One of the interesting things about being a VC is that you often see companies in transition. If you’re an early investor like I am that often means writing the first $2-3 million check into a business that previously had either survived on fumes or on a $500,000 angel round.
I also see companies as they move from having taken $1-5 million from me to their next round where they raise $8-15 million from Series B investors and sometimes I lead at this round (we’re stage agnostic but 80% of our deals are seed & A).
Moving from a company that had less resources (and presumably by the time they’re raising depleted resources) to a company with newfound resources can be telling.
I have seen many companies raise their first $3 million and still act like a company that has no resources at all. And while this might sound to the inexperienced person like a sensible idea – it is not. In a VC business when you raise additional capital you need to “level up” and act the round you are.
Of course I’m not preaching crazy, irrational spend or having Kid Rock at your next company party. But you do need to find a way to do activities that are more scalable. The founders are (or should be) the most valuable resources in the company and scaling implies that you bring in others to help accomplish tasks that allow the founders to get more leverage.
In some cases this is about getting routine tasks off of the founders plates. It’s why I wrote this post that the controversial first hire after an A round out to be an office manager / assistant / HR person who handles everything from stocking supplies to booking travel to scheduling group meetings. All of those things that you do yourself as a badge of honor in the early days are simply not your best use of time.
Almost every startup company starts off “scrappy” and there’s a well established culture in the tech startup scene to embrace the “be cheap at all costs” mentality.
So we have the proverbial garage startup or the small team working on desks that are handmade out of scrap wood or former doors from a construction site. But at what point do you need to flip from scrappy to “scale-y”? Um, well, that word choice doesn’t exactly work.
I have seen this problem up close so many times. You have a seed-stage company who had raised $500,000 and then later raises $8 million still acting like a seed-stage startup. Similarly you have the A-round company who has raised a $25 million round still behaving like a 10-person startup with the CEO still micro-managing every decision.
I have weighed in on this topic before. I wrote that the most controversial hire after an A-round is actually an office manager / admin person for the company. My rationale is simply.
One of the unavoidable realities of building a startup is having to fire people.
In a normal business you can often sweep bad performers under the rug and not deal with them. When you have millions or billions of dollars of revenue you can suffer a few bad performers or bad apples. You can miss a quarter’s target and not cull the inefficiencies. I’m not saying you should, but you could.
But in startups this equals death.
Death because just 3 extra non-performing employees in a company of 15 can either accelerate cash out date or can dramatically lower your productivity.
I’ve spoken about this before and my mantra, “Hire Fast, Fire Fast.”
When I first started my career I came across a term for this that has always stuck in my head and serves as a useful reminder of this mantra.
We called it “PURE.”
Previously. Undetected. Recruiting. Error.
My premise with “hire fast, fire fast” is that some companies over-analyze potential recruits and therefore chew up valuable months with functions unfilled.
For the past 5 years or so Google, Facebook and a handful of tech industry giants have been quietly buying scores of early-stage startups for their talent. And to keep up with the Jones’s it seems that Yahoo! has now employed the same strategy.
And who cares, right?
A couple of tech giants throw millions around in either cash (for which they have hoards) or part with some publicly traded stock. And a few teams of super talented, educated and bright entrepreneurs make a few mill. in their 20′s. What could be more capitalist than that?
It has even gone so far that we now have evocative headlines in the tech press such as “Buy or Die,” which is what got me thinking about this post.
We’ve been here before – trust me. Every era has its own amnesia for M&A gone wild.
In the end, it doesn’t really matter. It’s not some big tragedy on a grand scale.
I am fond of quoting that about 70% of my investment decision of an early-stage company is the team. My rationale is simple: everything goes wrong and only great teams can respond to competitors, markets, funding environments, staff departures, PR disasters and the like.
Final startup grind from msuster
How you build out your team in the first few years can have a huge impact on the trajectory of your company.
So I naturally spend much time with the companies in which I invest helping them:
figure out roles
measure performance / quality of team
debate the right structure
and so forth.
There are no “right” answers – just opinions. And the folks at Startup Grind have been kind enough to invite me to present this morning in Mountain View on the topic.
Be careful not to have too many co-founders. it’s the most expensive dilution you’ll ever face.
I’ve thought a lot about team construction of early stage companies.
I was once asked on Quora what my idea startup team would be. I wrote the following:
“I like to invest at the seed or A round. My ideal team is simple:
Assuming 6 people
1. 5 engineers
2. 1 CEO who doubles as head of product management
3. Nothing else
But obviously I am open to other configurations. The key important things are:
- strong tech DNA
- dominance of tech personnel relative to others
- strong product focus on CEO
I never invest in:
- business people who outsource tech dev to 3rd parties (“to speed up time to market”)”
If you like that feel free to