October 2010 Archives

How I (try to) add value as an investor

 
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When raising money, startups sometimes ask me how I would add value as an investor. I think it is a great question that unfortunately often gets unspecific answers. 

This post by David Hornick of August Capital (a VC) is the best I've seen at laying out how investors can add value in general. And I'm sure each investor can do a little bit in the categories David lays out: recruiting, raising equity, raising debt, introduction, strategic advice, save time, create a Keiretsu, PR, and making exits happen.

The best place to look for specifics is in an investor's portfolio companies. It seems like it could be like asking a family member for a reference, but I've found that startup founders are very candid with other founders about these kinds of topics. 

I would get some of those founders on the phone and just ask them how the particular investor has helped them, how much they've been involved, etc. I'm confident that if you ask my portfolio companies you'll hear the following from them.


Relative to other investors...

Where I can add the most value:

  • Raising a seed round. I led the last two deals I've done in the sense that I put together the syndicate of the right angel investors, negotiated the terms for them, and made sure it all closed quickly, fairly and without incident. For both deals we used the open source Series Seed docs, which kept things extremely low cost (actually zero legal on our end). I'd basically like to continue filling this role.

    From the company perspective, I think this is quite appealing, especially if you are not a super hot company and not in the valley, which is the space in which I operate. One minor quibble I'd make with Paul Graham in his recent investing essays is that for a lot of startups it takes a lot longer than a few days or weeks to raise a seed round. The median is much longer because most companies fail to raise anything, and the mode I see seems to be somewhere at 4-6 months.

  • Day to day business advice, i.e. been there, done that. I've been doing this startup stuff for a while now, pretty much all by myself or with one other person. So I've done most startup things, i.e. from incorporation papers all the way to an exit and everything in between. Moreover, I want to be closely involved. For most of the companies I'm involved with, we try to have frequent Skype chats (weekly to every few weeks) to discuss whatever is in front of them.

  • Technical stuff. I'm a hacker that has built a lot of sites and scaled some to a decent degree--certainly not facebook/twitter scale or anything, but on the order of 20 million users. I've pitched in when companies have been in a bind, e.g. debugging downtime, writing a script, solving email spam problems, etc. Of course, the closer you are to my core tech competencies (databases, data mining, Web crawling, uptime, etc.) and particular technologies I usually use (nginx, postgresql, Perl, JavaScript, etc.) the more I can help.

  • Domain Knowledge. If you're trying to do something very specific that I've already done or am researching, like engineer a viral loop using email, spider and organize a lot of structured content, SEO, etc., I can be incredibly useful.

Where I can add average value:

  • Raising a Series A round. Truth be told, I'm looking to invest in things that if all goes decently well, a Series A round may not be strictly needed because the company would be profitable. So if it is raised, it should be easier to do so because of the traction they would have.  Nevertheless, things don't always go as planned, and so it is important that I cultivate relationships with the right VCs who could help fund portfolio companies. I've been actively working on that, especially locally. For example, I'm bringing Open Angel Forum to Philly next year and have been meeting essentially everyone in the city involved in funding Internet startups.

  • Introductions. You can see from my LinkedIn who I'm connected to. Again, I'm actively expanding my network all the time, e.g. through my Traction Book interviews. It's definitely improving, but there are certainly many investors with more substantial networks. A lot of this related back to amount of deals. Frankly, I haven't done that many, but this should of course improve over time.
  • Hiring. This seems to be a major problem for startups. I actually started a local hackathon group three years ago (200+ strong now) to help make connections between people interested in startups, hiring being one type of connection. And I have introduced people that have resulted in hiring, but the problem is still a big one, especially if I continue to invest nationally. That is, things I do in Philly, like copy good programs from other cities, won't help a company in Boston (unless they don't mind a virtual hire). I think what we really need is an organized startup job board (yes, I know there have been some), that is promoted by major startups/startup hang outs and has a barrier to entry to applicants, like HN karma or something. This is half baked atm, but maybe someone will run with it.

What I can't do:

  • Get you on Techcrunch. Or PR in general for that matter. Honestly, I haven't really figured this piece out yet, though I have been doing interviews on it to learn more. Duck Duck Go has had a lot of good press, but it has pretty much been unsolicited or based on warm intros. I would like to say I'm working on meeting the right people in the press, but I'm not. I just don't have enough time right now, and I don't like to travel.

  • Get you traction. Yes, I am slowly working on a book on getting traction. That means I can tell you lots of strategies that you should check out and even tactics within them. But that doesn't mean attaching me to your startup will actually get you traction. In fact, I want to invest in things that have a spark of traction already.

  • Help much with managing employees. I really haven't managed many people, so my experience is very limited here. But I do try to include people in seed round syndicates with varying (and relevant) experience so there are investors to go to for this kind of advice.

  • Help with big company politics, sales cycles, etc. Same story.

Clearly each startup needs help in different areas. So depending on the particular startup I could be very useful, or not so much. I hope this post helps you figure that out.

I should also say that I'm willing to help without investing, i.e. dole out infrequent informal advice or become more of a formal mentor. If you need some advice, I suggest writing to hacker angels or techstartu.ps. I'll see it, and you'll get in front of other people that could potentially help more.

My history of (mostly failed) side projects and startups

 
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This HN thread by the founder of Github on side projects got me thinking. You could make a strong argument that my most successful projects--NamesDatabase (my last startup) and DuckDuckGo (my current startup)--essentially started as side projects and, perhaps more interestingly, evolved from other failed side projects and startups.

I thought it would be illustrative to enumerate my projects. I'm limiting the list to projects that I started (as opposed to consulting/affiliate gigs) and ones that I spent a significant amount of time on (as opposed to just a few weeks/weekends).

  • BBS (1993-1995). Ran a BBS out of my bedroom. Forgot the name. Yes, people would call into it in the middle of the night and it would make that modem sound. The best feature was I scheduled anonymous chats with my Dad, who is an ID doctor covering HIV/AIDS.

  • Silkscapes (1995-1996). Made an online store for my Mom's offline clothing business. Launched it, but didn't really attract any customers.

  • Velvet Donk (1996-2000). An e-zine featuring essays from me and other people I knew. Picked up a lot about HTML layout messing around with it.

  • Donk mailing list (1997-2001). Essentially a fark.com over email, curated by me. People that I didn't know would ask me to be added to it. I thought about putting it online, but didn't. Should have.

  • Apathy (2000). One of the only one of these projects still online. The idea was to create a "Web" album, analogous to a music album. I spent much of my last semester in college working on it. Had plans to do more albums, including a Startup one, but haven't gotten around to it.

  • learnection (2000-2001). My first "real" startup, which was an attempt to increase parental involvement in primary education by using the Internet to give more info to parents about what was going on in the classroom. So many reasons for failure here: bad hiring, bad customer development, misunderstanding the sales cycle, etc. etc. Lessons learned though.

  • The Public Inbox (2001-2002). Essentially posterous. You would email a general address, i.e. inbox@malism.com and it would put it on the Web and send you back a Web page. Failed to iterate and stick with it, but learned a lot about SEO and email.  

  • Journal (2001-2002). Essentially a blogging platform. You would email a general address, i.e. journal@malism.com and it would blast it to your friends and then also archive it on the Web for you. Failed to iterate and stick with it.

  • Open JavaScript (2001-2002). A JS library. It grew out of the front end code for learnection, which I had put myself in charge of. We used a hidden frame (compatible with pre-AJAX browsers) to transfer info from the back-end and had made all sorts of string, object and rendering functions as well. 

  • Zoofoo (2002). A coupon site. Attracted a decent user base via SEO and some word of mouth, but never really made much money from the affiliate stuff.

  • Simple Email Client (2002). In retrospect, this should have been a Web app, but it was installed software. Spent a bunch of time on it, but never launched. Should have at least launched it.

  • Yahoo! Store data analyzer (2002). This would download all your store data, make a database out of it and then let you run queries against it to discover things you couldn't do easily in the store tools. Spent a bunch of time on it, but never launched it either. Should have at least launched it.

  • Fifty Rules Used by Highly Successful People (2003). I wrote an ebook and sold it online, with some encouraging early success. I took it down when NamesDatabase took off and because it felt a bit silly, but perhaps should have stuck with it.

  • NamesDatabase (2003-2006). My so-called "last startup" because it was the one that had a successful exit. It was essentially classmates.com, which is who we sold it to. It grew out of The Public Inbox weirdly enough. A lot of people would send in emails looking for other people, which would get indexed and sent a decent amount of traffic. So I myself put up pages of names, which got indexed and sent a lot of traffic. And NDB was born...

  • Twenty Questions (2006) An interview show. Built a small studio in my house and made two episodes before running out of steam. Still my dream job.

  • Tldscan (2007). Made a bunch of sites that did deep crawls of structured information and put them on the Web, e.g. sites behind ip addresses, streets in the US, sports statisics, etc. Got a bunch of SEO traffic (50K uniques/day) and decent revenue ($500/day) and then Google blacklisted all of my sites. In retrospect, I made them too cookie-cutter even though I stand by that they were each individually useful. I should have spent much more time on the ones that were the most useful though.

  • I've Got a Fang (2007). Essentially Squidoo or Mahalo -- I wanted to capture links in people's heads for particular subjects because I thought they were better than Google results. Launched but couldn't get people to upload enough stuff to where it made sense to continue.

  • The "Wall" (2007). Facebook for introverts, focused more on group dynamics and life events. Never launched due to my partner on the project getting tangled up on other things.

  • Kangadoo (2007-2008). Essentially posterous for grandparents. Parents would email or upload photos from their phones and it would be auto-sent to a homepage for the grandparents or other family members. Part of the idea was to sell it in stores as a software box, which we made and brought to the 2008 annual Toy Fair. Failed when partner walked out. I didn't want to continue it myself after that due to the heavy sales work.

  • Groupomatic (2007-). Meetup.com, but more decentralized. I created it mainly out of a frustration with Meetup when moving to Philadelphia and trying to start some groups. I still use it, but only to maintain my own groups. Failed in customer development and iteration.

  • nth Club (2007-). A golf social network for private club members. It's organized around leagues where people get paired up and play at each others' clubs. Worked in Philly but didn't spread beyond for various reasons.

  • DuckDuckGo (2007-). A search engine. Directly grew out of I've Got a Fang & Tldscan and proximately from a weekend side project mashup of delicious and Wikipedia.

  • Angel Investing (2009-). The jury is out as to how well I am doing.

  • Traction Book (2009-). Started out as something like Founders at Work, but has evolved to a handbook on how-to get traction. Somewhat on back-burner because the evolution has caused it to be a much bigger project and I don't have the time.
I'm sure I'm missing stuff since this is just off the top of my head, but you probably get the idea.

Update: more great comments on HN.

Pitch decks are missing a key ingredient: history

 
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I agree with Fred Wilson about trying to keep a pitch deck to six slides. I also agree with Mark Suster about putting the bio slide first (click next at the bottom of his post for more of his pitch deck advice). There are also many other good posts on pitch decks (with conflicting advice of course).

But even if you construct the perfect pitch deck, I still think the key ingredient is missing: your history. VCs and angels are always going on how they are mainly are funding the team, and I agree. The problem is you can't get a great sense of the team from the pitch deck. The best bio slide only hooks you.

This is why I agree with the advice to cultivate relationships with the right investors over time. However, even if you do that, you'll find yourself pitching people for which you do not have existing relationships. For these people, I think there is something you should add to your pitch deck email--a 1-2 pg written narrative history of your team.

I generally ask for this over email, albeit more informally, e.g. so how'd you end up doing this or what led you here over the past few years? Responses to these questions generally get to what I want: your detailed history. 

Did you do other companies before this one? What happened? Did you to college? What was your major? Did you work after school? What was that like? Did you evolve into pursuing this idea over time or was it more of a discrete jump? How did the team members meet? Etc. etc. A lot of this stuff is actually covered in incubator applications, and I try to get copies of those wherever possible as a result. 

Your history says a lot about you, but it isn't possible (or appropriate) to put in the pitch deck. Nevertheless, I think its writing and inclusion should be more formalized into a secondary narrative document. (The narrative also conveys one data point on how well you communicate in written form.)

Your story is often discussed in first meetings, but if people already know it the first meeting can actually be a bit more further along in the process. In the aggregate, this change should shrink the whole fundraising cycle a bit.

Startup micro opportunities

 
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In my first startup, I generally had analysis paralysis. I moved slowly, and hardly ever reacted to things in real time. 

I strictly adhered to what I thought was critical path. I didn't realize that by doing so I was probably passing by countless micro opportunities that could help my startup get traction.

Over the years I've moved completely in the other direction, which is also reflected in my shift from INTP to INTJ (P vs J) on the Myer's Briggs personality test. (Criticisms of the framework aside, I do think this move captured something real.)

Micro opportunities come in all shapes and sizes, but the ones I'm referring to in this post are those with short time windows and horizons. A few recent examples:

1) I try to seek out feedback for my startup in as many ways as possible. But more importantly, I try to react to it as quickly as possible to that feedback. As a result, I've been able to strike up useful conversations while things are fresh in peoples' minds, and equally importantly been able to get many true fans. I love seeing tweets like these.

2) The other day I woke up to a DuckDuckGo themed logo topping reddit. I quickly thought it would be cool if I put up a reddit themed DuckDuckGo logo on DDG. I thought about ways to do it and at the same time sent out a request on the duck.co forum. I'm not sure if @markkata saw that request or not, but he made this logo, which I put up on the site and announced on twitter. Someone then submitted it back to reddit, which got voted up. It never made the main front page, but hovered on the 2nd and 3rd for about 36 hours and drove something like 15K users to the site. That's thousands of people who would have never otherwise seen my site.

You might say, well, I can't do that one because I wouldn't get my logo on top of reddit in the first place. But getting there actually arose by seizing a series of earlier micro opportunities. When reddit first announced their ad beta, I jumped at the chance to participate and provided as much feedback as I could. I continued to advertise and engaged actively in the community (both on my ad threads and otherwise). When someone suggested I do an AMA, I did that too. When I found people I thought might be useful to the reddit team, I made introductions. When I had a good experience with reddit ads, I wrote it up on this blog. As a result of all of these interactions, I've gained a lot respect for the reddit team, and I hope visa-versa.

I'm not sure what in there led to the DDG-themed logo on reddit (I wasn't warned or notified), but it hardly matters. The point is that it wasn't planned. It just happened. For the record, I don't think of these things as opportunities to be seized, but more like fun. It happens naturally at this point. 

3) Occasionally I'll write blog posts in reaction to other posts. These are posts I had been meaning to write, but by writing them then I became part of the current conversation and was able to drive many more people to my blog (and more importantly get them to consider my point of view) in context. The most recent examples are my posts entitled False dichotomies in convertible note vs equity seed rounds and Thoughts on Yahoo! BOSS Monetization II.

4) A few months ago I woke up to an article entitled DuckDuckGo Searches Are Not Anonymous at the top of Hacker News. I reacted immediately with a comment (containing a workaround), but immediately knew that I should and could do more. 

I dropped everything and worked to plug the hole, which took a few hours. In so doing, I realized there was an opportunity to go much further. Long story short, I launched a new major privacy feature 48 hours later via my own blog post. That post got voted up on HN and then on Reddit and then got picked up by some bigger blogs and news outlets. All told, I probably got 20K interested people to check out my site as a result, and I now have this feature for the long term. If I had not dove into an immediate response to the first post, I doubt the feature would have ever been created.


Don't get me wrong--I still think staying on critical path is important. Like many others I hate premature optimization and unnecessary tangents. (This is another post, but sometimes it is hard to tell what is tangential and not and what is useful optimization and not.) 

The beauty of micro opportunities, though, is that by definition they don't take that long. So you can stay more-or-less on critical path while still seizing them along the way. 

One could think of them as a competitive advantage (when competing against big companies). There is some truth to that, but I think of them as more of individual opportunities. It's not that if you don't do it someone else will. Instead, they'll just be lost forever.