This is part of my ongoing series on Raising Venture Capital.

Recently I’ve been debating with a number of young startup companies that are raising money in the next few months, “what is the right amout of capital to raise at a startup?”

It’s a tricky question with no clear answer.  There are trade offs.  And it obviously depends on the kind of business you’re building.  Let me assume for this discussion it’s a garden variety 2010 IT or Internet business (as opposed to something requiring capital equipment or a life sciences project).  Any answer will be subjective and any real answer will just be explaining the tradeoffs to you.

On the upper end I’ve spoken openly on many occasions that I think that raising too much money too quickly can be destructive.  It’s like adding rocket fuel to space ship before you’re sure that it’s pointing in the right direction for take off (or even if all of the people on board are qualified to take this into outer space).  It places undue pressure early in the company’s history to “do big things” when sometimes what is warranted is more prudence.  It also takes options off the table if you eventually find out that this isn’t a VC backable business.  I’ve spoken about this in a post entitled, “Do you even need VC?” to which the answer for most people is “no.”  If you’re interested in that topic the link also has a short video I did on the topic for Fox Business News.

But the lower end also has risks.  I’ve seen too many entrepreneurs try to do things on the cheap.  I know the standard line, “I want to do a small round now and raise a larger round later when we get A,B,C deal done and I can raise at a higher valuation.”  If it works you’re a hero.  But there are also problems / risks:
- the funding environment might change dramatically – there may never be a next round (see: March 2000, September 11, 2001 and September 2008)
- you may hit unexpected bumps in the road yourself making the next round tough
- there may be major competitive changes in the market that makes your next funding round hard (e.g. Google suddenly makes your product category free)
- you might do a great job in a great market but a competitor raises $3 million when you raised $500,000 and suddenly you have to compete with them

I’ve even heard people repeat this bullsh*t Silicon Valley mantra about “failing fast” which is horse puckey.  The line goes like this, “well at least you know early that your business isn’t going to work and you didn’t have to waste 2 years and $1 million trying to bang your head against a wall.”  That is so self centered it winds me up.  Tell that to the person who wrote you the $50,000 of their hard earned money and entrusted you to try your best.  Fail fast?  How does your brother-in-law feel about that?

And how do you think the next person who’s thinking about writing you a check going to feel about that sort of cavalier attitude with their money?  Fail fast = quit and give up easy = spaghetti against the wall = no clear strategy going into your business = no ability / willingness to try and pivot as market conditions change = easy way out = today’s management mantra that will be laughed at in 10 years.  Who started this meme?  I say define a strategy, test it up front and pivot if you’re not getting the traction you had expected.  Fail fast on your own dime.

Whoops.  Off topic.  But seriously, if you take somebody’s hard earned money treat it and them with the respect they deserve.

So, let’s say you’ve raised $200,000 in friends and family money and you’re thinking about raising a round of $1 million and investors offer you $2 million.  Should you take it?  Let’s assume that the $2 million buys 25% of your company, which is the norm in an equity financing.
- obviously the starting point is to ask yourself how much money you’ll need until the next milestone. It’s best if you can raise at minimum 12 months’ cash and even better 18 months’ cash. 24 months for most tech startups is usually too much money.
- add a buffer. Your revenue will take longer to ramp then you think. There will be some unforeseen expenditures.
- that is the correct amount to raise.  It should pop out of your business plan
- and don’t ask for an extra $3 million to do M&A. No good investor wants that. They can fund a deal if necessary and valid at the time you present an acquisition target to them

So let’s assume that in the above scenario $1 million gets you 15 months and $2 million gets you 2 years. What to do?

This is actually something I’ve debated a lot recently. I was at breakfast with my friend Dave Young (from DLA Piper) this morning and we debated the topic. He had the best response I’ve ever heard. He said,

“When someone’s passing the hors d’oeuvres tray you always take two”

Brilliant.  I think that if you’re offered fair terms that aren’t destructively dilutive, preserve options for an exit, don’t put undue pressure on your company to do things too quickly you TAKE THE MONEY.  I know you think you’re going to do a bigger round later at a higher price but the problem is that if someone offers you $2 million now it’s guaranteed.  That same extra $1 million might prove very difficult to get one year from now if something fundamentally changes in the market, your company isn’t getting traction as quickly as expected or your competition makes a lot of noise in the market.  Or even your investors start having their own liquidity problems!

So I came up with the corollary,

“When someone’s passing you the hors d’oeuvres tray always take two.  But don’t take the whole tray.”

The whole tray is obviously unhealthy. Look, these things are judgment calls and there are no mathematical answers.  Just remember that for many companies success or failure often ends up being a binary outcome.  Businesses usually fail for the exact same reason – they run out of money.  Don’t let that be you.  If the appetizers are in front of you, take two.

File this under entrepreneurial advice

I know that this will sound like a random post topic for startup advice but I promise it’s relevant.  You actually need to give advice to nearly every employee whom you offer a job to on how to best quit their job.  This is important to improve conversion rates of accepted offers / joiners, shorten the time-to-join ratio and the improve the ability of that employee to maintaing good relations with their former employer.

When I started blogging I had an idea.  I would take all of the one-on-one conversations that I have with entrepreneurs from the things I’ve learned and just write them up for anybody to read.  This is advice that I end up giving ALL THE TIME and every CEO of a company I’m involved with will have heard this from me. (also, please remember my disclaimer – I’m not a lawyer)

You just made an offer to a new employee to join your company.  It might be a VP of Sales, Marketing or Technology.  Or it may just be a junior programmer, sales rep or accountant.  The reality is the same.  In a startup you want them to join immediately.  Tomorrow if possible.

Yet they of course need to serve notice.  There is always some version of the following scenario:
- they’ve worked at their employer for 3-4 years
- they really like their boss
- they don’t want to leave on bad terms
- their boss asks them to just work 4-6 weeks so he / she isn’t left in a bad position
- better yet, they’ve said,  ”help me understand what we could improve so you’d be happier staying”

Should you just let them deal with this themselves? No, of course not!  You’re an entrepreneur – you’re allowed to be a bit of a control freak.  I leave nothing to chance.  Left to their own devices most employees will muck up their exit.  Why?  They quit jobs very seldom (hopefully, otherwise, please reconsider whether you really want to hire them.  Job hoppers NEVER make good employees.  Kind of obvious even though many people overlook this).  Yet if your company is growing you deal with people quitting their employers to join you all the time.  So you have more experience in helping to manage the process.

I operate on the principle that you’re most vulnerable in any deal immediately after you’ve won.  I believe the same is true in recruiting.  So your goal is to get the employee working in your company as quickly as possible and with the least amount of collateral damage.

How do you deal with the time pressure issues? Sales people are normally tossed out the door when they quit their jobs.  So that one is usually easiest.  But for all other roles it can be tough.  Employees who are about to join you get “guilted” into sticking around longer than is necessary.  My argument to the incoming employee was always, “look, BigCo is never really going to miss you materially once you’re gone – it just feels like that.  They’re going to pressure you into staying longer than you should. Don’t.  Trust me, if they were doing layoffs they wouldn’t keep you an extra month just to be nice.  They key is to be very professional and courteous on the way out.  Then you’ll be fine.  And we really, really need you in two weeks so please do your best not to get suckered into extra time.”

I had a tactic of writing out the line of reasoning for the employee so they knew what to say. The follow are the employees talking points
- I’ve been offered a role in a new startup that is an exciting new opportunity for me. It’s a lot of responsibility and has fantastic upside.  I’m really excited.
- So unfortunately I’m going to turn in my notice
- They’re pressuring me to start next week (this is called “anchoring” (setting short time frames)) but I obviously told them that it would be unfair to give you less than 2 weeks’ notice. So I just want to confirm with you that you want me to stay the full two weeks ( a “presumptive close” (which makes it sound like, “of course this is the normal sequence of events. I’m just confirming what I’m sure you’ll agree.))

Employer: “Gosh, this is a really crucial time. I really need you to stay for 4-6 weeks if we’re to hit our deadlines.” (invariably this is always their position).

- I understand why you’d feel that way and I’d love to help. But it’s super important to me that I don’t lose this opportunity and I’m 100% sure I’m going to eventually join. So I’d really like to work with you to minimize any pain for you. I can take those two weeks (again, anchoring and presumtive close) and really do a thorough transition to anybody you’d like. I’m happy to put in evenings and weekends to make this transition smooth. Please let me know how to best help. I know that my new company is being unfair in asking for a week so I’ve pushed for a full two weeks.

Me to future employee, “I know that they’re going to put the pressure on. You need to be resolute. Professional, polite, helpful and hard-working. But resolute. They’re going to try and get you to work longer. They might even try to convince you to stay. In reality they’ll get over your leaving. But we REALLY need you now.”

Why am I such a control freak about this? Noting good has ever come out of a potential employee staying longer at their previous company.  It’s more time that they can be flipped into staying.  They’re always guilted into staying longer than they should.  In this scenario – I lose.  Thus, I try to leave nothing to chance.

How should they talk to their boss about why they’re leaving?  The most common mistakes people make is telling their employer why they were unhappy.  This accomplishes nothing.

Only two outcomes – 1) they’re bitter about the things you told them needed to improve.  Let’s face it – they’ll never improve.  And they’ll invent that history that you were the bad guy for complaining.  Seem it happen – I promise.  No matter how hard they push in the exit interview don’t offer up the dirt.

2) They use what you’re unhappy about as a means to convince you to stay.  ”Oh, you didn’t have enough leadership opportunities?  We’ll put you in charge of this 10-person tech department.  I always remind employees, “if they really cared about your progression they would have done that proactively.  If they’re doing it now it’s only because they feel they have a gun to their head.  If you weren’t happy before this superficial change is only window dressing. They’re just rolling out the red carpet for you when you’re on the way out the door. If they were like this before what are they going to be like for the next few years of your job.

So my script for employees is to say, “I’m leaving for personal reasons.  I loved my time at YourCo.  I learned so much.  I grew.  I build fantastic friends and I’ll always be part of the alumni club.  But it was just time for me to move on to another opportunity.  It wasn’t YourCo.  It was me.  I was ready for the change.”  My main message is to:

- say you’re leaving for “personal reasons” and no matter how hard you’re pressed don’t give in and expound.  It’s just personal reasons.  Nobody can argue with this.  Nobody can offer you a better role to improve “personal reasons”- when asked what this really means just avoid answering.  ”You know, I was really happy here.  I just have some personal reasons why it’s time for a change.  NewCo seems like a great opportunity for me.”

Summary Recruiting is a very time-consuming and expensive exercise.  Most people put in herculean efforts into the process until the time of the offer being accepted.  And then they leave the rest to fate.  You enter a risky period after they’ve accepted.  You need to get them in your doors as quickly as possible.  There’s nothing worse than losing an employee that said yes but never joined.

One last hack For executive-level hires I like to get a press release written and work with the incoming employee on the wording and importantly timing of the release.  I like to discuss with them a timeline for announcement for 2 reasons: 1) it starts to build in emotional commitment and 2) you get a chance to test their resolve to joining.  You can always tell the person that is not persuaded when they’re not engaged in the press release process.  If they’re not engaged you can: 1) spend more effort making sure they’re bought in or 2) keep more back-up candidates warm.

UPDATE: Thanks to a well placed question by Jason Wolfe, I’ve added some comments below about the UK, Germany and France and how those employment situations differ.  I know that in the entertainment industry in the US things work differently (long term contracts).  If anybody has any experiences on foreign employment issues or US issues in entertainment or otherwise please feel free to add in the comments.

I guess let’s file this under sales & marketing advice.

I recently wrote a piece for Mashable on how to create a company blog.  Since it’s already written (and since I promised not to republish on my blog other than a summary) if you’re interested please have a read over there.  I have a very detailed article that covers stuff I won’t cover in detail in this post.

Summary notes and then I’ll extend:

Should you blog? Yes.  As Brian Solis is fond of saying, “PR stands for public relations, not press release.”  That’s right.  In the era of two-way communications people expect an authentic voice and not the Wizard of Oz pulling levels behind the curtains.  Blogging is an important way to build an audience and also drive SEO traffic.  It’s also a great way to build relationships with people interested in your topic area.

What should you blog about? Define your customers, partners and other relevant people to your organization (e.g. analysts, journalists, potential employees) and blog about what you want to communication with them.  Don’t blog about what you think would be “cool.”  I don’t think that most startup blogs should be about how to build a startup.  That’s blogging to the echo chamber unless they’re your target customers.  And if they are I suggest your revenue stream is likely to look a bit skinny.  If you’re a financial services firm blog about personal finance.

How to find your “voice”? Be authentic.  Don’t try to sound too smart or too funny.  Just be yourself.  People will see who you are in your words.  If you try to make everything too perfect you’ll never hit publish.  If you try to sound too intelligent you’ll likely be boring as shite.  Most blogs are.  Be open and transparent.  Get inside your reader’s minds.  Try to think about what they would want to know from you.  In fact, ask them!  Don’t be offensive – it’s never worth it to offend great masses of people.  But that doesn’t mean sitting on the fence.  I have a point of view and I’m sure sometimes it rankles.  But I try to be respectful about it.  Sitting on the fence on all issues is also pretty boring.  But unless you’re a political or religious blog stay out of all the stuff that you were taught not to talk about at cocktail parties.  And don’t blog drunk.  Mostly, have fun.  If you can’t do that you won’t last very long.

OK, that’s my summary and I don’t want to violate my terms with the people at Mashable who were very generous with me so I’m now into new territory.  But if you like this topic please consider reading the Mashable article.  I put much time into it.

The new stuff:

How do I get started? First, you’ll need a platform.  I use Wordpress and am very happy.  In this genre there is also Typepad although I find less people using it these days.  Blogger kinda sucks IMHO.  There are the new tools like Tumblr and Posterous.  I’ve played with both and they’re pretty cool.  They’re more light weight, easier to use and more social.  But for my “professional” blog I’m quite happy with Wordpress for now.  Then you need to decide whether to use the “hosted” version or the “installed” version.  At least that’s true in Wordpress.  The advantage of the hosted version is that it’s easier to get started.  The disadvantage is that you can’t install a lot of additional tools that use Javascript.  Actually, that’s kind of lame.  I started with the hosted version and then migrated to an installed version so I could use Google Analytics and some other products.

You then need a URL.  It’s true you can be msuster.typepad.com or similar ut that’s kind of lame so I wouldn’t recommend it.  Just get a real URL.  I think it’s important to think about what image you want to portray when you pick your URL name.  It doesn’t need to be short.  You’re not trying to build a consumer website like Mint.com.  My website is a pretty long URL but people manage to find it.  Much of my traffic is through referring websites and/or social media. Some search.  But I chose the URL of the brand that I want to portray.  Both Sides of the Table.  I was an entrepreneur.  Now I’m a VC.  Not rocket science.  What are you trying to convey?  What will be your unique positioning?  Don’t just write a carbon copy of what somebody else is doing.  That’s boring.

So I wrote a post, now what? OK, well, actually the first thing I did is come up with a list of 50 posts that I wanted to write.  I planned it out a bit.  I didn’t want to run out of things to write about in the first 6 months.  So I created a “series” that I could talk about in a theme.  My first series was the slides that go into a PowerPoint presentation.  Since there are 10-12 slides this gave me my first few weeks.  Don’t blow your load on your first post.  Slice it up enough to do many posts.  I think most blogs are between 600-1000 words / post.  I’m long winded – usually 2,000 words.  I know.  I know.  Once you’re written a few posts don’t try to make the flood gates open at once.  Slowly build your audience.  Make it organic.  If you write good content and consistently you’ll build an audience over time.  I’m now at about 70k monthly uniques put the growth has been gradual over the past 9 months – not one great spurt.

How do I build an audience? So you have a few posts live and want some readers.  The obvious starting point is to email a few friends and let them know you have a new blog.  Don’t be overbearing – just an email saying, wanted to let you know about my new blog.  I also recommend you put it under your email signature in a color other than black.  You also should have it be what your Twitter page links to.

Every time I write a post I send it out on Twitter.  I try to send out the Twitter link when more people are online.  I currently do this using CoTweet, which allows me to schedule when the Tweet goes out.  I’ll frequently send two Tweets – one in the morning and one in the evening.  Not everybody sees the first one.  I try to vary the copy sometimes so that it isn’t boring if somebody sees it twice.  Make sure your blog has Tweetmeme or similar.  This means if somebody likes your post and wants to Retweet it they can by simply clicking a button.  To add a post to Facebook button I use a tool called fbShare.me.  You can also sign up for Tweetpost to have your Twitter account automatically update Twitter.  Also, make sure to sign up with Feedburner.  That way people who want to get your blog by RSS and/or email can do so. Make sure your blog also has a Follow Me on Twitter button so people who find you can easily follow you.

The great thing is that the more compelling content you write the more people Retweet you, which drive more traffic to your blog.  Twitter is, after all, about link sharing.  The more they go to your blog and like it, the more will follow you on Twitter.  As you build up that following you have more people to drive to your blog going forward.  Virtuous circle.  That’s the basics.  I’ll write about some more advanced “hacks” at the end of the post.

How much time will it take? If you plan out what you want to write about in advance then it’s really about writing.  I tend to write an outline before I write the actual post so that my writing will have some structure.  I write for about 45 minutes to an hour in the first pass.  I usually then re-read, edit, spell check and add links.  This usually takes another 20-30 minutes.  I then always add an image.  I think this is a nice touch.  Just staring at text is a bit boring and I find that the image can add humor and/or drive people in.  I used to add 2-3 images but that proved too time consuming.

I get most of my images from iStockPhoto.  There are placed to get free images but I don’t like to deal with the creative commons wording and linking and potential that I got it wrong.  I’m fine paying $1-2 / picture.  I know the free option would work well so if you’re on a budget go down that road.  I’ve often thought about trying to crowd-source a copy editor.  I think I would improve my posts if somebody could edit them and make them shorter.  For now, I hope it’s good enough.

Then there’s comments.  You HAVE TO respond to comments.  First, it’s the most fun part of blogging.  It’s addicting like Twitter.  It’s where you exchange ideas with other people.  It’s where your community gets to know you.  It’s where you build loyalty and relationships.  I have met many people in person who were first commenters on my blog.  I find it frustrating if I leave comments on somebody’s blog and they never respond.  I don’t expect responses to each and every comment but there should be some interaction.  Unless, of course, I’m posting comments on a blog like TechCrunch or the Washington Post.  But I remember in the early days Michael Arrington used to respond to comments on his blog a lot.

I’m very particular to Disqus as my commenting platform.  I like the interactivity and ability to have nested responses.  I like being able to have authenticated responders and images.  It helps to get to know people better.  Native commenting systems mostly suck.  Use Disqus.

How frequently should I write? Tough question.  I’m going to assume that like me you have a day job.  If you’re a full time blogger and reading this then you need to go get a real book on how to blog.  This is directed at part time people who are building a blog to support their real business.  I think you should commit to one post per week.  I recommend writing 8-10 before you get started so that you have a backlog in case you get busy.  Sometimes I write 4 or 5 on a weekend when I get time so that I have them for weeks where I’m busy.  One time I set my alarm for 5am and blasted through 12 posts in two mornings and I had fodder for weeks.  That was my “Entrepreneurial DNA” series.  I wrote it on two mornings during Thanksgiving holiday.  Then later I just added images and edited.  Right now I’m writing about 3-4 times / week.  I can’t commit to every day like some bloggers.  And I reserve the right to drop back to 1-2 posts some weeks if I feel busy or burned out.  But my personal SLA right now is once / week minimum.

FWIW, It’s 11:41PM right now.  I wrote this post at about 6:30PM.  I’m editing in bed.  Probably shouldn’t be.  I’m sure if I bought my WakeMate already they’d be telling me not to!

How can I track my performance? First, most blogging tools have analytics built in.  Wordpress does.  Then you can install Google Analytics to your website.  This will give you more realistic stats.  When you Tweet you should use a URL shortener tied to an analytics platform.  The most common is Bit.ly.  I use awe.sm.  Awe.sm allows me to track more granular details about my campaigns than I can currently on Bit.ly and it’s where I got my custom URL’s grp.vc and bothsid.es.  You can also track how many people sign up on Feedburner.  I try not to obsess too much about the ins-and-outs of daily or weekly performance.  I just want to know that I’m building up a slow and steady audience. It’s a marathon and not a sprint.

Appendix: Traffic Hacks:

• Commenting on other blogs – you need to comment on other people’s blogs.  First, it is a place where your comment will often link back to your blog (such as on TechCrunch) where it can drive traffic.  Occasionally, and not overtly, and only if relevant you can provide a comment with a link back to an article in your blog.  Don’t do this often, don’t be blatant and make sure it’s relevant.
• Linking to other blogs – For example, many people know that I love VentureHacks because it’s a great resource for entrepreneurs and I finally met Babak Nivi (aka Nivi).  Notice I’ve linked to his website.  If he tracks his blog (which I’m sure he does) he’ll see this link.  If he has a Google Alert on his name (everyone does) then he’ll also get that.  Don’t stalk people and link all the time.  If you do link make it relevant.  Don’t be over the top gushing and creepy.  Be subtle.  Link to different blogs.  Don’t overtly tell everyone you link to, “I linked to you, check out my article!”  Assume that over time if you write compelling content they’ll eventually check you out.  I do notice when people link to me or write about stuff I’ve written about.  I try to check out most of them.  Sometimes I get busy.  Every few I try to stop by and leave a comment so that they’ll know I’ve been there and I appreciate the coverage.  Sometimes I just read the blog and file it away in memory to check out another time.
• Covering relevant people in your blog in an authentic way – If your blog covers topics in your industry it’s likely that you’ll be able to write about some people and companies that you want to be aware of your blog.  Yesterday I wrote about Plancast.  I love their product.  I don’t have any reason to drive Mark Hendrickson to my blog but using him as an example, writing a story about Plancast would make it more likely that the founder would find his way to my blog.  I chose not to write about companies for a long time on my blog.  My strategy was to keep it advice based for the first 6 months so I never really employed this as a strategy to drive traffic.  But I know it works.
• Tweet support - What I DID do in the early days is enlist Tweet support.  I would occasionally ask people that I was close with to retweet my posts.  I tried to mix it up in order to not ask the same people often.  I would send out emails with the Tweet text already written so that they just had to cut-and-paste.  As my blog started getting authentic traffic I stopped asking for this help.
• Guest authoring – Once you have a bit of credibility as a writer a great strategy to drive traffic is to write guest posts for relevant bloggers in your sphere of influence.   If you run BakeSpace and blog about food why not contact some of the local food blogs and see whether you could submit guest articles.  Most people are delighted to have the free content.  In return all you ask for are links back to your blog and to your Twitter account.  Slowly and surely these will add users, of which some will come back on a regular basis.

I’ve been enjoying using Plancast over the past month or so.  I’m not an investor and though I wouldn’t rule it out in the future I’m not currently looking at the company.

Just wanted to get that out of the way up front so I won’t look like a vested-interest fanboy.  In fact, for the research of this post I just noticed that they announced funding today – congrats.

I’m loving the product.  It’s not perfect yet – no V1 product ever is.  But for the stage of the company I think they’ve done an awesome job.  Plancast is a product where you list what upcoming events you’re planning to attend.  This is then searchable by anybody who is subscribing to your feed.  It is modeled on the now popular Twitter asymmetric following model where people can follow you and you don’t necessarily need to follow them back.  I had dinner with the CEO, Mark Hendrickson, last week and he told me the positioning, “FourSquare is to publish what you’re doing now, Plancast is to share what you’re planning to do in the future.”  Clever positioning.

Plancast for me fills an important need.  I don’t live in Silicon Valley so I’m not always around the proverbial water cooler hearing about what the upcoming tech events are.  I like to scan Plancast occasionally to find out what others are planning to do.  I’m actually not one of those guys who’s on the circuit at every event but I still find it useful to have a good mental map of what’s going on and be able to plan out for my future.  I think the product will comport to my view of most of these user-generated content sites where 1% of people are uber-users, 9% are occasional users and 90% are lurkers.  But the lurkers get tremendous value out of knowing what others are up to.  So I basically just log in and find out where Dave McClure is going to be.  He’s usually more in the know than I am.  And has more frequent flier miles.

I hope more tools like this spring up.  I’m a big fan of social discovery.  Tools like this that allow you to track what’s going on in your social networks and one-step beyond them are really powerful.  It’s not only great for planning out my event calendar but also when you pop into a city on last minute travel and want to know if anything professional is going on it’s useful to check in with Plancast.  I’m not knocking FourSquare which seems to be doing great.  But frankly I’m a lot more interested in where you’re going to be then where you are now.  And I don’t really have any interest in knowing where you’ve become the mayor.  Not even remotely.

I believe social discover tools will continue to be a big driver of traffic to events and I wouldn’t be surprised if they also morphed into rating systems after events.  Who knows, maybe one of these guys will finally kill off evite.  What I like about the asymmetric nature is that sometimes I want to know where my friends are going and sometimes I want to know where key people from industry are going.  Both are useful.  And sometimes I just want to know where Dave McClure will be turning up next.

One of the questions I’m most often asked is, “what’s it like being a VC?”  I’ve been a VC for nearly 3 years now.  Since I answer this all the time anyway I thought it might make an interesting blog post.  I always start my answer to this question with, “you’d have to be a pretty big baby to complain about being a VC.” That’s true.  Here’s why:

1. I get paid (well) for interesting people to come in and tell me how they want to change the world – Being an entrepreneur is like having blinders on.  At least for the best entrepreneurs.  Some people do the conference circuit too much, get involved in lots of side projects and attend every entrepreneur dinner.  For me that’s always a bad sign.  When I was running startups I felt like a horse with blinders on because I was super focused on the content management market and ignored many other markets.

One of the things that I’m loving about this side of the people is that it really satisfies my intellectual curiosity.  People come into my office several times per week and tell my about their plans for changing the world.  They outline the problems that exist in markets, their approach to the solutions, they update me on competitors and they show me their economic models.  We have debates about how the industries will change / evolve.  It is the equivalent of going to a coffee shop every day and having intellectual debates.  In fact, I often take meetings in coffee shops.  I LOVE this part of my job.

2. If I’m interested I get to spend more time with them, if I’m not I don’t have to – A few companies per month come in that have fascinating business ideas that warrant my spending more time trying to understand their people, company, technology and market.  I get to do a deep dive on their business model, product roadmap and competitive positioning.  If I  meet a company that I don’t find very interesting I don’t have to spend any more time with them.  I’m not saying I don’t spend time trying to help entrepreneurs that I am not planning to invest it – anyone who knows me can attest to the fact that I do.  But let’s face it, as a VC you spend time with whichever companies you want.  As a CEO I had to spend tons of time with clients who ran business operations that were uninteresting to me.  It was my job to be interested.  No more.  You’d have to be a big baby to complain about being a VC.

3. I have no quarterly sales targets for the first time in a decade – For anybody who’s ever been in a company with sales targets you can attest to what a fire drill the ends of March, June, September and December can be.  Not any more for me.  It’s liberating.  I will obviously be judged on my performance.  But it’s measured in years and not quarters.  Don’t get me wrong – I still feel the pressure to ensure that the companies I’ve invested in perform well. So I spend much time with them and trying to help.  But there’s a big difference.

4. I get paid to network – I love meeting people.  When I go to conferences I never sit in the meeting section – I always cruise the halls meeting people.  That’s where I meet interesting people who tell me the truth.  On stage you hear people giving you the marketing version of their company.  I get to politely ask the questions you’d like to ask like, “what were your revenues, how much money have you raised, what are your plans going forward?”  I only do this when I’m interested in the company and when they’re interested in me.  But in these circumstances these are all fair (necessary) questions.

Also, my job doesn’t involve the daily grind of customer complaints, product outages, business partner / channel problems, hiring / firing, etc.  I work hard, don’t get me wrong – more than you might think.  No “golf Wednesdays” for me!  And the VC job has plenty of admin and minutiae.  But I’m a people person and I get paid to spend lots of time with people.  I get to network with angels, VCs, entrepreneurs, lawyers, etc.  I love it.

5. I go where I want, when I want – I can’t overstate the importance of this in my life.  I worked nearly a decade as a consultant – first building large scale IT systems and then doing strategy consulting.  Then I spent many years as a startup CEO.  I was always in a “service” industry.  That means you’re always operating on the client’s schedule.  You get on a plane at a moment’s notice because a senior customer agreed to meet you.  You call in from your vacation because you’ve had a service outage.  I went to Ibiza in Spain with my wife and in-laws before we were married.  They couldn’t believe how much I was on the phone.  We were in the final phases of acquiring a business and I couldn’t just say, “I’ll call you in 7 days when I’m back on the grid.”  There are still time pressures on VCs, so that hasn’t changed completely.  But I do go where I want and when I want a lot more than I used to.

6. I have a T&E account - Enough said.

7. I love spending time with entrepreneurs in the “romantic phase” – I love the startup phase of a business where we’re still romantic about our dreams to change the world.  The problems are much more manageable.  Once my company got to more than 100 employees I felt like I became “chief psychologist.”  That was fine but I prefer the earlier days.  As a VC I spend tons of time with companies at an early stage in their business.  And in stead of one set of issues to deal with I get the variety of discussing issues with many teams.  That’s fun.

8. We have very small teams – When you’re in your twenties you aspire to manage teams.  I think it’s seen as a sign of making progress in your career.  The idea that people “report to you” must validate some primal need.  In your thirties you realize that managing people means you have less time to work on the things that you want to do.  You have hours sucked up in one-on-one feedback sessions, annual or semi-annual performance reviews and you end up spending a lot of time resolving conflicts across your team members.  I still like spending time with our teams – at GRP Partners we have a great team – but I don’t have large numbers of people to be responsible for.  If I decide to take a last-minute trip to spend 2 days on a company due diligence session nobody is wondering where I am.  You’d have to be a pretty big baby to complain about being a VC.

Still, the truth is that I miss being an entrepreneur all the time.  Here’s what VCs don’t get fulfilled now:

1. We sit on the sidelines – The down side of VC is that exact same as I remember in consulting.  Too many VCs see their entrepreneurs almost like pawns.  They speak of “my CEO’s.”  They talk about how this company failed because the management team didn’t listen to my advice and that one succeeded because we helped point them in the right direction.  I think realistic VCs know that we only have an impact at the margin.  Maybe 10-15%.  That’s why picking great teams is so important.  And I think that too many VC’s don’t realize that the entrepreneurs are our customers – but that’s a separate topic. I hate not getting to own results.  We have a great board chat and talk about our strategic direction but then you go out and execute.  You get the good and the bad.  Those high highs and low lows are your own.  You live them, breathe them.  We live vicariously through you.  It’s like the manager of a basketball team.  We secretly wish it were us that got to take that 3-pointer with the clock running out.  And we’d love the rush of the teammates holding us in the air if we sank it.

2. There is less team camaraderie – I really get along with my partners well.  I knew them for 8 years before I joined GRP.  We end up out a lot at events: dinners, cocktail parties, conferences.  We travel together.  We spend the entire day together on Mondays in our partners’ meetings and seeing companies present.  Still, it’s different in a startup.  When you’re preparing to launch your company at TechCrunch50 and everyone pulls all nighters for the days leading into it you’re building much deeper camaraderie than exists inside of VCs.  When your site crashes and you get slammed by customers and in the press – you’re all in the sh*tter together.  There is something about the relationships you build in those times.  About 1 year in I asked many VCs about this and the feeling was nearly universal.  They said, “yeah, but we get that through our board interactions.  We build camaraderie there through the shared experience.  That’s true.  But it’s not the same.

3. I have to say “no” all the time – As an entrepreneur you’re used to hearing that what you’re doing won’t work and you turn up in the office every day to prove them wrong. My first company was a SaaS business in 1999.  Everybody said that companies would never put their documents “in the cloud.”  I was sure they were wrong and had the debate weekly.  As an entrepreneur you’re always focused on the “how can we find a way to make the impossible happen?”  People said that Google was going to dominate this market – we know we can do a better job.  You know, the Apollo 13 moment.  As a VC I’m required to say “no” ALL THE TIME.  I don’t enjoy it.  We get thousands of business plans per year.  I meet hundreds of companies.  We can only do a few deals per year.  Definitionally we say “no” many times per week.  I was with a very prominent VC on Sand Hill Road this week.  I always ask other VCs there thoughts.  He said the biggest disappointment since he moved over to VC was Tuesday mornings.  That’s when the calls go out every week to say, “I’m sorry but we’ve decided to pass.”  It’s much nicer to say “yes.”  [thank you to Tereza for reminding me I left section this out]

4. We are in a “get rich slowly” business - OK, I’m not complaining.  But I think many entrepreneurs have a misconception about this.  True, we’re paid better than many startup executives on an annual basis.  But I know many young partners in this business who have never gotten a “carry” check.  The upside for entrepreneurs is the equity in their business.  The upside for VCs is this carry.  If you have a $100 million fund you don’t get paid your carry until you return the initial money to your investors and then you typically get 20% of the profits above this threshold.  Well, since the industry hasn’t performed well in the past 10 years you have many younger partners who are still waiting for those checks.  That is in stark contrast to the late 90’s goldrush where VC partners made millions overnight as their companies IPO’d for crazy valuations.  On the positive side, we have a portfolio and therefore more diverse chances of success.  But there is no “sell early” option for VCs where a $20 million exit could change our lives.  But we obviously choose this side of the table. You’d have to be a pretty big baby to complain about being a VC.

Overall, I’m very happy on this side of the table.  I try to get my entrepreneurial fix in other ways:

1. Running a local community / mentorship program – I run a group called LaunchPad LA.  We’re gearing up to make big announcements about our second year program.  I’ll write about that in a couple of weeks.  I get to help control direction, make decisions and own results.

2. Writing this bl0g – This blog is a huge creative outlet for me.  I get to choose what I write about.  I might be controversial some times and get flack.  Other times I might get great results and approbation.  I can publish daily for weeks or not publish at all for a month.  I own the results.  I’m enjoying the chaotic creativity that comes with blogging.

I attended the inaugural Open Angel Forum in Los Angeles back in January and wrote about it here.  Jason Calacanis started this initiative in response to the pay-to-play network of angel events that he despised.  I’m a huge supporter of his initiative to help end this practice.

The first event was a big success and brought out many of LA’s angel elite.  It also attracted some big names from the Bay Area.  I know of at least 2 deals from that cohort that are either funded (Backupify) or nearly funded (can’t really disclose, I’m not sure if it’s yet closed and/or announced. But I loved it).  These were my favorite two deals of the night and everyone I spoke to liked the same two deals.  Some people liked the others but there was much consensus quickly.  This showed me that the system worked well.  Jason & Tyler brought forward 5 high quality companies and super high quality ones rose to the top and quickly got funded.  Success.

The second event was in Boulder.

Tonight’s event at the 5A5 Steak Lounge in San Francisco was even better than the LA event.  This was in large part due to the marketing efforts of Jason that created a great top end of the funnel (100+ companies applied) and the herculean efforts of Tyler Crowley who spent days going through all of the submissions and serving up 5 very interesting companies.  Also, the angels (some of whom are listed here) were very knowledgeable and insightful.  The San Francisco events will be run by Chris Sacca (of Lowercase Capital) and Kevin Rose of Digg.

There wasn’t a bad company tonight but I had a clear favorite.  I suppose I should keep it to myself but I guess Jason will be helping to hype up all the companies anyways.

My personal favorite and best fit for GRP Partners was Thumbtack.  Marco Zappacosta served up a cogent, business focused and nicely demo’d pitch of their product.  Thumbtack is marketplace for local services.  Like TechCrunch50 winner RedBeacon they solve the problem of people looking for local services – plumbers, nannies, contractors, etc. – and provide a way to facilitate a match between vendor and person needing service.  They’ve done some clever things to improve the trust factor like doing background checks and other verification techniques to improve the trust people have in working with service providers.  I’d be SHOCKED if they weren’t funded pretty quickly.  Watch this space.  Then let’s hope both startups can build national practices.  For me the sooner we get this stuff out of Craigslist and into real systems the better.

Team Pip.io had a very ambitious project.  They called themselves a “social OS.”  Essentially I see it as two things: 1) an aggregator of social content from multiple places including Twitter, Facebook and soon even Gmail.  It has some similarities with Brizzly in this regard.  It serves a similar role as Digsby (which I love using) albeit from a social media metaphor rather than an IM metaphor.  In addition they are a platform (the OS part) where they’re encouraging developers to build third party apps on their platform.  The pro’s (for me) – the UI was simply beautiful.  The idea of aggregation is powerful in a world where your social communications are fragmented and increasingly hard to manage.  The potential risks – trying to achieve too much (complexity / breadth of scope worried me a bit), they didn’t seem to have a tight enough use case that they were doing better than anybody else (again, possibly too broad).  Overall, exciting team.  They may figure out something interesting and get focused over time.

As I’m sure Pip.io would acknowledge – they needed to get to the demo more quickly.  They walked through 4 minutes of PowerPoint garble (of a 5 minute pitch) before unveiling a beautifully designed UI.  Jason let them run over their time slot by a long time – the demo was worth seeing and he obviously knew this.  I wrote about how to give demos in a previous post.

The two most ambitious projects were ThereNow and IQ Engines.  ThereNow has build a platform (physical camera + software platform) to help remote coaches help improve teachers.  They ‘re cameras have the ability to show 360 degrees and can zoom closely.  The classroom activities are recorded and the video is appended with comments from a remote coach.  Ambitious goals.  My concern: teacher’s union and lobby.  In a system that so clearly should be “pay for performance” and is not – a tool like this could go a long way.  The problem is that to really fix education you’d need to reform incentives and pay in addition to better teacher training.  I for one will be routing for them, though.  The government has already given them millions in grants so it’s a good start.

IQ Engines is an image labeling and photo recognition platform that relies partly on technology to identify photos and party on a crowdsourced team of people who review the photos and tag them with the idea of the system learning and automatically becoming better through the process.  Having watched the history of Riya / Like I was a bit cynical of the ability of this group to get the image recognition to a high enough quality level.  That said, they have 9 PhD’s and 4 MBA’s on the team.  They have received grants from the NSF.  So if it doesn’t work it certainly won’t be for lack of intelligence!

Last two companies were Xachi Pet and Udemy.  The former is a toy / games company that merges the offline and online world in similar ways that Tamagotchi and Webkinz have in the past.  In this case it is novel because kids download iPhone game apps for free to play with them. The game then suggest that to super power them you can order a Xachi Pet for $40 to be sent to your house.  The game then interacts with the physical world product.  Pretty cool.  I love concepts that merge physical world and virtual world games.

Udemy is an online education platform similar to EduFire and others.  I first met the team at TechCrunch50.  They have come a long way since then.  Their product direction and demo increased 10x.  Still, I think that to succeed they really need to focus on vertical niches where they can differentiate and have more focus on content quality and user acquisition.  Given how much progress they’ve made since last year I look forward to tracking them and seeing where they end up by the end of 2010.

Finally, it was a real pleasure to meet Manu Kumar of K9 Ventures.  It’s always great to meet somebody in person that you’ve interacted with on blogs and on Twitter.  I was impressed with his knowledge and thinking after every presentation.  Also enjoyed sharing notes with Joshua Schachter who sat next to me.  Big thank you to Caine Moss of Wilson Sonsini and the chap from the LA recruiting firm who didn’t bring business cards (which is why I can’t remember your name – sorry) for sponsoring the event.

** Yes, the image above is from TWiST and not Open Angel Forum – but it’s the only one of Jason and Tyler together that I could find on the Internet.

Many of us in the technology, media and VC world sit on panels at lot.  Many of them are painfully boring.  It’s a shame since it’s such a golden opportunity for you to build awareness with your audience for who you are and what you do.  And it’s a surprisingly great way to meet people in this industry who share the stage with you. (photo from left to right: me, QD3, Brian Solis, Chamillionaire, Ian Rogers and Brian Zisk – most of whom I got to know through Twiistup panels)

I have written about the topic of sitting on panels before.  I sat on two panels in the past week – once at LeadsCon (** see appendix if you’re interested in a back story here) and today at the America’s Growth Capital conference.  So it’s fresh on my mind.  Hope I won’t be too repetitive.

Here’s my views on how to maximize your time on stage:

Give (your contribution)

1. Educate – Your primary role on stage is to educate the audience.  People have paid good money to be at the show and often times it’s to hear people like you speak.  It’s your job to know thy audience.  And thy topic.  Try to find out in advance the make of of the people who will be attending.  Things to know: mix of entrepreneurs, big tech company execs, service providers, media people, VCs, etc.  It would be good to undertand size of companies.  Make sure you really try to get inside the minds of the audience so you speak about what you believe they will think is relevant.  Obviously it should be closely aligned with what the topic of the panel is.

Tip: On panels I believe it is OK for you (even as a panelist and not moderator) to say, “I want to understand whom I’m speaking to.  Can I get a show of hands for how many people are X?  Y?”

Tip: It is always a good idea to save time on the panel for audience questions.  This is the moderator’s job but it doesn’t hurt to ask (read: remind) them before hand if there will be audience Q&A at the end.

Tip: It is always a good idea to email the other participants in advance with topics of discussion and alert the moderator if you’re worried about the direction it might take.

Tip: Get the audience to respect you for your content contributions.  Make sure they know your name, your company and what you do.  No more.  Don’t oversell or over market.  It will always be viewed in the eyes of the audience as unbearable.  The exception in my mind is if the topic of the panel warrants you talking about how your business operates as part of the learning experience.  But try to make it a functional discussion rather than a marketing pamphlet.

2.  Entertain – It is also your job to entertain!  I’m sure not everybody will agree with me on this one.  But let’s face it, on most panels a large number of people in the audience are surfing the web, doing Tweets, checking email, playing with their iPhones, etc.  It’s because they’re BORED.  You can’t show up with your monotone voice and have a deeply intellectual discussion like you might over brandy and cigars.  You’re on stage! Show energy and enthusiasm.  If you’re capable of it show some wit.  (If you’re not, don’t try. Nothing worse than bombing).  If you’re a nervous speaker bring bullet point notes.  If you’re really nervous join Toastmasters.

3. Have a dialog – I find the most enjoyable panels are ones in which the panelists engage in a dialog.  The worst are the ones where the moderator just asks questions and you go down the line answering each one until the line of people are finished speaking.  When somebody on your panel makes a point to hesitate to politely ask them a question that let’s them clarify their point a bit.  You can also politely jump in with, “that’s a great point.  We had a similar experience …” but if you do this obviously be respectful that you’re not cutting them off too early.  Let them get enough air time first.  When you do this it’s also a good idea to not have a commentary to another person’s point where you then talk for 5 minutes.  It should just be a quick comment / thought.

I also don’t think there’s anything wrong with a little bit of friendly controversy.  That was always the rule when I lived in the UK.  A panel without controversy was boring and a wasted opportunity.  The audience always likes this a bit.  It spices things up and makes for great entertainment.  If you’re nervous about trying this then go to your fellow panelist before hand and try saying, “hey, do you mind if I try to add a bit of friendly controversy to the panel to get the debate going?  I’ll try my best to do it respectfully.”  Obviously if they prefer not to then don’t.  And, yes, I probably take a little bit too much license with this particular advice.

Get (what you get out of it):

1. Awareness of your brand – You get so much out of being a great speaker on a panel.  I highly recommend it to all companies.  You get to earn credibility as an expert in the topic area.  People at the conference become aware of who you are.  If you say clever things the attribute positive feelings about your company even if they don’t really know what you do.  It serves as a great conversation piece to meet people the rest of the conference.  People will say, “oh, I saw you speak on that panel.  I liked what you said about X.”  It’s a free ice breaker for the rest of the conference.  It’s “earned media.”

2. Business Cards of fellow panelists – Make sure to grab everybody’s business cards.  They’re mostly wired to expect that you’re going to ask so don’t be shy – even if they’re in a league above your pay grade (the best kind of panels).  One of the most surprising things I learned over the years is the kinship you build with other individuals when you simply shared the stage for an hour.  Particularly if you were articulate and made relevant points.  It really is a great way to get to know people.  My recommendation is if possible ask for the business cards before you start speaking.  Afterwards everybody rushes the stage so it’s harder.  If you all arrive a bit late and you don’t have time to grab cards then immediately when the panel ends ask for cards before the herd arrives.

3. Follow up! – Obvious, right?  You’d be surprised how few people do this.  I’ve gotten to know so many people over the years through panels.  At LeadsCon I sat on the panel with Saar Gur, one of my favorite people to spend time with when I’m in NorCal.  Well, maybe we got a bit too friendly on this panel But I actually first met Saar on a LAVA panel in LA.  Afterwards we exchanged cards.  I called him on my next trip to Palo Alto.  From there we just started to get to know each other.  At LeadCon we grabbed 2+ hours, which I really enjoyed.  I never would have known him were it not for the LAVA panel.  Tomorrow I’m going to see Aydin Senkut.  I first met Aydin at a DealMaker Media event where, you guessed it, we sat on a panel together.  I won’t bore you with a laundry list, you get the point.

Avoid:

1. Speaking on panels with too many members – This is a waste of your time.  I have a rule about this.  No more than 5 people on the panel.  I prefer 4.  If there’s more people then you’ll end up not talking much, there will be limited back-and-forth conversation and you won’t get to know anybody.  I find these panels to be low value add for all involved.

2. Over promotion of your company – For some people it’s tempting to be an marketing automaton.  Don’t.  You’re better off with the earned media and the relationships.  Nobody remembers many of the details of what is actually said in a panel discussion anyway.  But they remember the impression they formed of you.  People generally don’t like over promoters who don’t add to the discussion.

3. Long winded intro – I really like when the moderator asks people to limit intros to 30 seconds.  Nobody is there to be “educated” about your entire career history or have a long-winded description of your company in the intro.  Keep it short, sharp, punchy and high energy.

4. Hogging minutes – The other annoying thing on panels is the “over talker” or the person who always has to answer the question first (the way that annoying kid did back when you were in elementary and high school).  Don’t be a wall flower – you should get in your minutes.  But don’t crowd out other people.  If your goal is to sit on panels with important people and build a relationship with them you won’t achieve this by not letting them speak!  (you might think you won’t do this either by being controversial – I think if you learn to do controversy with humor and tact it’s OK.  Just my view.)  Also, when it’s your turn to speak don’t speak for too long in any one question.  People prefer snappy answers to questions.

5. Being a player / manager (aka moderator with an agenda) – Moderators are moderators, not panelists.  That’s why they gave you your own special title.  You’re not a player / manager – you’re a manager.  Understand your role.  Don’t answer your own questions or ask questions that are secretly statements to show how smart you are.  Earn respect of the audience be well thought through questions.  Keep panelists on their toes by not letting them speak too long on any one topic.  Try to get a discussion going amongst panelists.  Get the audience involved.  You are the conductor.  You control the tempo.

** Appendix (only if you’re interested in a story)

At the LeadsCon conference I actually made one pretty big error.  I turned up at the MGM Grand for the conference and they didn’t have my name on the registration list.  I spoke with the lady for 10 minutes while she looked for me in the computer.  I finally said, “I’m just going in – I’m supposed to be on a panel,” to which she replied, “Are you with IBM?”  Me: “No, why would I be with IBM?”  Lady, somewhat frustrated with me, says “Because this is an IBM conference.”  DOH!  Jogged to get a cab.  Arrived at the right hotel (The Mirage).  Jogged to the conference area.  Arrived to a room of several hundred people and 5 guys on stage already 5 minutes into the discussion.

Not a good start, right?  I tried to alleviate the situation with humor.  When asked to introduce myself I said, “Hi.  I’m Mark Suster.  I’m a venture capitalist.  I’m late because I went to the wrong hotel.  Obviously you don’t have to pass an IQ test to become a VC.”

I tried to be respectful of the other panelists and not drive the agenda of the discussion too much in the beginning.  They got into a really esoteric conversation about the EBITDA multiples of publicly traded companies.  It went on for ages and was now 25 minutes into the session.  The VCs were silent most of this time.  It wasn’t relevant to us.  I couldn’t see how it was relevant to a room full of people, most of whom would never IPO.  I was having an ADD moment. I started looking around the room and noticed a bunch of people on their laptops, iPhones and Blackberries.

I finally couldn’t bight my lip any longer.  I blurted out, “I’m not sure how this is relevant to a room full of leads people?” [totally shocked looks all around]  ”How many people in the audience are from companies of 100 people or more?” Very few hands.  ”How many are from companies of less than 20 people?”  Most of the audience.  OK, so now I thought I knew what was relevant.  They must all want VC, right?  I said, “how many of you are looking to raise money in the next 12 months from investors?”  Still, very few hands.  Um, wow!  What next?  This prompted Dave McClure to Tweet this.

By now the bankers are seething at me.  The moderator (rightly so) was also perturbed.  I didn’t handle this as well as I might have but I just kept thinking, “if I’m bored sh*tless and this is my business, I wonder what all of these people in the audience are thinking?”

So I suggested that we ask the audience what they wanted to hear about.  The moderator was respectful enough to do this (even though I’m sure he wanted to ring my neck).

A good discussion emerged.  I personally feel that the quality of the rest of the panel was much better for the audience.  Was anybody there?  I’d be grateful if you added comments below on how the session went.  Did the panel improve or get worse?  Please don’t feel you need to be nice to me – I’d love real feedback if you were there.  Criticism is fine.

I know that I could have / should have handled the whole situation better.  I have a small sense of regret that it had to come to this.  It was a bit of fun, though.  Except when the really tall banker got in my face after the panel.  I apologized.  I hope he accepted.  He was a bit bent out of shape.  At least for a few tense moments people stopped playing with their iPhones.

(Photo in the banner taken by (cc) Kenneth Yeung – http://www.thelettertwo.com).

After a few days of controversial blog posts I thought I’d try something more light hearted today.

Fred Wilson once wrote about the topic of how to introduce two people who don’t know each other via email.  He called it the “double opt-in introduction.”  He talks about the stuggles of email introductions when you’re dealing at scale.  His solution (if I understand it correctly), which I think is more aspirational than achievable is for the introducer to send out emails in advance asking whether or not they want to be introduced.  I like that.  But for me personally the extra overhead of this means that I can’t do it 100% of the time.

My 2 cents:

• If I feel that I know the person well for whom the introduction is being asked (e.g. the recipient) and if I feel quite confident that they’d want the introduction then I usually go ahead and make it without asking in advance.  I use my best judgment.  I often say to people, “let me know if you want these kinds of introductions in the future” in a separate email or verbally.  Sometimes I forget to ask.
• If I am not sure whether they would really want the introduction then I’ll send them an email in advance asking if they want an intro (the opt in).  This obviously adds overhead for me but there are certain people for whom I don’t know if they really want this kind of intro and these people are also usually very busy.
• I try my best to respond to every intro I get.  That doesn’t always mean I always have time for a meeting.  But I usually at least try to do a quick phone call.  If it’s really not relevant I’ll politely say so.
• If I get inappropriate intros I’ll usually accept that one intro but send an email to the introducer and explain to them why this wasn’t a great fit.
• Like Fred, on average I take more of these than I probably should.  It means I have less time for stuff I’d like to do.  I figure if somebody who I know has gone out of their way to introduce somebody else to me I try my best to honor the relationship that the introducer obviously has with the person being introduced.
• I hope some day to emulate Brad Feld in this area.  One of the first times we spoke he told me that in his first few years in VC he ended up taking a bunch of meetings with companies in which he knew he would never invest.  He became the “turn down” guy in his fund.  He said he found it terribly non-productive because he preferred to reserve time for companies in which he was likely to invest (or portfolio companies).  As he now invests in “themes” it is easier to politely turn down intros that aren’t relevant.  I’m not there yet – I’d like to be some day.  It’s not for elitist reasons – it’s simply a volume problem.

From his blog posting on “Why Am I passing?”

“Over the years – I’ve come up with a set of filters to quickly turn down deals.  This is an important process as I want to limit the time I spent investigating companies that I don’t investment in.  Rather – I want to maximize my time working with my existing portfolio companies and quickly / deeply evaluating new companies that have a high chance of us funding them.

My first pass filter has three parts to it.  The top level filter is “is this in a theme that I’m currently interested in.”  If yes, then I try to determine whether or not I think the people involved can create a huge company.  If yes, then I often at least spend some time going deeper.”

• One area where I have made in-roads is in the “I’d like to buy you a coffee for 15 minutes and get some career advice” emails from people I don’t know.  I really do like to help people so in the early days I took some of these.  I simply can’t fit in the time any more.  So I often advise these people to find me at a conference and I promise to spend time with them there.  I’ve already allocated that time as “general networking time.”  I’ve developed a system for the polite “no” in this context.
• Due to the high volume of intro’s occasionally one falls through the crack.  This is mostly when it comes in on a “bad email day” (e.g. when I’m in meetings the entire day and have an event in the evening) followed by another one.  I try to minimize these.

But I’d like to add one new item to the conversation I’d like to highlight to everybody a trend that I’ve been noticing over the past year and I’ve really been liking.  It’s called, “I’m moving you to BCC.”

• If you are the person receiving an introduction you will hopefully respond
• You want to include the person who made the introduction in your response so that he/she knows you’ve followed up
• The problem is that this person often gets caught up in all of the back-and-forth email exchange – usually nothing more than the logistics of setting up the meeting.  Huge email overhead.
• If you receive an intro you should move the person who introduced you to the BCC (blind copy) line in your response.  That way they know you responded but any follow up emails where somebody hits “reply to all” will avoid copying them on the follow up – freeing up that person’s email box.

So if you provide me with an introduction, it’s very likely that “I’m moving you to BCC” when I respond.  You should try it, too.

Have you subscribed yet to my feed on Feedburner or do you want it delivered by email?  I know that people prefer to use Twitter as their RSS feed these days but wanted to remind anybody else that you can still get the traditional feed.

I was going to save this post for a while but the “Patzer Problem” meme has forced my hand.  I, for one, am with Rob Hayes of First Round Capital on this one.

“If we are doing things right and our company founders are successful, then over the long run we should be successful. If we get to the point where our founders are successful but we can’t be, we should be rethinking our business.”

I have a philosophy.  A thesis.  An entrepreneur thesis.  I’m not talk about the age old debate amongst investors whether you back entrepreneurs, markets or products (or as many people like to hedge – product / market fit).  I’m unequivocal on that topic.  It’s entrepreneurs I back.  I’m on the record as saying I’m 70% management, 30% market.  We’ll have that debate another day, I promise.

Today’s post is about my investment thesis.  It’s what I call the “entrepreneur thesis.”  My investment philosophy is to back the best possible entrepreneurs I can and to stick by them through the growth (or sale) of the company.  I’ve outlined already what I believe makes a great entrepreneur and I’ve stated unequivocally that this is a subjective view of what it takes.  But when I’m looking to invest the dollars that my Limited Partners have entrusted my firm with I’m going with my view.

So what is this “entrepreneur thesis?”  It’s the view that I back great entrepreneurs and help them pursue their dreams no matter what.  Sometimes this will mean we collectively double down and try to build a bigger business and sometimes it may mean selling earlier than I had thought we would.  I know this sounds Polly Anna-ish.  I’m not just writing that “I love entrepreneurs” to curry favor with startup CEO’s.  Anyone who has ever worked with me knows that I’m no pushover and I’m certainly not a wallflower.  I’ll argue my point vociferously.  But I don’t believe in betting against founders.

Let me explain.

A few years ago I was having dinner with a friend of mine who works for one of the biggest known Silicon Valley firms.  He was telling me about a deal he had done.  He invested $8 million in a company in the computer networking space.  They had an offer to be acquired for $80 million, which would have dramatically changed the lives of the founders forever.  My friend blocked the deal.  It was “only” a 2.5x for him.

His logic was, “when I invested the management team knew that I wanted a multi-hundred million dollar exit so they shouldn’t be surprised.  This return won’t be enough for me to justify to my partners.”  I literally said to my friend, “You’re a dick.  Do you not see the consequences you’ve weaved?  You’ve now got a management team that hates you.  They hate you for life.  They will tell every other entrepreneur in town not to work for you.  Presumably they are talented if they created a company worth $80 million.  They’ll never work with you again.  Nor will any of their friends or colleagues.  Are you that short sighted?”

I kid you not when I use quotes there.  My wife was really uncomfortable because she was there and so was his wife.  I’ve known this guy and his wife for a LONG time.  My wife was actually mad at me for being so blunt.  But she knows it’s a character flaw of mine so she forgives me (I hope).

To this day I still don’t understand what he was thinking.

I’ve had the conversation of what will happen upon an exit with founders so many times I feel like a broken record.  Before I outline my views let me give you one more story.

In 2006, Steven Dietz, a partner at my firm, GRP Partners, had given me $500,000 in a seed in convertible debt when I started my second company, Koral.  GRP Partners had also funded my first company.  I had an offer to sell my company to Salesforce.com in 2007.  Steven knew that from a fund perspective he wasn’t going to earn the amount of money that a typical VC might look for since we were selling early.  But he also knew that it would change my life forever.  He was grateful since I stuck with my first company, BuildOnline, well beyond when others would have (since I had taken great dilution during the dot com bust.).  He decided to let me earn.  I will never forget that.

So it was kind of obvious when Steven and Yves Sisteron (the partner on my first deal) offered me a role as a partner in their firm that I would work here.  I knew that we were aligned intellectually and ethically.  I had initially called them wondering if they’d fund my third venture.  I never imagined I would switch sides of the table.

So, to my thesis:

1. Work with the best at early stages: I’d like to get involved with capital efficient companies early in their lifecycle.  I want to back entrepreneurs that I believe have similar ethical values, are fun to work with, trust me, have big aspirations, are willing to work hard, are smart and want to have an impact on the world.  I want to see small amounts of money go in and I often tell these entrepreneurs, “I don’t have a goal for you to come back and quickly ask for more money.  Go slowly if you need.  Spend wisely – you need to “grow into your valuation.”  And by investing smaller amounts at early stages I am impacted if a quicker-than-anticipated sale happens.  I view this as The Patzer Opportunity.

2. Go in planning for a big outcome: I tell each person that I am going to work with the same story.  I hope to build a billion dollar company with them.   GRP Partners has created more than a dozen of these so as a firm we know something about creating big companies.  I don’t go into deals with a plan to sell for $20 million.  $100 million at least.

3. Keep options on the table: I believe in my bones that entrepreneurs shouldn’t “over raise” capital.  They should right size their capital raises.  That doesn’t mean being cheap.  That doesn’t mean raising the least amount possible.  But it means not over raising money.  I know I’m being vague.  Each situation warrants different amounts.  But let me give you an example.  If you can raise $2 million or $10 million up front (maybe you’re a hot entrepreneur in a hot space) I know that my vote would be with the $2 million (again depending on the situation).  If you raise $2 million you preserve your options.  Somebody may come along and offer you $25 million to buy your company.  You might like to accept that.  It might just change your life (for example if you personally own 33% of the company).  Or if you didn’t sell and the next round comes along.  You raise $5 million at a $20 million post money.  That by definition means you were hot.  You should still be able to sell for $50 million.  At each step you preserve your options.  If you go to quickly to take down a $50 million round from late stage funds you have one option – go big or go home.

4. Don’t block founders from selling: OK, so if you raise $2 million at a $10 million post money (e.g. maybe I own 20% of the company) or $5 million at a $20 million post (I own 25%) shouldn’t I block that sale of a company a cheap price?  This is the “Patzer Problem.”  Some people assert that the later stage investors didn’t make a high enough return.  My view: If you’re absolutely convinced that it is the right thing to sell I need to support you.  My bet: if you sell and I helped you earn and was a key contributor to your company then you’ll tell everybody you know to work with me.  Over time I should see great deals as a result.  When you go to do your next company (most entrepreneurs do) you’ll call me first in the way that I called GRP Partners for both my second company and my third (which never materialized).

5. Persuade you and align you to swing for the fences with me: But of course there is more to my views.  I’m hoping that when your $25 million or $50 million exit comes along I can convince you (if I believe it) that we should swing for the fences and create a larger company.  If I really believe it I ought to let you earn now by taking money off of the table.  I have already written about this.  I believe our incentives need to be aligned at this point in time.  You need to have your “feed the family” money so that you want to swing for the fences.  You also need to believe that the higher outcome is possible.  If I’m not willing to let you take money off of the table and if I’m not willing to put more money into the company to help you achieve your goals then how convinced am I really about the upside?

I’m not trying to be nice to entrepreneurs so you’ll read my blog or take my money.  It is simply the thesis that I believe in.  It’s the “entrepreneur thesis.”  Let me outline the contra viewpoint, which is seldom expressed openly, but it what I believe gives our industry a bad reputation.

• Large early stage rounds – Too many investors whose funds are too large feel that they need to put “a lot of capital to work” in order to justify being involved with your company.  So much so, that when I was raising capital in 2006 and asked for $2 million several funds told me that they wouldn’t give me money unless I’d take $5 million.  And they actually hinted that I could get a better valuation.  Tempting.  The problem is that it takes options off of the table.   And the same logic that forced them to put $5 million to work also forces them to block your sale at prices that might just change your life.

• Change management teams – A lot of well known, historical VCs have a belief that management teams are expendable.  You simply bring in a more talented team after your $10 million investors and the founders become senior members of the team but don’t run things.  I accept that this may sometimes happen.  But it’s the absolute last course of action for me.  I believe that a motivated founder trumps a well-hired mercenary CEO any day of the week.

• Outsized returns through sharp elbows – OK, here is what it boils down to.  I really believe that some firms have the strategy of edging out the entrepreneurs, bringing in a new management team, recapitalizing the company, minimizing the founders’ share and taking maximum ownership for the VCs.  This is dreadful behavior but I truly believe that some firms go into investments with this mindset.  I’ve heard very similar stories in the VC corridors.  ”Well, we’ll just do their next round and take 50% of the company.  They’re struggling to raise funds anyways.”  Look – it does happen.  And sometimes it is warranted.  I just don’t believe that any VC should go in with this strategy.  It’s why I always tell entrepreneurs to reference check their VCs.

Listen, who you work with matters.  Brand isn’t everything.  And firms that get outsized returns on occasion to so at the expense of the founders.  My thesis is that I should align myself with my customers (the CEOs) as it is the most likely path to great financial returns for my investors.  And if I’m in this business for a long time I’m betting this will pay off.  You?  Taking VC money is more difficult than marriage.  At least if you fall out of love you can legally get divorced in America.  Not so venture capital.  Raise wisely.

Update: After reading the comments I want to make one thing clear.  I don’t believe this strategy has any sacrifices – I believe it will mathematically pay off bigger over time. Why?

- getting invited to be in the handful of deals each year in the US that really matter vs. getting mediocre deals
- getting the best entrepreneurs to work with you multiple times
- finding the right balance where sometimes the “early sale” doesn’t happen because you allowed some founder liquidity (on a case-by-case basis) that enabled you to swing for the fences where other entrepreneurs may have pushed for an early exit when incentives weren’t aligned

*photo taken from the Mint.com blog

Nature vs. Nurture.  You’ve all heard the question before.  Let’s talk about kids for a moment.  I grew up believing that human behavior was 20% nature, 80% nurture.  Now that I have two boys (4 and 7) I’m convinced it’s the other way around.  There’s no question that both factors are involved. There have been many studies done on the topic including looking at twins raised in separate families.  There have been studies of adopted children to their natural parents versus the parents that raised them.  I have also seen studies on “birth order.”

As a father, I have strong beliefs on this topic.  I have first-hand observational data.  But I’m not naive enough to think that I am factually right.  I think it is an unknowable topic for which we each have our own observations and points-of-view.  Some data like those in the studies I mentioned above might help influence our thinking but the answer is, in the end, subjective.

So it is with entrepreneurship.  In my bones I’m convinced that entrepreneurs are more nature than nurture although I know both are involved.  Fred Wilson said as much on his blog also.  I wasn’t going to write about it since he had just covered the topic and echoed my point of view.  I have recently written extensively on what I believe the 12 characteristics of an entrepreneur are.

The comments were littered with nature vs. nurture discussions / debates.  Throughout all the discussion I’ve made it clear that my points-of-view are purely subjective.  I think I’m right but I’m not self righteous enough to pretend that my views are scientific.  That is true of all my blog posts.  I have a strong opinion and I put it out there.  I love the debate and I’m willing to alter my views.  It is what I love the most about debates and one of the things I love most about blogging.

So why am I covering the topic now?  Because Vivek Wadhwa has just written a piece on TechCrunch that “proves” the nurture argument quantitatively.  Notes Wadhwa, “Jason [Calacanis], Fred [Wilson], and Silicon Valley VC’s, I’ve got news for you: you’ve got it all wrong. Entrepreneurs aren’t born, they’re made.”  The data in this article is at best, a stretch.

Wadhwa is entitled to his point of view and he may be right.  I suspect he’s not.   To anyone who believes his data proves anything please do me a favor and go read The Black Swan – my favorite book of the past 5 years.  The author, Nassim Taleb is a self proclaimed “skeptical emperiscist” – that is, he is skeptical of any argument that tries to prove the future or any data argument unless he can test it with real data.

In the book Taleb rails against people who use faulty models to predict risk and have self satisfied, false data arguments to convince people of their points of view.  Data are used so convincingly to convince the untrained eye that conclusions are factual.  I said as much in my post that 73.6% of all data is made up.  OK, not literally made up.  I’m prone to hyperbole to get my point across.  But data are given as evidence to draw false conclusions.

Let me give you an example.  If you take 2,000 of the world’s top performing companies, only 29 (1.5%) are run by women.  They run only 15 of the Fortune 500.  It’s a fact, women aren’t good at running companies.  If they were they’d be running more successful companies.  They must be languishing by running many unsuccessful companies.  Data doesn’t lie.  If women were great at running companies they’d be running more of the successful companies.  In fact, data proves that white, middle-aged men are the best at running companies because they run the most successful ones.  Of course I don’t believe this argument.  But you can take data to say whatever you want to say by using it out of context.

I wish Vivek Wadhwa would have given his arguments of why he believes in nurture, given some data to outline his views and then stated honestly that the answer is still subjective.  In fact, when you have studies done by the Kauffman Foundation to the tune of $50 million coupled with a professor (Mr. Wadhwa) one could even point out the obvious bias that people who teach have in saying the answer is “nurture.”  I don’t think he’s overtly biased but all subjective analyses bring in bias.  See this wikipedia link on this topic – it’s called “confirmation bias”

I’m an ex entrepreneur.  My views are formed from those experiences.  I’m biased, too.  I worked closely with hundreds of other entrepreneurs.  I’m now a VC that funds entrepreneurs.  I have lots of empirical evidence from which to draw my conclusions.  But I’m still biased by my experiences and am willing to admit that.

Also, I went and read the actual paper Mr. Wadhwa wrote.  Turns out he collaborated with a friend of mine that I respect, Z Holly.  The paper is surprisingly much more balanced in its assertions than this TechCrunch article.  If you’re interested in the topic and the data it is a worthwhile paper and you should read it.  The paper even goes as far as saying, “our research cannot be generalized to the entire population of entrepreneurs in the United States, it is meant to be illustrative of the backgrounds of entrepreneurs.”

I suspect Mr. Wadhwa used hyperbole in his TechCrunch blog post to get more readers to look at his work.  If that is the case I suspect he achieved his goals.  But I’m opposed to using data to “prove” unprovable facts because I know that readers are often susceptible to this kind of data manipulation.

My views are as follows:

• Many people want to cling to the “nurture” argument because it’s more pleasant.  We all like to believe we can be taught to be great performers.  We can be taught to be better – no doubt – but no necessarily to be truly exceptional
• Because I believe in the nature more than nurture debate in humans I’m already biased to believe that you have certain characteristics as a child that make you more pre-disposed to be a successful entrepreneur.  You may be a better communicator, have a higher IQ, be more of a natural leader, be more persuasive, be more analytical, etc. from a young age.
• Before getting slammed in the comments – I’m not saying it’s only nature.  There is of course much nurture and culture weaved in.  But I believe that nature is stronger.  For example, I believe that the data on the studies of identical twins raised by different parents show that the IQ link is much more strongly correlated with DNA than the parents that raised you.
• So going into a startup scenario you bring these innate skills or you don’t.  At the margin you can make yourself better at sales, product design, marketing, leadership, capital raising, etc. so it’s not pointless to want to improve.  But some people are going to be more likely to succeed than others.
• Even if you believe in the nurture over nature in raising humans I believe that you are mostly a formed character by the time you start your company.  Your attributes (whether nature or nurture) are formed and hard to change.
• I mostly subscribe to the 10,000 hours argument that Malcolm Gladwell made in his book Outliers.  People who are naturally talented still differentiate themselves by having put in the effort in the areas that are important for success.  You’re not born into being a world-class software developer.  If you have the innate DNA PLUS you put in the 10,000 hours then you are more likely to be at the top of your game
• When I look at the attributes that I feel are most important in a startup CEO: tenacity, street smarts, the mental flexibility to pivot, resiliency, leadership / inspiration, work ethic, attention to detail, competitiveness, decisiveness and integrity – I think these all fall into the 80% nature territory.  Or at least 73.6% nature  The one other attribute – domain experience  - is by default nurture.
• You don’t need to be great at all of these attributes to be part of a successful startup team.  But I believe the CEO needs to possess many of these traits.  Of course you don’t have do be great at all 12 skills.  Very few people ever would be.

Here are some assumptions in Wadhwa’s article where I believe the truthiness comes across with data assertions:

• “My team surveyed 549 successful entrepreneurs” – that’s a good start.  I like surveys.  I prefer some data to no data.  He’s already pointed out in his work that this isn’t statistically significant but “illustrative.”  I’m OK with statements like, “here’s what the CEO’s and CTO’s told us and that supports our view of the world” but I’m NOT OK with the inference that “I surveyed 549 executives and therefore this is scientific.”  It is not.  He doesn’t use the words scientific but I believe it is implied.  James Gillmore in the comments section offers these words to Fred Wilson, “I’d say this highly statistical evidence doesn’t counter your original stance.”  James’s overall point isn’t wrong.  I just take issue with the words “highly statistical.”  It is not highly statistical and yet it has the aura of highly statistical.  So anybody who doesn’t know better assumes that these data are “conclusive.”  They are not.

• “We found that the majority didn’t have entrepreneurial parents.  We found that 52% of the successful entrepreneurs were the first in their immediate families to start a business” What is implied is that if it were nurture then your parents would be great entrepreneurs. Just like the way that all sports stars and all rock stars have famous parents, right?  This argument is flawed.  First, your parents may have had the DNA characteristics to be a successful entrepreneur but life’s circumstances might not have led them to those careers.  Or maybe your parents had the right DNA but the 10,000 hours weren’t there.  PC’s weren’t there.  The Internet wasn’t there.  So they chose other careers.  Or maybe your parents didn’t have the DNA but you did.  Kind of like a guy who can hit a 98 mile-per-hour fastball might have had a dad who couldn’t.  Or … maybe entrepreneurship is nurture and not nature.  Maybe I’m wrong.  But this argument, wrapped in “data” is false evidence and is flawed.  What your parents did does not feature in the argument about whether entrepreneurs are born or made.

• “They didn’t even have entrepreneurial aspirations while going to school.” Oh, gotcha.  If you didn’t have entrepreneurial aspirations when you went to school then the attributes of a successful entrepreneur must not be innate, right?  They must be learned.  Otherwise you would have had a life-long obsession with building the next Facebook.  The truth couldn’t be further from this.  I’m not claiming I’m a great entrepreneur.  But I’ll tell you that I did start my first company in high school.  I sold t-shirts for the basketball cheering section (called the River Rats) and I sold letters to go on the back so you could call yourself by your nickname.  All the profits were in the letters.  I cleared hundreds.  In college I threw keg parties and again cleared hundres of dollars.  But my aspiration in college was “to get a good job.”  In 1990 that’s what I was trained to want to do – impress my parents and their friends.  I don’t think that everybody with the skills to be an entrepreneur knows that they wanted to do it when they went to school.  This data assertion is bogus.  It is wrapped in the authority of a “conclusive” data study with the pronouncement that Jason, Fred and Silicon Valley VCs are “wrong.”  What you thought you wanted to do in school has no bearing on whether you were made or born to be an entrepreneur.

• “VC and former entrepreneur Brad Feld also blogged about how many of his frat buddies at MIT had become successful entrepreneurs. Were all of these people born to be entrepreneurs as well? I don’t think so.” Um, are you seriously drawing this link?  Please read up on selection bias.  People who go to MIT are at top of our country in intelligence.  They are more technical than people who go to other universities.  Brad Feld and his cohorts graduated in the late 80’s and worked through the 90’s when many more technology companies were built that favored super-bright, technical people.  Brad himself seems to have had entrepreneurial tendencies and certainly technical tendencies and therefore was more likely to surround himself with like minded people.  Therefore it is very conceivable that this group of people were more likely to be of the right DNA to be entrepreneurs AND were born at the right time ala Outliers.  I don’t know that the truth is – I have an assertion.  Wadhwa presents his arguments and his data as more conclusive.  It’s like saying, “data shows that people who go to the Stanford MBA program are more likely to be successful entrepreneurs than those who go to Harvard,” (I don’t know if this is true – I’m making up the situation) and using this data to say that these students were taught better by Stanford.  It’s very conceivable that they chose to go to Stanford precisely because they are more entrepreneurial by nature and they wanted to be closer to Silicon Valley!

OK, I don’t even know Vivek Wadhwa.  I’m guessing he’s a smart person.  I’m guessing he produces great work.  I have no desire to pick a fight with him. He’s got a louder megaphone than I do as a TechCrunch contributor.  But Vivek, please don’t present data on the topic of nature vs. nurture and assert that you have statistically proven the “truth.”  And if you do … please at least provide more compelling data, graphs and conclusions.  Otherwise, please state your opinion as exactly that.