fall apart quickly, like someone who thinks they're passable in a foreign language until they talk to a native speaker.
Plus, it's always great to back a team making a positive impact on the world and doing so in a lucrative space. Over $150 billion is spent annually on cancer treatments in the United States alone and cancer accounts for 1 in every 7 deaths worldwide. Radformation leverages clinical best practices and advanced algorithms to automate the error checking and plan generation process to create the highest quality plans possible. In this way, Radformation helps clinics provide their patients with optimal treatments and avoid patient harm. The software is compatible with a wide range of cancer treatment sites, and generates optimal treatment plans in minutes, expediting a process that used to require hours to perform.
I'm also very excited to be in a deal with The Fund. I first met Matt Brimer in the Ace Hotel lobby back in 2009 when he was interviewing companies to join his new co-working space called "Superconductor", which obviously became General Assembly. This will be my third co-investment with Jenny Fielding, who is awesome--first on Homer Logistics and the second being another unannounced deal with The Fund.
Time and time again, I hear how hard of a time startups are having recruiting, especially for software developers. While candidate quality is sometimes an issue, or culture fit, or some other quality, most of the time the issue is that the company just isn't getting enough people into the top of the funnel.
When I was a startup founder, I had this same issue. That's when I had a conversation with Max Ventilla, the founder of AltSchool, who at the time was running Aardvark. Max was telling me how he was interviewing 4-5 candidates a day, which stunned me. I couldn't figure out how anyone could fill their calendar with that many qualified people. His reply was simple--he was outbounding to 5-10x that many people each day.
Yeah, I definitely wasn't putting in that kind of volume. I immediately started writing a ton of notes each day to individuals that I thought looked promising or who could connect me to candidates. After a couple of weeks, I had written to 500 people, talked to at least 20, and made a hire, after failing to do so for months.
The other day, I was in a board meeting and we were talking about the need for a software engineer. The team already had a lead on board. I asked the founder how much time they were encouraging their lead to do recruiting--and whether they had made it clear that despite a backlog of feature requests, that they were willing to compromise on development timelines in order to make sure their lead had enough time to personally get involved in recruiting.
The reality is, no one likes getting recruiter form messages. You'd much rather get a personalized note from the person you're actually going to be working for. That person, unfortunately, is very busy (mostly because your team is understaffed). When deadlines are fast approaching, their instinct is most likely to double down on their own hours worked rather than pull back and invest the time into recruiting. They can't do that forever and you need to remind them of that. The only way your team is going to produce more in the long run is by growing, not by burning out the few people it has. It's everyone's job to recruit and it should be something everyone should carve out a portion of their day for.
When you have a software team of 1 or 2 people and you have the money to grow, each of those people should be spending an hour a day on outreach and interviews minimum. There are, however a couple of shortcuts that can scale their time:
1) Hire an intern or outsourced person to help with the outreach. Give them access to this person's account or maybe a version of their name, like first letter at startup dot com. Your team member should just be sending this person links and a short explanation as to why they found this person interesting enough to reach out to. Let the outsourced person handle the finding of e-mail addresses and composing of actual e-mails, making any editing adjustments that need to be made, as well as handling responses and interview scheduling.
2) When you do get to the point where you think the person has an interesting skillset and you'd like to get a better idea of where they are talentwise--outsource your assessment to Headlight (A Brooklyn Bridge Ventures portfolio company). There's no reason why your team members should spend time developing and marking tests when a standardized test has already been created and teams of people who have been trained to assess are standing by willing to jump in.
3) Collaborate with other companies on sourcing through events. At Brooklyn Bridge Ventures, we run a series of events called Stackup Talks. We'll get multiple companies together in the same room sharing brief overviews of their stack--be it the code they use to run their applications or even the marketing processes in place for their "acquisition stack". If you think about what your target talent pool would find most interesting, hearing from one company isn't nearly as interesting as getting a taste of several companies and how they're using the same tools they work with everyday. Add to that having that conversation in a way that's about the code and the people, not about recruiting, even if you know they're actively hiring. This Wednesday, we have three companies joining us to talk about React and React Native. For the time and effort it takes to give an overview of what you're up to, being able to share your stack with 50 or so talent leads is a great use of ROI, making events a really efficient means of connecting on both sides.
I was talking to another investor the other day about the stress that surrounds the ups and downs of the job--winning and losing deals, and having some companies succeed versus others going south on you.
I shared with this VC my secret to keeping stress at bay:
I concede the fact that the possibility exists that I'm not good at this.
My fund performance is positive and things seem to be going in the right direction--I've been fortunate enough to back a lot of interesting companies--but there's a lot of uncertainty still. The possibility exists that things might not all turn out in the end--that I might very well lose investors' money or underperform the market.
And that, oddly enough, keeps me calm and level-headed.
I find that if you don't admit that failure is a possibility, you find yourself in a situation where your brain can't process even the hint of failure. When things don't go right, that goes against a feeling of how things are "supposed to" go and your definition of yourself as one of succeeds.
Stress comes from your inability to accept. I tell myself, "Despite the fact that I try hard and follow disciplined thinking, I may not have what it takes to create success--and that's ok."
If you can't handle that reality, you're going to feel some pretty haywire emotions, start misplacing blame, and generally fail to observe reality as it is happening, resulting in erroneous feedback loops.
When failure isn't an option, you start doing irrational, and potentially dangerous things for your own health and that of others. It's always an option, because some things just won't work out and you'll need to figure out another plan.
For now, though--you're not there, and you know that because you can be honest about its existence and identifying what it looks like. That gives you the confidence and the focus to keep at it when you're not there yet and to improve enough to avoid it.
I can fail.
I might not be good.
I am trying really hard to be better everyday and too succeed.
All of these things can be true and are healthy things to tell yourself.
A few years ago, venture capitalists and founders got together to make it easier for international founders to come here and start new businesses. Why? Because it has generally worked out amazingly for Americans. Half of the startups in the U.S. that currently enjoy valuations of over $1 billion were founded by immigrants. Those companies employ Americans with real jobs--and there's no shortage of dollars willing to back them. In fact, those immigrants also create more American entrepreneurs--because many people who work for them then go on to start their own companies after their learnings from their first go around. For example, Max Levchin was one of the Paypal founders (he came here from the Ukraine seeking political asylum, as this was well before the Startup Visa was created.) After Paypal's success, Reid Hoffman, who worked there, founded LinkedIn, which employs thousands of Americans.
This is such a no brainer rule and there's no legitimate reason to change it. It's anti-business and it's anti-exactly what even the most conservative Americans want immigrants to come here to do, to pull themselves up by being entrepreneurial and creating value. Make sure the Trump Administration knows you're against it. It's going up today and needs your public comments, which can be made here after its up.
A few weeks ago, I booked a customized tour of Iceland with Noken, and I did it in about five minutes. All I had to do was to tell Noken how long I planned to go, what level of hotel and car I wanted, and then I had the option to add on a few extras, and within minutes my entire trip was booked. I had a connection to my own personal trip concierge and a custom app that outlined my trip. I literally haven't had to think about it since I booked it--no worries about reservations, what to do when, or doing additional research, things I really don't have the time for.
Some people really like researching travel--and you can spend weeks and weeks doing it. There is more information on the web, not to mention all the friend recs you can get, than anyone with a full time job can really handle. For the rest of us that don't have time, and just want to know that someone who does nothing but think about this all the time took care of all this for us--and that our plans, tickets, maps, etc. are all in one place on our phones, Noken us for us.
When I was growing up, we took a few road trips to see my brother in Chicago and then down to Florida, but we weren't international travelers. My impression of international travel came from Mario Perillo, TV's "Mr. Italy" who used to advertise his family's tour business on NY television all the time...
My grandparents went on one of those tours in the early 80's. They rode a bus with a bunch of other senior citizens and undoubtedly followed around some guy with an umbrella or flag or something. That's not something I had any interest in.
Travel changed a lot over the next few years. The internet provided a firehose of reviews, lists, and research, which was nice for a while, but then it became overwhelming. In a world of unlimited choices, curation, transparancy and simplicity became more valuable.
We went from searching millions of recipes to subscribing to meals that someone else picks for us.
We went from comparing every last product out there to trusting single product companies whose value proposition was straightforward and whose customer service was great--whether it was for buying mattresses, sheets, luggage, etc.
Marc Espana and Emily Brockway, the Co-founders of Noken asked why booking travel couldn't be as simple as buying the luggage for your trip. Instead of sifting through endless sources of information, why couldn't a company just say "Here, we did this for you".
They built the answer, and all you have to do is hear from the customers to find out the results:
They didn't just set out to make travel easier because it's a big opportunity with nothing else like it out there--they did it to build cross-cultural empathy at a time when that is in short supply. The events of the last year affected this team personally--being LGBTQ and female founders, as well as having a Dreamer on the team. It's been shown that the more you travel, the less you think of people who are different than you as your enemy or someone to fear. One of the best way to make someone more empathetic is to hand them a passport and show them the world and its people.
Thanks to Noken, there are no more excuses not to travel.
The tours are an order of magnitude less expensive because the company doesn't have to pay for infrastructure on the ground--it's all in your custom app. On top of that, unlike almost everything else in the travel space, they're not offering yet another search based route to a commodity product. They've created something branded that a consumer can be loyal to and come back again and again as new countries are added (they have Iceland and Columbia currently). The trips are Instagram-worthy, creating viral loops that you simply don't see with the Kayaks of the world. This addresses some of the acquisition economics that scare some investors away from the travel space, because no one wants to invest in a business competing for the same customer as everyone else with a completely undifferentiated product.
I backed Noken's pre-seed round back in August. The funny story about that is that they weren't really raising, but just looking to build connections for their seed. At the time, I was looking for a company to present to an investor education group that I run to help teach people about how VC meetings work. When Emily wrote me, I responded by accepting the meeting request, but letting her know that it wasn't just going to be with me--but that she and Marc would be sharing their company like patients in an operating theater, with 30 people in the round listening in on the conversation. Unfazed, they gave a great presentation and shared how they had done over $100k in revenue, without even having a real app. It turned out they had been using Invision demo apps the whole time for their customers to use in their trips--and yet still getting rave reviews with only a fraction of the functionality.
I talked them into taking money from me head of a real round and they've been amazing to work with over the past seven months or so. I'm excited about their ability to build a seriously large consumer brand in this category in a way that doesn't currently exist.
I'm also excited to see Iceland in two weeks!!
"I'm not raising right now."
When said to a VC, this is one of the biggest BS lines out there. You're literally talking to an investor, and if they offered you a big check at a great deal, you'd take it, no? So, how could you say you aren't fundraising?
On the other hand, some founders *literally* aren't fundraising. They won't share any info on what's going on with their company, even with investors that are really excited about their concept.
Is this a missed opportunity or just insurance that they're going to put their best foot forward in an organized process? After all, they have a company to run now and success at meeting your current goals is going to improve your chances of a successful fundraise later, right?
Well, it all depends, right?
Actually, I tend to lean more on the relationship building side, for a couple of reasons.
First, in the early stages, there's a lot more information that can be gleaned about you than we can know for sure about the success of your company. How you think, what your plans are, etc. are all keys to helping VCs figure out whether they want to back you--and before a Series A, you really don't *know* for sure whether something is going to be a success, no matter how much data you have.
That's why the first check for a Series A firm is so small relative to the size of their fund. Think about it... if a $350 million dollar fund leads an $8mm round, they're probably doing about $6.5 million of it. That's less than 2% of their fund, and of all of their checks were like that, they'd be doing 55 deals in a fund, or over 2x what you actually statistically need for diversification. You think you're getting this big fat check compared to the seed money you raised, but they're actually doing something more like dipping their toes in the water. It's less signal than you think.
They know there's not a lot of data yet and it's still more of a flyer, which is why I think putting your head down to optimize your company to 110% to try to get your next round isn't the right strategy--because it's not the mindset the investors are in. It's a game you're the only one playing. Not only that, it's a game that you'll never be more poorly equipped to play. Company success is a function of resources--people and money, neither of which you have much of.
It's showing up to a gun fight with a Pez dispenser.
Given that so much of the bet at these early stages, even at the Series A comes down more to "Do I believe what this founder believes?" it strikes me that actually talking to an investor, sharing your vision, and actually starting to work together feels like a better strategy than going silent until "Pitch Day" when you show up all ready and prepared, expecting term sheets in just a couple of weeks.
This is especially the case with a strong founder who has the best company in a space--because getting to know more investors wards off VCs from investing in your competitors. You'll clearly come off so much better than them that no one is going to want to settle for second fiddle. They'd just as soon go find another space where they can find the category leader.
A lot of founders worry about information sharing. The fact of the matter is that you're not the only one who has thought about this idea--and you'd have to be pretty egotistical to imagine you had. What you should imagine is that you're the best team to execute on it--so that no matter what you tell an investor, it won't matter who knows what, because just knowing the plan doesn't mean executing on it.
One thing going on behind the scenes that founders might not be conscious of is intra-firm dynamics. One partner might want to meet with you while you're "not raising" in order to build the case inside their firm for doing this deal. Maybe not everyone in the partnership is there on "Casper for Congressional Testimony Seat Cushions", so they're meeting with you to socialize the idea of the company ahead of you actually being ready for a check. Keeping close to the vest in this scenario would make it impossible to get the partnership to a yes if you just showed up after running silent.
Here's something else to consider--the getting to know you phase has very different expectations than the due diligence phase. If your company is a work in progress and you didn't show up to "pitch" then an investor is absolutely going to understand if you don't have the perfect deck or all the customer acquisition data figured out yet. Founders worried about this need to stop acting as if investors have never seen a startup before.
Too often, because most investor conversations result in a no, founders start telling themselves all sorts of reasons what caused that result. Thinking you were underprepared to discuss your company and that more model tinkering and deck stylizing is just bad thinking. Investors have seen a wide variety of companies before at various levels of rough edges. They can recognize a deal they want to be in versus not.
Besides, would you rather get a "no" after knowing that the investor absolutely understood what you were trying to do and you had enough time to share why you were excited, or would you rather walk out feeling like the pitch process was very rushed, and you didn't get everything out there in the shortened cycle you actually had to do the pitch?
On top of all this, what about your own due diligence as a founder? Don't you want to get to know different investors over time to decide who you want to be working with? It's like making a hire that you can't fire--so having the chance for multiple interviews over a longer period of time is important and to your advantage.
My advice is to work with your current investors, if you have any, to pick out a short list--maybe three or four investors--and gauge their interest. See whose eyes light up when you tell them about the company or who gives you a reason why they've been looking at that space. Have an introductory meeting, and if you feel like you would like working with them, get their feedback on what's going to be important and what should be a priority when. Do some deeper dive working sessions that give that investor some insight into what it would be like to work with you. Get them to do some homework for you, too--especially around hiring. See what kind of candidates they send your way, or what kind of partner introductions they can make.
Be cautious about your time, of course--cutting off these conversations if you know this is an investor you're not excited about or you're pretty sure they're not excited about you.
I am convinced, however, that investors come on more because they believe your vision and trust you, conclusions that can only be reached over time through experience, than because you achieved some operational milestone.
It's really hard to advise a company when you don't have all the information--and no one has more information than the CEO of the company. Sometimes, you might believe the CEO is ill-informed, and you're a check on the amount of homework they've done to seek out solutions to a problem, or which metrics or signals they're paying close enough attention to. That's a really useful function for any kind of advisor, be it a board member, investor, or someone advising about a specific aspect of the company.
However, it's very tempting as an investor to get into the habit of telling the founder what you think about all sorts of things, before you've asked them for what they would propose as the way forward, or when you haven't even agreed on what's a problem.
Following this strategy as the CEO means that you're taking the advice of someone who, at best, has 1 out of 30 days of experience with the company via a monthly board meeting, and two, might be pattern matching for a bunch of other companies that isn't the company at hand.
Lots of different companies operate in lots of different ways--and they've done so across a lot of different environments. If you started a tech company 25 years ago, you did so before the internet was really a thing for everyone. If you started one 20 years ago, you did so before broadband was really a thing for everyone. It was just 15 years ago that no one had smart phones. It was merely 10 years ago that Facebook hadn't even cracked a billion dollars of ad revenue (It did nearly $40B last year).
So, even when you're talking to smart people who already built their businesses, they did so in very different environments, with different teams than what you have now.
As the CEO, you should be prepared to make decisions that you stand by and not have to go to advisors and investors with every issue. We're here to audit your thinking, not to do it for you.
Here's a good way to do that:
1) Have a way to organize the company's priorities over time and measure results.
Start with your long term goals, this year's goals, this quarter's goals, etc. Drill that down to goals for various teams. This is what's known as Objectives and Key Results. It's never to early to start using them. This way, everyone around the table, including investors, management, and employees can see the plans laid out, and have something to weigh in on.
This way, we can all be standing on common ground and we have an objective way to discuss what's working and what's not.
Processes always trump "gut" when you have the time.
2) Do your homework.
If something seems not right, and you don't know why, you should sit down and talk to a few smart people who've probably been through something like this before--and if you don't know anyone, definitely ask investors.
You're much better off asking investors for resources to do your own research than just asking what the investor thinks. If nothing else, it helps you build up a network of other founders and executives that you can count on whose experience dwarfs what the handful of your active investors have.
3) Present your observations, findings and proposed solutions.
It's not a useful exercise to just pronounce tactics at a board meeting without context, and certainly not to blindly follow advice because you heard it was something you should do.
What I find most useful is that you give us the opportunity to understand why you thought something was a) important and b) in need of change or improvement. Hopefully, it traces back to your stated objectives--in which case, it's something we all agreed on prior.
It also allows for an investor to see why you're focused on something and help you with prioritization--because maybe it's not something that actually needs to be addressed right now given your limited resources.
I want to hear what the CEO thinks first--before I respond to a question. If nothing else, how else is a CEO supposed to learn the responsibility of setting direction and making good decisions? It's too easy to just ask others for their opinions if you aren't required to make your case for something first.
At the end of the day, there are going to be hundreds of decisions I'm not around for as a board member, observer, advisor, etc., and the best thing I can do for a company is help the CEO create a process that makes them the best decision maker possible.
Recently, Brooklyn City Councilman Rafael Espinal proposed a bill last Thursday that aims to make it illegal for private employees in New York City to be required to check and respond to their work emails or take part in work-related electronic communications during non-work hours. The idea is great--I'm sure everyone would love to live in a world where the moment we walk out of the office, the world just stops, and waits for us to return the next day.
That's just not realistic at all. Just ask his campaign staff. Did he ever send an e-mail to them "off hours"?
Hard to see how he'd win without doing so.
Don't get me wrong--work/life balance is really really important. Firms recognize this. They're doing more and more to facilitate healthy approaches to work, offering meditation classes, paying for gym memberships, creating paths for parents returning to the workplace to work flexible schedules, etc.
Creating legislation around this creates move problems than it solves. Plenty of perfectly healthy work environments occasionally dip into "off hours" time. Maybe I've decided to work late because I took the day off tomorrow, but I need some bit of information from a colleague. Maybe that person is difficult to work with generally, and is on the verge of getting fired. A nice colleague might respond to my "Hey, what revenues were you projecting this year?" text with a quick response, but this person just ignores it. Now I can't do my job because he doesn't feel like doing his.
After generally mistreating other employees, when they finally fire him, now he uses this law as his cover--and the company is potentially going to get fined.
White collar workers connected by e-mail are quite capable of maintaining the proper balance here through clear communication of expectations. This is why work hours aren't defined--because if I say 9-5, the person who likes working 10-6 is going to be less productive. When you create a rule for everything, you lose efficiency. When do work hours end? 5? 6? 7? What about the day before a big client presentation? What about when your co-workers are doing a presentation in SF and it's 7:30PM here? They're working, but you're "off?" They need the latest copy of the deck and they're trying to reach you, but you just sit there with your arms crossed because you're "off the clock?" Is a sales pitch an "emergency?"
Good luck enforcing this.
Trying to litigate what constitutes an "emergency" e-mail is foolhardy and isn't worth the government's time, not to mention that these mobile technologies actually allow people to be better at work life balance in many cases. Do you need to be checking e-mail 24/7? No. Would it be helpful to respond to something after you've put the kids to bed, so that your earlybird co-worker has what they need on their 6am train ride into the city? Yeah. And if you're on your phone tweeting cat pictures, your co-worker has every right to get annoyed that you couldn't get them a quick answer on that memo if they're paying you over $100k/year.
If you really want to go after abuse of workers, check out all the delivery employees who bring your lunch by bike without Worker's Comp insurance and without any Fair Work Week protections, because they're all 1099 employees.
Given that he doesn't have much to do these days, Barack Obama goes poking around Crunchbase one day and he stumbles upon your startup. He finds your company, and obviously being super impressed, he reaches out and asks you what he can do to help.
What do you ask of him? (Or anyone else on that level...)
This isn't an easy answer. The truth is, you're probably not ready to handle whatever the former leader of the free world can do for you, but you're obviously not going to let this opportunity go, right? You have to come up with something.
This is a problem of multiple dimensions:
First off, you have to narrow the scope of possibilities. This is hard. Obama could probably do just about *anything* for you, but you have to pick one or two concrete things. You can't be like, "I don't know, what were you thinking?" He doesn't know anything about startups and you're lucky he even thought of you at all. You're going to now throw it back to him to plan out what he might do for you? No, you have to make an ask.
Second, anything you come up with is barely going to register for him in terms of level of impact, but it's going to be more then game changing for you--it's going to feel ridiculous.
Maybe your company is seed funded, or has some friends and family, or is barely more than a Powerpoint. Even if you have your Series A, the scale that you're operating on probably doesn't even come close to what he's been thinking about these days. He's on the "ending malaria/making sure every woman in the world gets equal pay" kind of level", and you're out there building an app with three devs, some cheese dip and an office dog. Even if you have a worthwhile mission, you're going to have to get over the fact that anything that he could come up with that he'd pay attention to is going to feel crazy to even ask of him.
But this is how you make a leap as a startup.
One of the easiest things you can ask of something like that is to invest. Investing insures that someone is always part of your company. It gives you an excuse to e-mail them and your updates keep you top of mind for them. It gives you an excuse to ask for more later. Getting someone to invest in your next round is like getting to wish for more wishes and having it granted.
Get over whether you know if this person invests or not or what size check they can write. Any person who gets to this level of success could probably write at least a $10k check or maybe more than you think. Remember that you're not asking for their money--you're providing them with a great opportunity for them to trade their wealth for interestingness. This is something they do all the time in a variety of ways.
Advisory boards are also a great way to rope people in that you probably have no business getting on boards. The key is to make them about something bigger than just your company. If you're a financial startup, make them about financial empowerment. If you're a fashion company, make it about style trends. If you're a consumer product, make it about world class customer experience, etc.
It's really easy to be focused on short term goals as a founder--getting to that next raise, making that next hire, or just making sure your bills are paid. The companies that make huge leaps in impact and value execute these kinds of headline making moves, leaving their competition far behind in the rear view mirror. Knowing what these moves could even be is hard, and it's probably something worth talking to your investors or thought partners about, and definitely something to plan around. This comes into play so many times. People you know will say, "Hey, I know the former CEO of X and she's retiring and looking for something to do."
Don't let those opportunities pass you by.
<p>A few years ago, a friend of mine got hired by a company as a software developer. She was an early riser and liked to get into the office around 8AM. A diligent worker, she was super focused from the moment she sat down at her desk--and so by the time 6PM came around, she had gotten a lot of work done and ready to call it a day. </p>
<p>Her young male colleagues had a different approach. They strolled in at around 10 or 11AM, and didn't really get going for real until about noon. They spent a lot of time distracting themselves, but worked deep into the night--doing the same amount of work as she did, but stretching it out until 10 or 11 at night...</p>
Today, I can finally announce Brooklyn Bridge Ventures' investment in The Financial Gym's $1.8mm seed round, which I led, alongside Alpine Meridian, Secocha Ventures and several high ranking execs from the finance world.
What's the Financial Gym?
It's a membership based space and service where you can work with a Certified Financial Trainer 1:1 to get financially healthy.
What's the Financial Gym?
This is the Financial Gym...
The Financial Gym is the culmination of founder Shannon McLay's desire to eliminate the "fear and shame" that comes with financial difficulty--something people are facing more than ever before. Two-thirds of people in the US have no more than just a few hundred dollars in savings. Seven in ten college grads finish with an average of $40,000 in debt, adding up to a record high $1.4 trillion dollars in total--a 150% jump in the last decade. And wages? Wages have grown 0.2% annually since the 1970's, lagging inflation. Each new generation is forced to do more, with less, despite startlingly low levels of financial literacy--only a quarter of millennials can demonstrate a basic understanding of personal financial concepts. People are graduating with sky high expectations of themselves and what they can do in the world, but no one ever bothered to teach them how to manage a shrinking checking account in a world of low pay, suffocating debt and high costs.
Apps might work for the most disciplined and well off people--but the moment you have to make hard decisions about selling things to downsize, when you want to talk about a purchase, or when you need some extra accountability to stay on track you'll fall right off of them. Anyone who has ever had a personal trainer give you a 6AM wake up call or who has gotten grief for missing your regular Soul Cycle class knows you can't cheat a human coach.
Membership provides you planning meetings, follow ups, regular check-ins, as well as events at their beautiful new space in Flatiron (with more locations to come, obviously!). There's no downside to scheduling a free 15 minute warm-up call to learn more.
What I also want to add into this story is a little bit about expectations. I don't think I've ever met a founder who has more expectations of themselves than Shannon. Sure, we have a financial plan, but Shannon's got a whisper number of her own that she's managing to herself that I'm sure is an order of magnitude greater than the plan we set out. Much of our interaction is around making sure not every move she makes at the Financial Gym is going to go right--even though she's proving me wrong so far. :) Her bio reads that she runs "the world’s greatest financial services company" and I honestly think it's true--or it will be when the Gym is in every city across the country. I don't think there's a single company in the finance space whose customers have the same kind of positive emotion towards a company as members of The Financial Gym.
She also faced a ton of expectations during this fundraising. Other investors wanted her to be anything other than what she was. They told her to play down the brick and mortar in her pitch. They said she should be an app. They said she should be a bot.
People have asked me how I've come to fund 20 female founders and counting, and I think I realized after meeting with Shannon what gets in the way--expectations. I can think of countless deals that I got to a yes only after asking the question, "What do you really need to raise?" or "Are these numbers really as far as you think you can take this company?"
I asked her if building physical spaces was really important to her and she said it was--so I asked why it was so played down in her deck. When she said that it wasn't what investors wanted to see I just told her she wasn't pitching the right investors--that if she really wanted to build a brick and mortar company, she should just own that and find people who see her vision. She fixed the deck to include her plan for multi-location, multi-city world domination with Financial Gyms everywhere and I responded with a term sheet.
So I'll end this story with a motto the Financial Gym uses with its clients:
"What are you working for?"
If you want to get funding, I think your best chance is if the answer isn't "VCs".
In the last couple of weeks, I've had two similar conversations with my portfolio companies. They were just starting to build out their marketing strategy and they were faced with the challenge of how to staff it. Do you hire someone senior who might feel like the execution of the work was beneath them--or who simply hadn't done it in a while? Or, do you hire someone adept at the actual creation piece, but who needed guidance around how things were strategically put together at a high level?
We had opted to create the high level strategy as a board--since no one knew the companies and their customers better than those that created it and invested in it. What we realized was that we were in a search for consistency. What would be the common thread across all of these available channels?
What we needed was an atomic element of our marketing. What was it that we actually wanted our marketing to do or to show? Do we inspire? Do we tell stories? Do we help? Do we show off? Are we all about people?
If we're about people, than people need to be in every single piece of marketing collateral that we create. If we tell stories, than everything you see from us--from the TV ads to our packaging to our Instagram posts, will be stories, because that's what we do.
Once you figure out your atomic element, it becomes a lot easier to fit your brand message into various channels, because you know the vessel of delivery--the atomic element of your marketing.
Last week, on Martin Luther King Day, I decided that instead of saying something in my weekly newsletter, I would do the opposite--I would listen.
I asked, "What is your experience of being be black in tech today and what can allies do to improve it?"
The responses I got came at a time when I've been having a lot of conversations with female founders as well about their fundraising experiences. At this moment, I'm in the process of backing three companies that have at least one female founder and I just finished a round for a black female founder in December.
While being female and being black are clearly not the same thing, they do fall into the category of "not white men", which the fundraising environment favors--but perhaps not in the way people assume.
This will be the post where I dangerously attempt to walk the minefield of a white male VC opining on the topic.
After backing a higher percentage (around 50%) of founders that would fall into various diversity categories and listening to a lot of people's perspectives, here's what I've come to believe about diversity and the fundraising environment--and I'm open to new perspectives on it.
But first, a disclaimer:
I'm a straight white guy and come with all of the requisite biases and privilege--and so while I cannot speak for anyone outside of this category, I'm attempting to provide a helpful perspective from the funding side of someone who is listening and actively backing diverse founders.
I've opened the comments on this one--because while I normally think comments are kind of a pain in the butt to manage and I'd much rather someone e-mail me if they really cared to have a conversation, I think it's important enough for this post to get into as much dialogue a possible. I will not, however, tolerate hate in anyone's direction.
Ok, now that those two things have been addressed, here's what I believe is true--and, more importantly, simultaneously true:
1) Diverse founders face conscious and unconscious discrimination.
2) Yet, the vast majority of investors would back anyone they thought could make them and their investors money. Why they haven't is not an uncomplicated issue and does not have easy answers.
3) The fundraising process favors white men.
4) The diverse background of the founder is not the main reason why most diverse founders get turned down for investment.
5) Both diverse founders and investors need to change their behavior if the funding statistics are going to change.
Ok, let's dive in...
There is discrimination in the world. This should surprise no one. This was what one of the founders who wrote back to me last week sent.
On an app advertised to "meet inspiring people" for meaningful networking, someone tells this black founder, whose last name is "Youngblood" that is name is inappropriate.
Clearly he assumed that he was using some kind of username, and that it was a gang reference of some sort--like, "Young Blood" as in the bloods and the crips or something to that affect.
The person goes on to blame the uncommonness of the name. Do you think he would have had the same reaction to former Major League Baseball utilityman Joel Youngblood?
I highly doubt it.
Diverse founders here that kind of idiocy all the time, and undoubtedly it's incredibly discouraging. Investors need to give some serious thought to what comes out of their mouth before speaking if they're going to make any improvements. They need to do more to be conscious of their unconscious biases and that doesn't come without real work.
They also need to be not only receptive to feedback, but they need to create a space where they appear like it is welcome.
That being said, that doesn't mean that just because you run into an investor who says something unintelligent or insensitive doesn't mean they aren't interested in funding you because of who you are.
This is where the power dynamics and frankly the social dynamics get tricky. An investor might say something they shouldn't and now, as a founder, you're put in an awkward position. You have to decide whether or not to say something, potentially risking your funding.
I'll say two things about that.
First, if any investor isn't open to getting feedback about their actions, especially related to diversity and especially in today's ecosystem, that's not the kind of investor you ever want to take money from. That relationship is just going to go from bad to worse and will be more trouble than it's worth.
Second, there does not exist a world where you have an idea that should get backed, but only one human being on the face of the earth will fund you--and that person is an asshole. Move on, keep looking and find people who are truly supportive, on your terms.
Ok, second--most VCs are just looking to make money for their investors. There a lot of systematic things going on in the ecosystem but investors specifically not backing women or people of color or any other specific groups just because of who they are is not a widespread phenomenon. I am not excusing why their pipelines are so skewed or how their filters for vetting potential success are biased--those are separate issues that need to be addressed. What I'm saying is that the vast majority of investors are open to backing lots of different kinds of people. That is what I believe, in spite of the industry's piss poor outcomes thus far.
Third, there are a lot of aspects of the fundraising process that favors straight white guys.
The need for a warm introduction is bullshit. I've written about this before. It's been proven that most people's networks look like them--and so if you're only interested in backing people who look like you, warm intros are the best tools for perpetuating the lack of diversity in your pipeline. If you don't want to respond to cold e-mails, you don't have to. No one is owed a response just because they reached out to you.
However, if you don't want to evaluate your inbound deal opportunities, that's the job, my friend. Your network never signed up to do your outsourced job for you. If you can't handle the cold inbound, hire some help. If you can't afford it, then your firm model is broken and you should get out of the business. Vetting deal flow is part of the job. Just put up some clear criteria, like "I only fund NYC companies" or "I only fund enterprise" if you want to improve the filters. If the founders ignore that and bust through anyway, that's their fault and they shouldn't expect you to respond.
Besides, how effective of a filter is it that someone can get coffee with a non-VC and convince them that you'd want to see the deal? If these people were any good at vetting deals, they'd be an investor, too.
I don't want to outsource my deal vetting to people who don't do what I do for a living.
Another thing that skews the process is the lack of accessibility of many partner-level VCs, especially to diverse communities. Look, I get it. You're a partner at a firm, you're married, have kids, etc., and you don't have as much after work time to go to every random meetup. At least go to *some* and start asking the people who run those events what they're doing to diversify the audience. Do they have a Code of Conduct? Have they marketed the event to any groups where diversity is a criteria or part of their mission?
If you're going to mix up your normal "in network" dealflow with an open event, perhaps you should think about ways to make that event look more like CUNY than Harvard--because the Harvard founders can undoubtedly get to you in other ways.
Another issue with the kinds of events people have to participate in for fundraising is the type of events and how they obviously appeal to certain demographics. Golf, according to Nielsen, has a demographic that is 87% white--so if you're looking to expand your pipeline, perhaps that's not the right sport. What about pitch competitions that sound like Ancient Roman death matches? How enthusiastic are women going to be to participate in shark cages and battlegrounds? They do, and I'll join these events, but when you name your pitch event after something violent, you shouldn't be surprised when you've gotten way more men to apply.
Funding isn't a zero sum game, so you shouldn't tell all the Christians that it's either them or the lion, best Powerpoint wins.
Yet, after all these hurdles, the fact of the matter is that most founders do not get funded.
It doesn't matter if you're white, black, gay, straight, male, female.
Most founders strike out.
Most straight white male founders strike out.
And, in fact, we don't actually have good statistics as to the percent of each that attempt to get funding--so we don't actually know whether any particular group does better. We know the outcomes--but we don't actually know the top of the funnel.
In other words, if 10 female founders pitch a fund, and one gets funding, that means 10% of the founders that pitch a fund get funded. If 100 male founders pitch that same fund, and only 9 of them get funded, then men are actually doing statistically worse than the women at getting funded by that firm.
Does that fund potentially have a pipeline problem? Yes.
Should more of those female founded companies have gotten funding, because they were better companies? Maybe, but there's very little objective way to fish that out. Just because you have revenues and someone else doesn't doesn't mean
We could have a whole conversation as to why certain groups are pitching or why they or not, and ways to increase the attempts to get funding--but I think what gets lost too often is the fact that getting funding is really difficult for everyone.
What I notice is that when straight white guys get turned down, they tend to blame the investor.
When everyone else gets turned down, they tend to blame themselves--they are more likely to assume it was something about themselves, maybe just that they're black or female, that led to the turndown.
It's difficult to assess whether the reason why a black female isn't getting funded is because of a problem with her business model or whether it's because she isn't getting taken seriously because of who she is.
What I do know is that both sides need to adjust their behavior in the face of this--to make sure that everyone is getting their fair shake.
Diverse founders need to get right to the heart of why the investor says no, and try hard to objectively take the critique. For example, if someone says "too early" ask them very specifically what is the measure of early, and what's the earliest along those lines they've made an investment, and what's the average. You might hear that the firm has never made an investment in someone with less than $25k worth of monthly revenue, which is a fine criteria to have, but at least it takes you to an objective place where you know why you're falling out of their process--and you have a goal if you ever want to pitch that fund again.
With consumer products, it's a little more difficult. I've given specific feedback to diverse founders as to my thoughts on why consumers wouldn't adopt a particular app. I could be wrong, but there's really no way to have an objective conversation about that unless you get traction. That doesn't mean that traction is a requirement for me--it just means I don't believe that particular app will get it. It's important to me to be open to being proven wrong, but it's also important for the founder to understand that most ideas are being rejected for funding--and not to assume it's always because of them.
On the investor side, I think investors need to be a little extra thoughtful and constructive when giving feedback to diverse founders. Let them know exactly why you're turning them down and what they can do to improve their pitch--lest they think you're simply not funding them for who they are, which can be super discouraging for them and create a bad reputation for you.
In my mind, one of the biggest changes that needs to happen in the ecosystem for diverse founders to get more funding is for them to ask for more.
Overly simplistic? Perhaps. Mathematically accurate? Incontrovertibly.
In my experience, the fast majority of $500k rounds or less that I've been pitched for come from either female founders or founders of color--something like 90%. A tiny round might be appropriate for some companies. Maybe you've got a small set of technical founders that aren't even sure if this product will function and they're just testing it out. Maybe there's a huge customer risk and that money could test whether or not *any* customers would use this product, and if they did, that would make it a lot easier for other investors to buy into the plan. Whatever the case, that's not most of what I'm seeing.
I see far too many diverse founders asking for such small amounts of money that they're signaling smaller ambitions. If you believe in your idea and have a model that backs up what you actually need to get to the next level of value creation, then pitch for what your company needs, not what you think will get funded. Yeah, I know all the stats about who gets funded. You're not making it easier by asking for "$350k to get to break even." That pitch has never excited any VC in the history of VC funding.
I'm not saying you should be asking for $10mm right out of the gate, but I'll share a story. I had a diverse founder recently pitch me asking for $800k to get to a "Phase One". When I asked about all the cool parts of the plan that I would have gotten excited about, that founder answered question after question with, "That will be for Phase Two when we have more funding."
After a bit, I finally asked, "What's the difference between One and Two in terms of funding and time, because I want to fund Phase Two way more than I want to get stuck in Phase One without funding." Turns out that Phase two was just a few months difference in time, but about 2x the funding--still well within what people raise in seed rounds, however.
I offered a term sheet to lead a $1.6mm financing.
That doesn't happen too often and that needs to change. While the onus should be on should be on founders to pitch the right amount, if you're a VC and you're dealing with a founder who has a good idea, it would be worth your while and there's to get at the heart of why they asked for a specific amount of money and what the right size of the round is. I'll bet the majority of the time, the diverse founders are undercutting themselves and not asking for what they really need, and I'll also bet it's affecting how ambitious you think they are, probably unfairly. If I was reading all of what's out there about funding and diversity, I might ask for just a little bit to prove myself, too!
BTW... that founder wound up raising an oversubscribed round of $2mm! Pretty sure they wouldn't have gotten there with just that $800k pitch.
What's also happening in the ecosystem is that diverse founders, even when they get offered investment, are getting worse deals. I'm not 100% sure what's going on here--but I believe the perception is that they're less likely to push back, or maybe they don't have as many options. If you think less VCs are going to back a diverse founder simply because they're diverse, and therefore, you're going to give them a worse deal, that's not in the least bit ethical in my book. You should ask yourself, "Is this the deal I'd give to a white guy with the same resume?"
I recently backed a female founder who raised some notes that had a conversion cap (a de facto price) of $1 million. It's literally the first time I've ever seen a cap that low and I really don't believe a guy would have been offered that cap, or if nothing else wouldn't have been expected to take it.
Instead, the founder asked around about the deal. Do you know what a VC backed male founder told her? He said that it's hard for women to get funding and she should take what she should get?
Makes my skin crawl.
How could that founder have been a better ally? He could have offered to vouch for her to the angel investors, and told them how that wasn't really a market deal--and encouraged them to offer something more in line with the market. Maybe they get there, maybe they don't--but it would have been a lot more helpful for a small investment of time.
Lastly, I think one of the missing components of the fundraising process is simply empathy. That's what struck me most about the responses I got to my e-mail last week--the need to understand what diverse founders are going through and encourage them to participate more in the ecosystem.
Candis Best wrote,
"In response to your MLK inquiry, as not only a Black tech founder but a Black female tech founder, my experience can best be summed up in one word - lonely. In fairness, that has as much to do with being a solo founder as it does with my background. However, I can also say that I feel less isolated in this role now than I did 18 months ago for one main reason - I had the good fortune of being part of the 2017 class of SLP. That experience did more to open my eyes to the connections, knowledge, and resources needed to build a business than all the pitch events I've attended and TechCrunch articles I've read combined. Had I not participated I don't how long it would have taken for me to realize how much (or how many people) I didn't know but needed to. I have no doubt there are many worthy Black-led startups who are wandering in the wilderness right now because they're still where I was then."
I can't echo that sentiment enough. You're going to be pretty discouraged if all you do is read headlines. You need to get out there and make those connections, because you need to.
The other note that struck me was this one, about the additional cognitive load that diverse professionals in tech experience:
"From my experience, I believe that being black in tech is about making a series of choices every day that other people simply don't have to think about. When I walk into an office of 70 people and see no other black or Latino/a person (my current situation) I have to choose to ignore how alarming that is so that I can get my work done. (blacks and Hispanics combined make up 52% of the NYC population, yet <6% of the tech workforce...that should alarm everybody.)
As the only person of color in all of my team meetings, I have to decide whether it is wise to give input or ask a question, knowing that I not only represent myself but all black people, and that a wrong answer or uninformed question could trigger a negative stereotype or foster a bias. For many of my white and Asian coworkers, the only black person they interact with regularly is me, so I can have a big impact on their worldview of minorities in tech.
Finally, when someone exhibits offensive or uncomfortable behavior (whether they realize that it's offensive or not), I have to make a decision to either call out that behavior at the risk of alienating myself from the 'tribe', or ignore it and maintain the idea that I'm 'chill' and a team player. In most cases, it's better to push past it.
For people of color, having to make these daily decisions on how to represent yourself is what takes away from tech being as amazing of an experience as it could be, certainly for me but I think for everyone. "
I really appreciate this response from Justin Sharp, because, not surprisingly, it's just not something I ever thought about--and it really does sound exhausting. If nothing else, it's help to understand the next time you drill down on someone's actions critically and assume we're all on an equal social playing field to start with. His advice:
"You nailed it when you said the best thing allies can do is listen, I can't emphasize this enough. Listening with empathy and believing what your peers are saying is invaluable. The other thing allies can do is check in with themselves about the diversity problem - do you really believe it's a problem, and do you understand why? Do you believe that it negatively impacts your equity in the company? If you don't personally feel the pain of a homogenous workplace or don't see the reward of being more diverse, then you may be less compelled to demand change."
Ok, well, this was longer than I intended and probably didn't even cover a tenth of what I could talk about on the topic, but, at some point, people are expecting me to send out this newsletter and it's getting late in the morning.
Thanks for listening.
Sidenote: I'm raising some money for a few charities and I'll be adding the links to each of my blog posts until I'm done. The first is the Challenged Athlete's Foundation, who I'm running up the Empire State Building for. Thanks for your support.