Both Sides of the Table


I was reading Danielle Morrill’s blog post today on whether one’s “Startup Burn Rate is Normal.” I highly recommend reading it. I love how transparently Danielle lives her startup (& encourages other to join in) because it provides much needed transparency to other startups.

Danielle goes through some commentary from Bill Gurley, Fred Wilson and Marc Andreessen about burn rate and then goes on to discuss her own burn rate and others publicly weigh in.

But what IS the right amount of burn for a company? Turns out like most things there are no simple answers. Let’s set up a framework. Here’s overall what you need to know.

1. Gross Burn vs. Net Burn

Burn rate in case you don’t know is the amount of money a company is either spending (gross) or losing (net) per month. (it is also the title of a fabulous book from Internet 1.0 by Michael Woolf that is worth any startup founder reading to get a sense of perspective on the reality warp that is startup world during a frothy market such as 1997-1999, 2005-2007 or 2012-2014. I also highly recommend Boo Hoo by Ernst Malmsten, which is a similar story but told from a European startup and equally brilliant in its insightfulness, mockery and perspective setting of just how crazy times are again).

Gross burn is the total amount of money you are spending per month. Net burn is the amount of money you are losing per month.

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By all measures the past year has been successful. Teams that I’ve backed have sold their companies to Disney, Apple and AOL for substantive amounts of money. Founders have done very well, our fund has done well. Exhibit: Champagne and celebrations.

But the truth is that selling a company doesn’t always feel like a celebration as a VC. Not being a baby about it – my job is to return money to LPs. But I’ve been thinking about what had me a bit down about selling Maker Studios, Burstly and Gravity. Each of those teams were family. And the family extended beyond just the management team to include investors and the boards.

The more I’ve internalized things I’ve come to see selling a company like graduating high school or college. One day you have these great friends that you talk to all the time, you deal with tons of personal issues and drama, you have highs and lows but dammit – you were there together. I went from weekly (sometimes daily) phone calls with senior members of the team or other VCs. And now we barely see each other. And I miss those interactions. I miss those friends.

We’re all still friends but it’s not the same. Life moves on. You graduate.

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Recruiting. It is the bane of every startups existence because it takes up so much time, it is so competitive to sign people and it feels like unproductive time because it’s not moving the ball forward on product, engineering, sales, marketing, biz dev, fund raising. It consumes time and energy and the payoff doesn’t come for a long time.

But of course great teams build great companies and great startup leaders know that they must always be recruiting.

Yet most startup companies I’ve ever worked with or observed make one crucial mistake: They assume that their recruitment process for a candidate is over when that person accepts his or her offer. The truth is the process isn’t over until after the employee starts with the company, updates her LinkedIn profile and emails all her friends.

In fact, it’s worse than that. The moment your future head of sales, marketing, product or even junior developer says “yes” is the moment you’re most vulnerable of losing them. I’ve written about this before relating to any sales process –

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When VCs Play Defense

When VCs Play Defense


Posted on Sep 18, 2014 | 0 comments

Somehow the world seems to be spinning faster these days than just a few years ago. The frantic pace of technology cycles, the amount of tech news, the blogs, the conferences, the demo days, the announcements, the fundings, the IPOs. It’s exhausting. Perhaps unsustainable.

It got me thinking about the advice that I often give to new VCs. For years I saw myself as the new guy in VC but then you wake up one day and realize that 50% of your peers have been doing it for less time than you and time has moved on.

Any longtime readers of this blog will know that I often try to simplify complex ideas into a simple parable that is easier to remember to set the tone of one’s behaviors. Lines, Not Dots. Attitude over Aptitude. Building Startups for Basecamp. And so forth.

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Bad Notes on Venture Capital

Bad Notes on Venture Capital


Posted on Sep 17, 2014 | 0 comments

This week. On the phone …

Me: So, you raised venture capital?
Him: Yeah. We raised a seed round. About $1 million.
Me: At what price?
Him: It wasn’t priced. We raised a convertible note.
Me: With a cap?
Him: Yes, $8 million.
Me: Ah. I see. So you did raise with a price. It’s just a maximum price. You’ll find out the minimum when the next round is raised.
Him: Huh?

Last week. At an accelerator …

Me: Raising convertible notes as a seed round is one of the biggest disservices our industry has done to entrepreneurs since 2001-2003 when there were “full ratchets” and “multiple liquidation preferences” – the most hostile terms anybody found in term sheets 10 years ago. Convertible notes have both features in them but for some reason entrepreneurs don’t understand it. It’s like we need a finance 101 course for entrepreneurs
Him: But when I raised my first round we didn’t know how to price the company. There were no metrics. So a convertible note was easier.
Me: Ok. Well. How will you price the next round? Your A round?
Him: On metrics. We’ll have some proof points by then.
Me: Cool.

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