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Charlie O' Donnell
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Talk to ten founders and ten different VCs and you’ll get roughly about 600 different suggestions as to how you should go about your fundraising strategy. I don’t know what the formula is here, but the numbers and the resulting amount of confusion gets big very very quickly.
Why does it seem like there’s an exception to every rule? You’re told that you can’t raise until you have a product, yet pre-product companies get funded all the time. You’re told that you need more revenue, but someone who has half the revenue that you do got funded last week. What gives?
The problem is that your pitch is a combination of a bunch of individual components, each of whom an investor is going to have particular reactions to and sometimes a great reaction to one is enough to push you over the top—or sink your pitch.
For example, I’m more than happy to fund something that is pre-product except if you’re in a notoriously difficult to sell into industry, like small businesses, government, or education. In those industries, there are lots of seemingly great products that die because the team lacks the expertise to break into the market.
Even a particular attribute like revenue has several factors to it, like growth, concentration and whether or not that revenue is a subscription for SaaS, one time purchases, or consulting. A million-dollar run rate achieved in four months will garner very different reactions in the market than one reached after four years. Investors also care about how much you spent to get there and also whether you’ve built a team to do it, which is really to say whether anyone else besides the founder seems to be able to sell this product.
Too often, founders look at what they’ve done so far as proof they should get funded, whereas they should really be looking at it as proof of a funding-worthy plan. Fundraising is an exercise in selling tickets to the future, not a reward for the past—so even if you’ve got all the same attributes as some other company, your ability to describe the future may have been the difference between being funded and not.
The market also affects your raise. This year, while a lot of companies have raised big rounds, there haven’t been as many super early, crazy ideas backed during the quarantine. From what I’ve seen in the market, despite the fact that the two term sheets I’ve offered this summer were to first time founders, a repeat founder in a well-understood space is more likely to get backing when everyone is feeling uncertain and risk-averse.
One of the things we learned when we built the anonymous fundraising feedback tool Feedback.vc is how much sector affects a VC’s willingness to look at a deal. When founders anonymously described their companies to a blind pool of investors, the biggest factor wasn’t traction—it was what problem you were solving. Solving the right problems made investors willing to overlook a lot of other things about the company.
Understanding which aspects of a company an investor is going to focus on in the fundraising process is incredibly difficult, and is worth asking about right off the bat. Too many founders just jump right into a pitch without even stopping to understand where a VCs questions are.
Often times, when I take a meeting with a founder, I tell them right off the bat that I’m happy to have them run through their pitch, but my initial concerns/questions are X, Y, and Z. Not enough founders gather data from their pitch meetings in this way to understand what VCs were focused on before they even heard the details.
In many ways, it’s a lot like buying a house. Two houses of different locations, sizes, and attributes are very difficult to compare. When you read fundraising advice to founders, think about how much blanket statements would make sense for real estate. Imagine telling everyone from bike commuters to people who work from home to “Move next to public transportation”.
It wouldn’t make any sense—and figuring out what kind of advice makes sense for your startup requires a lot of listening to what VCs are saying about your company, not necessarily all startups in general.
Reports of NYC’s death have been greatly exaggerated.
Far from becoming a crime-ridden hellscape, NYC’s actual numbers of murders and robberies are on a pace that is not only down from 10 years ago, which was eight years into Mike Bloomberg’s term as Mayor, but they’re almost half as much as they were at the end of the Giuliani administration, when people thought NYC crime had been "cleaned up".
Our current coronavirus case counts make us one of the safest cities to be in the entire country. While our elected leaders have taken a big victory lap on how far we’ve come, the real heroes are NYC’s own residents, who have been, for the most part, excellent at being responsible. Any narrative that puts our leadership at the center of our recovery largely erases their ineptitude in the early days of the pandemic.
I’m not writing this to look back, but to look forward—to acknowledge that while New York City isn’t the disaster area the NY Post would have you believe it to be, it has some really serious problems that it needs to dig out of—much of it economic, but under the covers, systemic.
This problem set is an opportunity for Mayor Bill de Blasio, normally New York City’s easiest man to find in a crowd, to show up as a leader.
Unfortunately, he has become the Big Apple’s biggest missing person—literally. People who work in government that deal with the Mayor’s office have said off the record that they seem “disinterested” in new initiatives.
The Mayor has about sixteen months left in his tenure. While it’s not enough time to fix all of NYC’s problems at it recovers from the pandemic and resulting recession, we need to make sure that the work gets a head start.
Months ago, de Blasio outsourced this opportunity to something called the “Fair Recovery Task Force”. They were supposed to produce a plan by June 1st and we’re still waiting.
Given the smart folks who are on it, I’m sure they’ll come up with some good ideas, absolutely none of which will be implemented as the Mayor rides out his lame duck last year and the NYC Council gives way to 2021 election season.
That’s what happens when you ask someone else to create a plan. The act of asking makes it seem like you’re doing something—but ultimately you’re not taking responsibility for it yourself.
I want to know what Bill de Blasio’s plan is. He’s still the Mayor. I want to know what he’s willing to put his name on himself and take responsibility for setting in motion.
New York City, like most major cities, had a lot of problems before the pandemic hit. Like most of the country, it has become a tale of two communities.
If you were employed within NYC’s growing tech ecosystem, or its continuing to thrive financial sector, you were doing pretty darn well. Outside of that, if you were trying to run a restaurant that wasn’t Shake Shack or trying to raise a family on a budget as teacher, things were hard and getting harder.
Housing costs, while not quite at San Francisco levels, are out of control.
My dad was a NYC firefighter from 1963-1983. In 1969, after six years on the job and making the salary equivalent of about $60,000, with my mom taking care of my brothers, he bought a house in Bensonhurst, Brooklyn. The cost of that house, also in today’s dollars, was about $150,000. Can you even imagine that today? He bought a house two blocks from a subway station in a good neighborhood for just over two times his lone NYC civil servant salary.
That would be impossible today. Homes on that block are now going for over $700,000.
We continue to have a serious homelessness problem—one that was worsening even before the pandemic. Despite years of economic growth in the city, the homeless population was larger at the start of this year than when the Mayor took office. I say despite, but those familiar with the problem would probably say “because of”.
As market demand drives the cost of real estate up, housing for low income NYers takes a back seat.
Small businesses are hurting, too. Commercial rents are suffocating the city’s best gathering places and they’re being replaced with bank branches and Dunkin Donuts locations—or nothing at all. Landlords seem content to sit on empty storefronts for entire cycles.
What the city needs now is a kind of Constitutional Convention scale effort—perhaps not in person, and definitely not just a room full of wealthy landowning white guys—but the kind of effort where any idea is on the table. We need bold, competing visions that get openly debated, and real effort to hammer out compromises.
I’ve always liked the idea that a bunch of people got locked in a room to hash out a plan for a new nation and basically told not to come out until they had something—an actual plan.
Bill de Blasio could take personal responsibility for facilitating that process. He could highlight the four or five biggest issues that were exacerbated by the pandemic, and convene an inclusive process for ideas on how to address them directly. He should encourage bold new legislative actions and shed light on where the city’s hands are unnecessarily tied, so we know what to advocate for in Albany.
He should make it his mission to move the conversation of everyday New Yorker’s from defending the city to outsiders on Twitter, to collaborating with their neighbors on ways to move the city forward, together.
In June, de Blasio created a situation where the city tried to address racial equity with competing press releases and speeches. What was ever going to get solved with Pat Lynch grandstanding on one side and de Blasio fumbling around in the press on the other?
Neither showed any kind of real dedication to problem solving and their approach just divided up the city into those who were for cops or against cops. In the end, both the cops and the protesters came away from the process completely dissatisfied with the Mayor’s leadership—which is a really amazing feat if you think about it.
de Blasio was a price taker in those negotiations, not a price maker. There was no “de Blasio Plan” for fixing the systemic racial issues in our system of criminal justice and policing. There was just the plan that could get done given an administration unwilling to put in the effort and make hard choices.
Along the same lines, I don’t want to wait for six people in a room to tell me what the recovery plan is only to go back to business as usual. I don’t want to wait another election season to hear other people’s good ideas either.
I want the one person we elected—on a now failed platform to make NYC a more equitable place—to bring all 8.4 million of us together to get on board for a plan we can call our own.
How about we start adding the first zip codes in the whole country where a minimum wage job can afford a safe place to live?
Let’s get a lot more serious about investing in social welfare and equitable outcomes across racial and economic lines so that we don’t need to flood the street with more police officers to deal with the aftermath of underresourcing our most at-risk communities.
Make NYC a welcoming and affordable place to start a business—not just a venture backed tech company, but a new restaurant or grocery store.
Create a local healthcare system a place that addresses a serious lack of equitable outcomes for all New Yorkers.
Let’s reinvigorate NYC’s street life, making the city a safe place for more neighbors on stoops watching kids play in the street, improving the quality of our park spaces, fostering fun nighttime gathering spots, and less big box retailers, bank branches and other soulless additions to our neighborhoods.
We could be a model for other cities going forward, if only the big man would put all that taxpayer supported gym time to work, put his oar in the water, and paddling as hard as the everyday New Yorker will have to.
One of the core beliefs that I had when I started Brooklyn Bridge Ventures was that most of the next 50-100 important companies to be built in New York City were going to be started by people not on most VC’s radars today.
To that end, my goal was to make the firm the most accessible VC fund in New York—showing up across diverse communities, getting rid of barriers to access like requirements for warm intros, and being conscious of which patterns of success I believe in and which only serve to reinforce certain power dynamics.
The venture capital community reacted to the racial reckoning the country experienced in June in ways I felt were pretty underwhelming—one-time pitch events for Black founders or promises to only meet with Black founders for a month.
I wanted to build something that would be above and beyond the fund that would create ongoing change, creating more Black founders as well as those from other underrepresented communities and leveling up the networks of those who had already taken the plunge.
Circulate is a new initiative supported by BBV that will start with a series of virtual conversations within an intentionally diverse group of invited guests--conversations that we hope will turn into communities. These industry-specific events will bring together a who’s who of accomplished and influential professionals as well as the most promising "future founders" from Black and other underrepresented communities that represent the next generation of these spaces.
The other day, I was telling an experienced founder in a particular vertical—someone who sold a company and IPO’d another, about what we were doing. I pointed out that since most of our networks tend to look like ourselves, that as a straight, white male I had a statistically higher chance of knowing him, another straight, white male, personally, and being able to go to him if I wanted to build something in the space he knew well for knowledge or for funding.
The Circulate series acknowledges that access to ideas, resources and networks is structurally unequal. Sparks of innovation need to be fueled by firsthand experience, connections to capital, and influence sharing. These resources are often walled off within existing professional networks that lack diversity.
That’s what we want to change with these events.
Each Circulate event will be run in coordination with industry professionals that understand structural inequality in a personal way. In September, we'll run a virtual event on Education led by former Google Classroom PM and current new founder Ope Bukola. Our second will be on Global Supply Chains and run by Brian Laung Aoaeh, Co-founder of The Worldwide Supply Chain Federation and Co-founder and General Partner of REFASHIOND Ventures. We’ll follow with events on Fintech, Climate, AI, and other sectors of innovator interest. Brooklyn Bridge Ventures will support these professionals with our event and community-building experience. Ultimately, we hope these groups will be self-sustaining and led from within, with Brooklyn Bridge Ventures acting as catalyst and supporter.
If you are a Black professional (or hacker, or a tinkerer) with a passion or even just a curiosity for change and disruption in a particular industry and would like to strengthen your network by tapping into the experience of influencers and insiders, drop us your info. We want to make sure top industry professionals are connected to "future founders" from the Black community--the builders, creators, life-long learners, and those who show entrepreneurial tendencies in their own career at any scale.
Our hope is to connect leaders with more Black future founders and industry changemakers than they know today--as well as people from other underrepresented communities--and to bring their experience and insight into this network as well.
If you’re a leader in your industry—statistically, as it is, most likely to be white, and probably male—and you would like to share your experience, your network, and your influence with underrepresented future founders and leaders, please fill out the form on our site. We would love to connect with you and have you at these events.
We appreciate you sharing this announcement in your networks!
While we don’t have kids yet, we’re of the age where a lot of our friends do—and the back to school situation is on everyone’s mind. Is your school open? Are you sending them? How did your kids do with distance learning?
What struck me is the stories of how different personalities of kids have done in quarantine—and adults are no different.
Some are absolutely thriving—super focused, avoiding distraction.
Others are kind of lost. They work off competition and/or inspiration from others and not being in person with a group is sapping their creative energy.
Loneliness is a serious problem for many people right now.
Where am I on this?
I feel like I’m kind of in the middle.
I’m a pretty steady person in general—I don’t get too high or too low emotionally. So, I can’t say I’ve fallen off the deep end of despair or anything, but I can’t say I’m thriving either. One of the things I like best about being in New York City is the diversity of people I encounter on a day to day bases—at least in the Before Times, anyway.
Now, I’m stuck getting my exposure to people online.
Clubhouse is basically the opposite of what I’m looking for. It’s tech people talking about tech things at best, and VCs talking about Clubhouse at its worst.
I miss the randomness of in-person people for sure.
What about you?
How are you sparking your creativity (or not) in quarantine and what have been your best sources of human inspiration?
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1) Legalize all the vices. Quarantine brought us some relief on alcohol takeout in order to give local restaurants something else to sell—but that doesn’t nearly go far enough. Not every attempt to fill the city’s budget needs to come from increasing the taxes on things we already tax. The easiest new source of revenue for the city would be areas where there’s already lots of illegal economic activity that doesn’t get taxed at all, but where legalization would actually bring regulation and improvements—namely, vices.
Marijuana is an easy one. It’s already being mass-consumed tax-free. It’s been decriminalized in several ways. Now it’s time to run this thing into the end zone—and while we’re at it, throw away all of the previous convictions and records that go with it. That would save us money on incarceration on top of a windfall tax on sales.
Sports gambling is another easy one. New Jersey already allows it. Let’s stop PATH train riders hopping over to Jersey City to place their bets and let them keep their money and their taxes on our side of the river.
Sex work is one that fewer people might support—but over and above the tax potential, there’s a moral argument to be made here as well. Regardless of your opinion of it, sex work is a source of income for many people in NYC, especially immigrant populations. By keeping it illegal, it prevents those in the industry from coming forward when they are victims of abuse. Regulating it and giving these people proper worker protections would improve their working conditions and make it easier for those who desire to leave the industry to escape cycles of abuse.
Outside of that, if two consenting adults free of any coercion want to engage in a financial transaction, and taking a cut means less of a tax increase for you personally—how hard do you really want to argue against it?
I mean, if two boxers can make a living beating each other to a bloody pulp in front of an audience and we don’t mind collecting those tax revenues, we’re being a bit hypocritical to be so high horse about this being a sanctioned part of the economic system.
2) Cut the police budget. The NYC Council is calling for a $1 billion budget cut—asking the force not to respond to every last cat up a tree with two armed officers making, on average, $90,000 each. We all have to make due with less—and this is basically the increase in budget during the Mayor’s administration. Let’s not replace the retiring cops leaving via attrition and instead take that money to invest in social services and housing stability that have been shown to prevent crime.
3) End the stock transfer tax rebate. You may not realize this, but Wall St. firms are on the hook a sales tax when they sell you a stock—only it gets 100% refunded to them. Due to some archaic bond offering rules, the tax actually gets collected, but then it gets sent right back to brokers. The state began rebating the tax in 1979 (at 30%), 1980 (at 60%) and in 1981 (at 100%). It is estimated that eliminating this tax would erase the entire budget deficit, and also cut down on high frequency trading, which can impact volatility in the market.
4) We need to push the Federal Government to close the carried-interest tax loophole—but we should do it in such a way where the localities where it gets collected get a share of the income from it. There’s no reason for private equity managers, hedge fund investors or VCs to pay less taxes as a percentage than teachers. Fred Wilson agrees. Closing the carried interest tax loophole is something Trump said he was going to do when he campaigned. It will mostly piss off people in states he doesn’t win anyway—NY, CA, and MA. Plus, he could say that he went after the rich in other ways as a defense of his tax plan and general bent towards grifting for his friends.
If New York politicians push for it, perhaps we could see some of the benefit disproportionally accrue back to us.
5) Tax the empty luxury residences that are just used as stores of money and high-end pied-a-tierres. If you’re not paying NYC taxes b/c you’re a resident less than half the year, but you own property here that you’re not renting, then you should have to pay at least something extra rather than able to fully avoid taxes by being domiciled in another state. There should be an extra penalty for taking up a lot of extra space and not being here those days to economically and socially contribute.
6) Charge for parking—everywhere. Cars get a ton of NYC real estate for free—why? Give hospital workers free parking passes and people below a certain income who can show they need a car for work, but if you’ve got a weekend car for Vermont skiing, then you can chip in for a permit. It could still be less than a garage and it would help monetize all that space.
7) Promote the filling of empty storefronts. When local stores close, and people shop online, money drains out of the city into the hands of non-local companies. We should find more ways to allow small local businesses get started and thrive. For example, anyone should be able to get a lease on a storefront that has been vacant for more than a year for a set percentage of sales without a costly down payment—with a right of first refusal if the landlord can find a higher paying tenant after that. If you’re holding on to empty space and someone makes a qualified offer to start a local business in the space, cutting you in for a reasonable percent of the revenue, you shouldn’t be allowed to turn them down.
It would be incremental earnings for the landlord, more sales tax and payroll tax for a new business—and less people out of work.
8) Bank the underbanked. There shouldn’t be any Checks Cashed places in NYC. They’re one of many ways that it’s expensive to be poor. You should be able to cash a check at any ATM in the city and deposit it in a no fee, no minimum account. If banks don’t want to offer it, the city could get into that business. The city doesn’t have to deal with customer acquisition costs in the same way—all of its press conferences come free. Why not have a City Government run bank or financial institution that could bring financial services to everyone?
The city might be in a position to do this profitably—no marketing costs and no additional real estate overhead given how many local city offices there are. It’s a dream advantage for a startup.
9) Open the streets and vacant lots to business. We’re letting restaurants create outdoor cafes. Let’s go a step further and start closing off streets, replacing them with more open air businesses that generate sales tax—especially in the summertime.
10) Tax the noise. Unnecessary honking, and cars and motorcycles tuned to purposely create loud exhaust are a blight on the city. Cops never ticket for them, so why not let acoustic cameras do the work the same way speed cameras do? Getting a speeding ticket with a camera is super annoying—the first time. After that, when you know where the camera is, you slow down. It works and the tech is out there to do the same with unnecessary noise.
One of the most difficult conversations I have with founders is when they haven’t quite given me enough of a story for me to make a proper evaluation. A VC’s default is “no”, so without enough information to be convincing, it’s going to wind up being a pass. If I wind up asking for more info, it might result in a founder feeling like they’re getting the runaround, given what the founder believes to be an obviously good idea.
One important thing to note is the difference between the following:
1) A great idea.
2) A big idea.
3) A big enough idea for venture dollars to be the best way to fund something.
For example, I ride a hornless bike seat. I’m on my 8th one of this same brand and I can’t see riding with anything else. I think it’s great. That being said, it’s specifically a product for men, and I think at most only one out of four men would ever feel comfortable on it, tops, because you wind up leaning hard on your arms instead, and you do sacrifice a little stability. You only need to buy it once and it lasts at least a few years. There are maybe 20-25 million male bicyclists who bike enough for this to be useful. So, really you’re taking about a total addressable market of $450mm, but that’s not even annually—that’s total market size. If this thing lasts 2-3 years, then you’re dividing it in half to a third. So, basically, even if they sold every potential customer (which they won’t, b/c it has competitors), it won’t generate enough capital to be a standalone, VC backed idea.
It’s still a great idea, and I’ll bet a great team could drive it to a few million dollars in revenues—and that’s still a big idea.
Just not big enough for what venture needs to make its money back.
Figuring out how much to show a potential investor, and how realistic it is to show predictions about the future, is difficult for a founder. Pitch deck outlines are ok, but they don’t say much about what you’re trying to convey besides particular categories that may or may not be relevant.
First, you should tell me who you are—but not simply in a bio form. A bio just gives me the resume—it doesn’t tell me what about your story is relevant to this. Am I to believe that having an MBA automatically means I should believe everything you told me about this problem?
How did you convince yourself that this was worth investing all your time in? That’s the key.
Then, an investor needs to understand what it is that you would like to build at its most interesting near term point. Why do I say it like this? Well, sometimes you’ve built a little MVP which doesn’t tell the whole story of what you want to be when you grow up. Other times, you build something that doesn’t really get interesting until eight years down the road after a billion people are on it—this is too far out.
You need to pick that sweet spot in the middle to talk about.
For most people, just sharing what you’ll believe you’ll have before the next round will suffice. Too often people only pitch what they have, not where they’re going—and they forget that fundraising is selling tickets to the future, not asking for rewards for the past. This is often the case for founders who assume they won’t be taken seriously—they believe that somehow what they’ve done previously “earns” them the right to a meeting or a pitch, when really most VCs are happy to just discuss interesting ideas no matter how far along you are.
I get that some things are very technical and complex and require many steps to get to the end goal, so if that’s your plan, walk me through it milestone by milestone, telling me how each milestone is going to be interesting enough to get a next round of funding.
If you’re going to try to pitch metrics and momentum as the main feature of your pitch—make sure they’re as great relative to other startups as you think they are. For example, a pre-sale of $50,000 might be very exciting for you, but there are lots of pre-sales that garner a million or more in sales, and not all of those companies wind up being successful. To a VC, $50,000 a pre-sale isn’t really that much.
One item founders often miss is explaining the “flywheel”—or the idea of how to make this thing take off and not stop. VCs are less interested that you sold 10 customers, 20, or 100—they want to understand how many you’re selling per week and whether or not that kind of pace would be profitable for your sales & marketing efforts. If you’re pulling in $5k/week in sales just dialing for dollars in a third of your time, that’s pretty great. It shows that if you hired a salesperson and optimized the process, it makes sense to raise money to hire salespeople.
This also relates to unit economics—is it profitable on a unit basis (for each thing you sell) to be in this business? High level will do here.
Size of the opportunity and your plan is often a tricky area for founders. Many founders are hesitant to try to predict the future and others are much more likely to pick a plan they know they can hit, versus something where everything needs to go just right.
The key is understanding that VCs want to see what could happen, and how not what will most likely happen. We realize that half the startups we fund in the early stage won’t make it. That’s why we invest in a portfolio.
A financial plan isn’t a promise—it’s a starting place for conversation. First off, it’s a test to make sure venture capital is even right for this model. If no amount of funding could push this past being a $10mm per year revenue company, then you shouldn’t raise venture—because we’ll never see a big enough return off that. So, if nothing else, we all want to be on the same page that this thing can make it to a certain size.
Most VCs want to see a path to at least $100mm in annual revenue, if not more. Can you show a plan that gets there?
Second, we want to make sure the founder has done the work to figure out how that might happen—and that there are no glaring assumptions we don’t believe. If you want to build the next Facebook, but your assumption is that 3/4 of the users are paying customers, that might not be so believable. We’d want to understand how you’re getting to that number.
We don’t take these numbers at face value. Sometimes, we’ll push you in certain areas where we think you could be more aggressive. Other times, we’ll ask you to tone down some assumptions, and the plan still works quite well. Either way, it’s all about showing your work and making sure you did all the customer calling, peer comparisons and firsthand research necessary to be eyes wide open on this idea. Otherwise, it’s going to be hard to trust that everything you’re telling us is likely to happen.
The last thing I’d like to see is an understanding of why each customer signs up. Why will they be convinced? What are they doing otherwise? Why are they going to take time out of their day or carve out a portion of their budget? There are lots of ideas out there that don’t focus enough on the consumer problem—or the problem simply isn’t really enough of a problem to motivate people.
Let’s say you haven’t done all this work yet. It’s fine to ask an investor a specific question about direction, or how they’ve seen companies solve something. I’m not saying you have to be 100% done with all your work to talk to an investor—but if you really do want to be prepared, being complete about the story is the only way to make sure you’re properly evaluated.
If you’re not sure where all the plot holes are or what investors might believe, you may want to check out Feedback.vc.
Feedback.vc is a double-blind panel where investors rate your company and the details you choose to share anonymously, meaning that you don’t need to give away who you are exactly in order to get a full 8 page report on the strengths and weaknesses of your idea. They’ll provide specific commentary as well.
For a limited time, use the FOUNDER50 discount code for 50% off to find out what’s missing and where you need to step up the plan to be successful on your raise.
There have been a lot of calls for VC firms to make more hires from the Black and Brown community, as well as to hire more women. Not all hires, however, are made equally.
In venture, it’s all about getting an opportunity to make partner and being included in the carry—the economic upside of a fund. Not only is carry a means of economic mobility, but it’s also a reflection of where decision-making authority is within a fund.
Hiring analysts and associates from underrepresented backgrounds are great, but if there’s no path to ever moving up in the fund, then they’re just doing the heavy lifting for white men to make multiples more money.
As a former institutional investor, one of the stats we focused on was carry distribution. We wanted to know who controls the lion’s share of the cashflows when success happened, because it was often a predictor of firm stability. If up and comers who were doing the hustling had the right incentives, firms could successfully last for multiple generations. If firms held back the economics, keeping things only for partners who were growing long in the tooth, some of the best new investors they had would bolt for other firms or start their own.
What if institutional LPs—often representing the public pension money of diverse communities, or philanthropic foundations focused on improving the world, set targets for these economics. It would be much more than just a hiring quota, which is meaningless if these new employees just churn out after they hit a ceiling. It would be a directive to literally invest in the talent base—to create a path for influence and economic mobility within a firm.
It also broadens the pool of who can attempt to raise a fund. Right now, there are some underrepresented managers out there, but if you can only raise a fund after being funded, or if you start out with wealth, structural inequality is going to hold that pool back. Mentorship and the building of track records within other people’s firms is an important pathway to partner, even in your own fund.
Moreover, what if firms were required to publicly disclose those numbers—not to a person, but to a category? This way, you could see if a three-partner firm had hired a new female partner, but women only controlled 10% of the carry—or whether that new Black principal is getting any carry at all.
If investors from underrepresented groups are ever to go out and create their own funds one day, they need real paths to influence and wealth creation within the firms that hire them. That one only Black female associate hired by a fund otherwise full of white investors throughout its history isn’t going to be able to raise her own fund if she just spins out after a year or two with no deals and carry to call her own.
There are so many different ways to interpret the data on who gets venture and why. Lots of the data is skewed toward later stage rounds and I’ve never ever seen stats on who is pitching. There are lots of problems with access to venture connections that account for some of this, but how you invest and pay your own team is the one indisputable thing that is in a VC firm’s control.
Morever, LPs should be influencing these policies. Very few institutional Limited Partners have reached out to their investors to even ask about VC policy, let along try to influence it. Most of the visible institutional investors have been remarkably absent from these conversations on Twitter, or simply offering the bare minimum.
Because they’re afraid to lose their access.
They’re afraid to tell the Sequoias and Benchmarks of the world that they want to see commitments to change, for fear of getting kicked out of their next fund.
Well, the tide has changed. If any of these LPs spoke up and then lost their allocations, their stories would become incredibly damaging to those funds.
I’d like to see more efforts here. As someone who spent a long time in the industry before I ever became a partner, I can tell you that the industry’s lack of mentoring and paths to partnership isn’t just laziness or inertia—it’s a serious systematic problem that keeps unequal power structures in place. It’s time for the money to show the industry that it is serious about equality.
One thing I’ve seen from both VCs and LPs over the past week is a hesitation to engage around race discussions. There are some who don’t believe they’ve done anything “wrong” and therefore see the whole thing as a distraction. Others are so uncomfortable with the idea of getting flamed or canceled despite good intentions that they’d rather do the absolute minimum.
If you’re a white professional in venture, you might feel uncomfortable tweeting or blogging about race. The way I think of it, I’ll never feel nearly as uncomfortable in my life as much as what I imagine a person of color might feel at a traffic stop.
Until that changes, I need to be taking these really tiny risks at a bare minimum.
Besides, if you’re not comfortable with making mistakes and learning from them—what are you even doing in venture?
While I got some very kind words on my recent writings, I heard from some founders that didn't feel like they got treated fairly—specifically around feeling patronized or dismissed—and that I wasn't showing enough action to improve on that.
My first reaction was to debate (if you know my personality, that's hardly surprising), but then I gave it some more thought and realized that I had a blindspot:
My dedication to honest and direct feedback to as many founders as possible has different consequences for different founders.
I try to get back to everyone—which is something not all VCs do. Sometimes, that just means I send off something quick, because of the inbound volume, like this:
“I’ll pass, because I just don’t think there’s enough money to be made here given how hard it will be to make each sale and what little you make per customer."
I figured better to get a quick something than nothing at all—or, just an “Interesting!” which is useless.
If you're in a more privileged position with lots of VC connections to pitch, you’ll either do one of the following things:
You'll come right back at me, tell me why and how I'm wrong—because at this point you have nothing to lose.
You’ll just think I’m dumb and will move on to try and find a smarter VC, showing just as much confidence in the next pitch.
One thing that I hadn’t considered before is that if you've had an extraordinarily difficult time getting people to hear your pitch because you’re not in certain networks and your lived experience has been being discounted and not taken seriously, my words are going to be taken differently.
It’s easy in my position to forget how much courage it takes to pitch something for any founder—but especially founders for whom stepping out and taking this kind of risk feels like it comes with a bigger downside. Founders from communities of color are less likely to have personal wealth to fall back on. They’re less likely to have those same insider connections to help get them that next job if it doesn’t work out. It doesn’t just feel like a bigger risk—it is a bigger risk and they have more on the line.
If you’re constantly reading that this system isn’t built to help you—and you aren’t finding any experiences to the contrary, your likelihood of just throwing your hands up and bailing from startups is higher. When I decide not to meet with someone or to pass on an opportunity, which I’ll unfortunately have to do for most pitches, I need to do a better job of keeping that in mind. I can try hard to be objective about the business opportunity without saying something that doesn’t make them more likely to drop out of the process of finding their next big thing entirely.
Sometimes, it’s not even a matter of being short with someone. It could be asking the same questions I would ask any other founder without thinking much about how it would be interpreted.
If someone doesn’t send over a financial model and I say something like "I don't see how this gets to $100mm in revenue", it's not a short jump for someone to hear that as "Your idea is small, and not important."
Straight white guys never hear it that way.
Similarly, when I say, "Can you show me a model of how you think this round helps you hit your goals?" that is often going to sound like a lack of interest and an unwillingness to just say no.
Fundraising can feel like a series of endless hoop-jumping--that investors who don't intend to back you will keep asking you questions until you give up instead of just saying no. What I have heard multiple times from founders of color and female founders is that it is exhausting and discouraging.
One thing I need to do better is to share context to my feedback for those founders I think might be feeling exhausted by this process, particularly underrepresented founders, and present more helpful solutions. Instead of saying "I don't see how this gets big" perhaps it would be better to say:
“A lot of founders pitch with a conservative estimate of what they believe they can 100% commit to, which I appreciate *after I've invested*--but investors aren't investing in the certain, we're hoping for the *possible*. I’m not sure if that’s how you’re positioning this or not.
Do you see any pathway to getting this business to a $100mm a year annual business? Can you show me a version of this plan with how it might be possible?
If that's not in the cards for your business, that still could make it a great business, but then the kind of capital I'm offering probably isn't a match for what you're looking for from a risk/return standpoint."
That's not perfect, but I'm certainly going to commit to working on better ways to share feedback—to make it feel like when I am interested, I’m actually going through a real process of serious due diligence, and when I’m not, to at least acknowledge the try a little better.
Don’t get me wrong—I’m still going to be super direct and honest, but it doesn’t have to feel brutal.
I wrote this in my newsletter this morning:
If you're not willing to ask yourself difficult questions, to be asked them, or to ask them of your teams, then this e-mail and, frankly, this "innovation" industry isn't for you.
What have tech leaders been telling people they needed to do in order to be great founders and to build great things?
Move fast and break things.
Don't ask for permission.
Run through walls.
In fact, Marc Andreessen once tweeted:
"To be AGAINST disruption is to be AGAINST consumer choice, AGAINST more people bring served, and AGAINST shrinking inequality."
So, innovation supporter...
Are you against shrinking inequality or not?
Ask yourself how come you're so concerned with people taking things from a Target when you cheered from the sidelines as Amazon burned Barnes & Noble to the ground and caused a million small retailers to go up in flames on their way to the top.
Have you owned shares and profited from all the broken Main Street windows Amazon created?
Last night, SoHo stores were looted, and nowhere in the coverage will it mention that the whole neighborhood has been one giant flaunt of real estate zoning law for years--illegal occupiers of their space.
There aren't supposed to be any stores in SoHo over 10,000 square feet, which Hollister, Topshop, Uniqlo and Zara all violate, while residential zoning in the neighborhood requires every SoHo household to include at least one certified artist.
The area has over 25,000 residents but has barely generated two dozen artist applications per year in recent years, with most being turned down on their face.
I'm not pro-looting, but I am pro having an honest conversation about who gets to break the law, especially when mostly white investors people get to profit from it.
"Uber’s ascent to the largest rideshare company in the world was fueled by a recurring cycle in which it blatantly ignored state and local laws, became entrenched and widely used in a community, and then tried to use its largesse to change the laws it was breaking..."
Could you not use this *exact* description for those who have been protesting?
Who benefitted equity-wise from Uber's success?
Black drivers make up over 20% of who is actually behind the wheel but have no equity in the company as they are not technically employees. Even if they were, startup employees usually don't hold more than 10% of the company's overall stock and less than 10% of the company's employees were black at the time of the IPO... so they make up less than 10% of 10%...
Well, you would have needed to be a wealthy, accredited investor to get in on the upside, and only 3% of Americans meet the criteria to do that.
I don't have to tell you what the racial distribution of the group benefitting looks like relative to those doing the work.
Systematic and institutionalized racism and bias have prevented black people, and people of color from gaining wealth that leads to access. It's too easy to disassociate yourself from it if you don't think of yourself as harboring racist sentiment--not racist and therefore, not part of racism.
I'm not talking about using certain words or intentionally denying someone a job or apartment.
What I'm talking about is a feature, not a bug.
It's a system where you can profit by owning equity in the booming cannabis industry, for example, without having to pay back any of the multi-generational economic harm done to those who were incarcerated because of it.
Or one in which to get a government license to build a crypto trading platform, you need to pass background checks to make sure you haven’t been too disruptive on your way to building financial disruption.
Or more simply put, one in which to make money, you have to already have it.
A little over seven years ago, I set out to start a fund that looks to be an early and vocal supporter of those who are outside the innermost circles of the most powerful people in tech--since, by definition, New York City was beyond that circle.
I did so from a position of privilege.
I didn't always fully acknowledge or understand it. I thought privilege meant certain levels of wealth--not realizing the privilege of my skin color in our society. I thought that because my dad was a NYC fireman and my mom was a teacher's aide and because we lived in a small house that didn't have privilege.
That's before the killing of Tamir Rice made me look up the toy guns I used to play with without any fear that something would ever happen to me:
It is impossible to look at these photos and deny that I am alive today purely as a function of my skin color.
But I digress...
The investors who backed me asked me to seek out and support those who would push boundaries and question the system. That's a contradiction if the only people who I make myself accessible to are those in positions of privilege and who have benefitted from unfair systems.
If I am to really seek out the disruptors, I need to find more people who will actually see upside from disruption, not from status quo.
Venture capital is supposed to make a high multiple of return for the risk. If you want to make a lot of money with a small amount of money, what you're asking for is wealth transfer--and if you want wealth transfer, the architects of real change need to be outside of the system, not intrinsically part of it.
The latter is financial engineering masking itself as disruption.
That is why Brooklyn Bridge Ventures from the very beginning was built around the idea of accessibility--that the idea that the vast majority of the next great companies built in NYC will be built by people who aren't on current investor radars.
To me, that doesn't mean "donating" my time to meet with underrepresented founders as a charity.
That means making sure that there are no artificial barriers for accessing me and the capital I represent that would skew my time only towards founders of privilege. It means flipping over every single rock looking to be first to the opportunity that no one else has figured out yet--because anything else is just laziness.
First and foremost that means eliminating the requirement for warm intros which makes those people already in my network, who statistically tend to look like me, the gatekeepers.
Sure, that means exponentially opening up the flow of deals and going through a ton of deal flow.
That. Is. The. Job.
It's not enough just to be open--because it doesn't address other systematic barriers, like fear.
You can't just post to social media circles of people with the same skin color as you that you want to meet diverse founders in June. You need to commit to following and promoting voices of people that aren't like you--that say things that aren't exactly comfortable to hear to earn the right to have them follow you back.
And only then can you put asks out every single day to get the pitches from the smartest people in their network and expect it to look different.
You need to show up and take people seriously--because founders will sniff you out in a heartbeat if they get the sense that you've already decided you're not writing a check but that you're here for the meeting quota.
Sure and you need to write checks.
I've written the checks--to three black founders, dozens of other founders of underrepresented ethnicities, genders, sexualities, etc, but that's not enough.
The ecosystem of check writers needs to change, too.
I've been running a group of people who are new to the VC ecosystem or who aspire to join it. That group intentionally welcomes and seeks out those who are underrepresented.
The other day, I solicited invites to an educational session about VC with this tweet:
You: a) newly a non-partner in VC, b) from an underrepresented group, in startup/financial job and would like to get into VC, or c) HNW/Angel getting started. DM me. Running something educational tom (Fri) from 10-11:30AM ET I'd like to invite you to. No current founders, pls.— Charlie O'Donnell (@ceonyc) May 28, 2020
I specifically asked for underrepresented attendees and got 75 requests.
We had an amazing meeting that got 100 diverse RSVPs for a learning session in which aspiring VCs and angels from multiple backgrounds got to watch a real pitch meeting and have a 90 minute discussion after as to why certain questions were asked, how the team and pitch got evaluated, and what could have been done to improve.
Here's a smattering of the requests I got:
"I’m a current nonbinary college student working at various startups but interested in working in VC someday and would love to take part in your educational session tomorrow if there’s room for me..." - Carnegie Mellon design student
"I currently scale urbantech solutions in cities and am a Venture Partner with [x]. I have been working to start my own fund combining public-private funding to invest in companies" - African American Female
"I am Mexican-American first generation college graduate, parents were both Mexican immigrants (mom still cleans houses for the rich from Chicago here in Michigan). I currently work in a corporate finance setting but would be interested in VC if the opportunity ever presented itself."
My network is better for having intentionally sought out those who might not happen upon me during the normal course of how business works today. Because of that, my deal flow is better, and the investments I can make on behalf of those who funded me will be better.
Make no mistake--while some of you may think that these kinds of "politicized" messages coming from a professional investor might hurt my career, the only careers that are going to get derailed are those that don't show up as allies.
Today's startup founders and leaders are more empathetic than ever before and to be successful in managing more diverse workforces they will have to be. They will expect nothing less of their investors.
Notes are being taken, my VC friends.
Tearing down barriers to equality and access to wealth is a feature of Brooklyn Bridge Ventures--so when I am confronted with those who would do the same in their own lives in disruptive ways, my *first* instinct isn't to question their methods.
It's to understand their why and to seek to relate to the way they see the world in whatever small way I can.
That's literally the job of a VC--understand the why and understand how disruptive people see things. I'm not going to stop now because they're protesting injustice and not pitching me a startup (not today anyway).
Complaining about the broken windows of well insured multi-billion dollar corporations?
That's the equivalent of a VC asking whether the next disruptive hack project violates the terms of service of some big dumb Fortune 500 company we hope our startups to knock right out of the water as we crush them for profit.
Push yourself to ask why.
By now, you've probably watched all the videos... the George Floyd murder, the Ahmaud Arbery murder, the Amy Cooper threats... I don't need to post links to them here and re-inflict their trauma.
They're horrifying... if you're white.
If you're black, they're part of an unfortunate routine.
I can't speak for how black people are feeling right now--but I'll use whatever platform I have to promote those who can speak to it better.
You really need to watch the entirety of Trevor Noah's take on this.
If you've ever felt angry when someone breaks a contract with you--maybe not delivering something on top, or not paying you what you were owed, you haven't even scraped the surface of the pain caused by the social contract that America has broken with the black community.
"What do you see when you see angry black protesters amassing outside police stations with raised fists? If you’re white, you may be thinking, “They certainly aren’t social distancing.” Then you notice the black faces looting Target and you think, “Well, that just hurts their cause.” Then you see the police station on fire and you wag a finger saying, “That’s putting the cause backward.”
You’re not wrong — but you’re not right, either. The black community is used to the institutional racism inherent in education, the justice system and jobs. And even though we do all the conventional things to raise public and political awareness — write articulate and insightful pieces in the Atlantic, explain the continued devastation on CNN, support candidates who promise change — the needle hardly budges.
But COVID-19 has been slamming the consequences of all that home as we die at a significantly higher rate than whites, are the first to lose our jobs, and watch helplessly as Republicans try to keep us from voting. Just as the slimy underbelly of institutional racism is being exposed, it feels like hunting season is open on blacks. If there was any doubt, President Trump’s recent tweets confirm the national zeitgeist as he calls protesters “thugs” and looters fair game to be shot.
Yes, protests often are used as an excuse for some to take advantage, just as when fans celebrating a hometown sports team championship burn cars and destroy storefronts. I don’t want to see stores looted or even buildings burn. But African Americans have been living in a burning building for many years, choking on the smoke as the flames burn closer and closer. Racism in America is like dust in the air. It seems invisible — even if you’re choking on it — until you let the sun in. Then you see it’s everywhere. As long as we keep shining that light, we have a chance of cleaning it wherever it lands.
So, maybe the black community’s main concern right now isn’t whether protesters are standing three or six feet apart or whether a few desperate souls steal some T-shirts or even set a police station on fire, but whether their sons, husbands, brothers and fathers will be murdered by cops or wannabe cops just for going on a walk, a jog, a drive."
I also want to make a special mention for my support of cops--those who actually understand what the badge stands for and who they're protecting and serving. Those who have lost that need to go--and I don't want to pay their pensions either.
I was struck by how many scenes of peaceful protest this weekend were interrupted by overzealous law enforcement officers who were acting like they were storming the beach at Normandy. Near my house, cops literally drove into protestors, using their vehicles as weapons.
I couldn't help but notice that riots seem to break out in direct proportion to the amount of riot gear on the scene.
But several phenomenal examples of true compassionate leadership on behalf of the police gave me hope for change, like Michigan Sheriff Chris Swanson, who instructed his officers to put down their batons and marched with the crowds.
Is it any surprise that you can diffuse an angry crowd by kneeling with them, not on them?
The least safe I felt this weekend wasn't when protesters marched by me--it was when NYPD vehicles sped up and down Park Slope streets and helicopters lingered overhead.
Think of similar situations you've faced in the past. Do you feel more or less safe when you see police with machine guns in Grand Central Station?
It's not an accident that the sounds of keeping the peace sounded more like a war--and the only thing we probably won't cut in our economic downturn is defense and law enforcement, while our education and healthcare systems fall further and further behind the rest of the world.
We need more empathetic leaders willing to listen, learn and have difficult conversations as opposed to cowering in fear down in a bunker from the difficult and complex realities of their job.
So if you are a NYC founder, aspiring founder, startup employee, wanna be startup employee, join in on our events, invite me to show up for yours (I generally show up anytime I'm asked if I'm free), ask me to promote your work in this newsletter, come to our neighborhood dinners (FiDi on Weds night, virtually), and if you want to join the investor side of things, especially if you do not look like me, reply here for invites to our educational events.
I'm not going to take a meeting with you to check a box this month or any month--but I'll always be damn sure to help you get to that meeting one day via honest feedback if you don't score it the first time.
Thank you for reading and for all those who answered my question of what you wanted to hear from me during this time.
The world needs you lighting a fire every now and then to keep us honest.
Meanwhile, thank you to my friend Nisha from BBG for posting this link on what white people can do for racial justice:
Also, this came in from Ella Crivello as a resource list on anti-racism:
VCs are notorious for kicking tires.
VCs take a meeting just to learn about an area. If deal flow is slow, a VC will take a meeting if you and your team seem mildly interesting even if your product isn’t. Sometimes, if you seem well connected to other founders or VCs, that will get you a meeting—because you don’t want to miss something everyone else has seen.
Some later stage funds will take a meeting long before they ever plan on writing a check with the promise of “opportunistic” seed investments (to the guy or girl they went to grad school with). Some VCs have no money left in their funds, but they still like playing VC.
You could complain about this as bad VC behavior, because wasting a founder’s time is a mortal sin in Startupland, but I wonder why we’re letting founders completely off the hook in this process.
If you had a salesperson and they spent all of their time with inbound leads that didn’t pay off, you’d have to let them go. The ability to qualify a lead and spend time in your pipeline commensurate with the likelihood of payoff is a critical skill.
Or, you could blame the leads.
Fundraising is a sales process for shares in the company.
Is it the lead’s problem that they aren’t serious buyers? A great salesperson would figure that out right away—and qualifying your fundraising pipeline is a critical skill for a good fundraiser.
So how do you qualify a VC in your fundraising pipeline?
Ask Pointed, Specific Questions
Do you lead?
Do you have dry powder for this? How much?
Do you have the bandwidth to work on this?
Do you see a reason to turn this down right now?
What do you feel you need to be convinced?
What do you feel you need to convince others in your firm?
I believe X, Y and Z key things that cause me to believe in a big outcome. Do you agree with all three? Do you think the outcome could be as specifically big as I do?
What work will you do next to either convince yourself to do this or not to do this?
When can I expect this will happen?
If you walk out of a meeting and you don’t know anything more than “They thought it was interesting…” then you didn’t ask enough about where they were at on this.
Manage Your Time
Control the time and structure of the meeting.
Have a plan for what you want them to know—have questions to make sure they understood it and come to next steps that either move them forward in a process or off the potentials list. Use some old school sales tactics like, “I’m going to use this first ten minutes to determine whether this is a fit—would you be willing to give me back my time if you determine right away that it isn’t? I have plenty of calls and e-mails to make and would appreciate a quick wrap up if you’re not interested to hear more after that time.”
Seniority Within the Firm
Some non-partners at a firm can lead a deal—but the reality is that if you’re scoring your VC leads on likelihood fo close, you have to take points off for junior VCs or partners who probably have less pull. The partner who just got promoted from principal undoubtedly will have a lower close rate than the partner whose name is in the door or who founded the firm.
That’s not to say you shouldn’t pitch people besides the most powerful partner that everyone else is probably pitching—you just have to be careful you’re not leaving yourself open to being disappointed at the finish line because they didn’t have the internal pull to get it through the partner meeting.
Circumstances of the Meeting
Did they feel obligated to take the meeting because of an intro or do they have a stated interest in the space—or even better, did they tell you specifically why they’re interested in your company?
Scheduling and Cadence
An interested VC won’t wait a week or two when a round is in process to meet. They’ll get back to you right away without you prompting it. They’ll even introduce you to others in the firm before you walk out the door. If you feel like you’re pushing the deal forward, your chance of closing are defiantly lower.
Researching the Space
Ideally, the investor either already knows what they’re looking for or you’ve so clearly articulated the opportunity that they don’t need to take time to get up to speed on the space—or, you’re so clearly the expert team that they trust you know what you’re doing. Anyone who has to start from scratch on a space isn’t your most likely next close.
Lack of Vigorous Agreement or Disagreement
If a VC has strong opinions, you can have a back and forth. If they’re just not engaging at all, there’s a good chance you’re looking at a pocket veto.
A pipeline should feel active—a living, breathing organism with flow and movement, not a sack you’re dragging up a hill. Remember, there is way more money out there than good ideas—so if they’re not chasing you, you probably haven’t done the job of being convincing.
If you can’t get a read on VCs at all, you may want to check out Feedback.vc, where you can get aggregated and consistent feedback from an anonymous panel of venture investors.
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