Both Sides of the Table 2x Entrepreneur turned VC

Do you Suffer from the Urgency Addiction? It’s More Common Than you Think

by Mark Suster on August 18, 2010

I suffer from the “urgency addiction.” I know it sounds like one of the falsely humble things like telling somebody in a job interview that your weakness is that you’re too much of a perfectionist. But the urgency addiction is a bad thing that I’m fortunate enough to get away with. When I first discovered the concept I found it enlightening. Here’s what I learned.The concept comes from a Stephen Covey book called “First Things First,” which is a worthwhile book (Wikipedia overview here) but if you haven’t read his seminal book “7 Habits of Highly Effective People” you should start with that. It’s as good as it gets in personal productivity / life reflection.

As individuals we have choices about how we spend our time. If I asked you whether you want to spend your time on things that are important or unimportant it’s a no-brainer answer. But if I asked you instead whether you want to work on things that are urgent or not urgent it requires more consideration.

Here’s how I break down the four quadrants (and I’ve put my definitions in here – not Covey’s).

1. The Urgency Addiction – Deep down I’m a procrastinator. I know that would be surprising to many readers since keeping a blog somehow convinces people that I’m a time management or productivity ninja. I’m not. Why do today what I can put off until tomorrow, right? Actually, I’m exaggerating but not by a tremendous amount. I have my “hacks” for delivering outputs that are meaningful while managing the daily life more chaotically than you might imagine.

The biggest technique I use to avoid procrastination is commitment. I make commitments to others and I have such a high sense of honor for not breaking commitments that it forces me into action. That’s why productivity wasn’t tough for me as a CEO. As the CEO you have a team that is counting on you and a board that is measuring your performance. It’s hard to hide. So I always performed.

But don’t confuse results with how you get there. And that’s where the urgency addiction comes in. I have always been good at prioritizing what is important but bad about starting my work early enough. I was the guy in high school who didn’t have to study early to do well on tests and that continued into college. It also applies to other parts of my life such as presentations. I’m a pretty natural public speaker so I can write my presentation the day before and do just fine.

Actually, people with the “urgency addition” thrive on the pressure. We rise to the occasion as it stirs our creative juices. There is something about the adrenaline rush of being under time pressure that excites us and teases out our creativity.

We get away with having the urgency addiction BECAUSE we perform well under pressure. Not everybody does. I focus my energy on “critical path analysis” so I mentally sketch out what parts of task I actually need to do early and I don’t let those slip. So things that have to be done early get done early, but only at the last possible moment that the early task is due.

Example: I was recently in China and had three public appearances. The first was to do a 5 minute “ignite” presentation – 5 minutes, 15 slides. I did the outline of the 15 slides on the flight over (after a few beers). I wrote the presentation the morning of my talk, I mentally memorized what to say to each image about an hour before I spoke. And I stepped on stage and delivered what looked like a presentation I’d given 10 times before.

Internally I was a wreck. I tried to visualize how I was going to hit such a precise presentation where you get 20 seconds per slide and then they get auto forwarded. I was in my zone and I believed I delivered pretty well. Anyone who saw me within an hour of speaking, though, must have thought I was Rain Man. I couldn’t carry on a conversation.

I left that presentation and sat down in a coffee shop. I had been asked to do the keynote speech at a dinner that night but of course hadn’t written a speech in advance. I wrote out 3 pages of bullet point notes on paper and delivered a 20-minute speech to a crowd of entrepreneurs (which included the Minister of Technology for China). I didn’t socialize with anybody as we walked into the room. I couldn’t. I accomplished the results but I certainly didn’t get there in style.

I tell this story to give you a sense of the urgency addiction in action: procrastination meets deadlines meets embarrassment if you suck = creativity and peak performance.

[As an aside, if you want a sense of the GOAP Asia trip check out this wonderful 3 minute video of Christine Lu. I promise you'll enjoy it. Another 3 minute version with Dave McClure on the same topic. If you only have time for 1 watch the first, we've all seen Dave but both are fun.]

Covey covers all of the problems that the urgency addiction brings in his book. You retain less knowledge. You take short cuts. You make too many trade-offs. You suffer too many internal stresses. I haven’t read the book in years so I don’t remember the whole chapter. But this book made the problem so clear to me that I do try at times and for certain tasks to force myself to do parts of the task early to avoid the mad rush.

It seems that we should want to do things that are both important & urgent. After all – that’s what is on our to-do lists with the AAA next to it and a circle around it. The obvious answer on reflection is that we should want to do things that are important and not (yet) urgent.

2. Zone of Effectiveness – The examples that Covey talks about here are things like exercise and planning. They can’t be rushed. If you can carve out some time during your day to not sit in meetings but instead to dedicate to thinking about the longer-term, strategic initiatives that are important to you then you’ll do bigger things in life.

Here’s an example where good behavior leads to higher results. I founded a mentorship group called Launchpad LA. It didn’t come out of nowhere. I was on vacation in Santa Barbara two years ago with my wife and I was reflecting on what I had learned in my first year in LA and in VC. I though to myself, “too many young entrepreneurs in LA seem to feel pressured by NorCal VCs to move to the Bay Area. I hear it all the time. Yet in LA we have hugely successful entrepreneurs who have built big companies like Overture, CitySearch, MySpace, TicketMaster.com, LowerMyBills, Commission Junction, eHarmony and on and on.

We have amazing large companies that are an important part of the future of the Internet such as Disney, Warner, Fox, Universal, etc. The thing I need to do is figure a way to tie all this together and we can create a sustainable ecosystem where people see huge advantages in being located here.”

So I decided to create a mentorship organization where first time entrepreneurs could spend time with senior execs, seasoned entrepreneurs and VCs. I thought through the steps:

Get a class of interesting companies
Get VCs to agree to join
Figure out a way to finance it
Get some seasoned entrepreneurs to come

I knew I couldn’t build the perfect “mentorship product” over night but I knew that MVP meant just getting the first version launched. And we’ve slowly built it since then.

I use this story because big initiatives like this take planning. And I spent time with Dena Cook, Adam Lilling and Dana Settle this morning discussing how we’re going to take our events to the next level in September & October. I visualized. We debated. We planned. It’s not urgent yet. I’m so much more productive when I’m in this mode.

I think big, audacious thoughts that require planning come from down time. I almost always plan annual objectives and plot out my future when on vacation. Having the time to think is important. I wonder if companies ought to have senior executives spend a paid week away every year with the only goal, “to think about what major initiatives they want to enact in the next year.” Most corporate retreats are spent doing busy activities and don’t leave enough time for reflection.

3. Responsive Low Hanging Fruit – I view email in the category of urgent but not (always) important. Some of it is important, no doubt. But much of it isn’t. It’s mostly other people adding tasks to your to-do list without your consent and expecting timely completion or responses. Sounds harsh but when you think about it that’s what email really is. I heard that Jeremiah Owyang said that sometimes you need to “pay yourself first” as in do things that you want to do (blog, exercise, do public speaking, plan events, whatever) before always being responsive or reactive to the demands of other people.

I used to be a “respond to 100% of emails” guy but I simply can’t keep up. I try my best but am increasingly comfortable that sometimes it’s just going to slip. At volume I don’t see any other way. Obviously you need to dedicate some of your time to email and other less important but urgent (as defined by somebody else who is waiting for your input) tasks. Just don’t live in this quadrant or you’ll never do anything meaningful.

4. Time Suck – And the pejoratively named “time suck” quadrant of things that are neither important nor urgent. Here we’re into Angry Birds, MineSweeper, BrickBreaker or YouTube territory. I don’t know – sometimes I just need to veg out. So I don’t let myself get too bummed out by “time suck” time.

Sometimes the times where I have deep thoughts about what is going on with the Internet is when I give myself 2 hours to just play around with shite for a bit. Try random products, play random games or send funny Tweets. The obvious answer is that you need to time box this stuff. Obviously some people get carried away with this stuff or companies like Zynga wouldn’t be as big as it is today.

Anyway, I have no magic pills for controlling the urgency addiction but recognizing the pattern in myself was an important part of both trying to move to the non-urgent quadrant more and knowing that for some things like public speaking I’m just likely to continue to channel my urgent energies and be Ok with that.

How about you? Urgency addiction anyone?

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We’re All Frogs Boiling in Water

by Mark Suster on August 17, 2010

The Hidden Impact of Technology on our Everyday Lives …

There’s an old (semi true) parable about frogs boiling in water. While not literal it’s a fun and instructive metaphor for change.

It goes like this: if you put a frog in boiling water it will sense the hot water and immediately jump out yet if you put it into cold water and very gradually turn up the temperature in the water the frog won’t notice and will stay in until it has boiled to death.

There’s some metaphorical truth to this in our everyday lives. When we’re faced with shocking changes the societal impact becomes immediate and obvious. An example would be an economic shocks that caused mass job loss and unemployment as happened after the dot-com crash, 9/11 and again in Sept 08. In times like these we reflect more about life in general and about the impacts technology has on our lives and on our society.

But most technology impacts us in imperceptible frog-boiling like ways. We struggle to remember the days when we had to coordinate via calling friends from pay phones or having to have an atlas in our car in case we got lost. Or how about traveling to a foreign country and worrying about having a big stash of American Express traveler’s checks lest we find ourselves with no access to cash or credit.

Technological change is astounding and I think none more than the impact that social networks has had on our lives. We begin linking up with friends and colleagues, communicating through chat or video and sharing personal thoughts in a public or semi-public way that has impacted recruiting (> 30% of employers use for background checks), divorce, dating and so many other aspects of life.

And what is interesting to me is that as we post our videos on YouTube, record our lives on webcams, upload location updates on FourSquare, search for restaurants based on the wisdom of the crowd – society is slowly changing. I tried to capture a small slice of that in this post that explains how Twitter is changing the nature of relationship building and merging online & offline experiences. If you haven’t read it I think it’s a pretty interesting piece on change in the era of Twitter (as distinct from previous social networks).

I’m not implying good or bad – it just is. An old colleague of mine who has long since retired used to lament the fact that his kids never read the newspaper. I used to tell him that it was HE that wasn’t keeping up with the times. Before he’s had a chance to rub the morning ink off of his thumbs I’ve read op-eds from the NY Times and Washington Post as well as scanned Techmeme and read a few blogs.

It’s true on the one hand the with the fragmentation of the news media increasingly people choose to get their news from the perspective they want to hear (e.g. left wing, right wing) but it’s also true that curious people in the age of Twitter get a much wider purview of news stories through shared links. So my message to my colleague was – it’s different, not bad. Your kids are alright.

Interestingly David Brooks (my favorite op-ed writer) wrote this must-read counter-intuitive piece on children and computers. The summary version is that there is data asserting that there is a correlation with children with access to broadband-connected computers in the home and lower test scores in math and reading. There is a separate study showing that disadvantaged children given access to 12 free books to take home in the summer (and nothing else including no assignment) scored significantly higher in reading than a control group given no books.

It’s clear that our attention is being dragged in a million places at once and this lack of focus has an impact. There is an argument to be made about the need for time to read, time to reflect and time to write. As much as I love Twitter and love (and hate) my Blackberry – I need this time for reflection to really have insights. Writing has a way of forcing focus and reflection.

Speaking of technology change and our acceptance into our everyday lives. I remembered having read that Brooks post more than a month ago but hadn’t saved it anywhere (so much for delicious). But simply remembering the key theme of the article I was able to retrieve in from a well-crafted 8-word boolean search (nytimes.com david brooks kids books summer learn focus). Amazing how we take this for granted. First result was the right article. Frog. Water.

So that brings me to the inspiration for today’s post. I saw two movies recently that I would like to recommend to you that are thought exercises. Watched on their own they’re entertaining but they’re worth seeing with a friend and then discussing afterward.

The first is called “Catfish” and was apparently a darling at the Sundance Film Festival. It’s worth not trying to watch the trailer or discovering too much of the plot but the version for this blog that doesn’t give away too much is this: it is a documentary film of a photographer who builds an online relationship with a remote family who becomes interested in his work. The relationship involves a mother (guardian), a young woman in her twenties (potential love interest) and a young girl (8 years old) who is a savant-like artist.

The documentary really challenges you to think about relationships, loneliness, desperation, identity and also about lives of obligation and dealing with people whose personal circumstances require you to subjugate your own time, needs and desires. It deals with a care giver dealing with severely retarded children and that person’s life in the age of social networks and virtual friends. As you can see it tackles a lot. And it’s a documentary so it’s a slice of life.

It’s both a brilliant film that is captivating as well as a wonderful thought exercise. It hasn’t been released yet (living in LA I was able to get a screener video … sorry). But if you’re interested in the Facebook connected world this is a must watch for you.

More troubling but equally interesting and certainly more provacative is “We Live in Public” the documentary of Josh Harris, founder of Jupiter Communications. This film is both NSFW and not for the faint at heart. But it is an important film nonetheless. It profiles the life of Josh who became a multi-millionaire at a very young age by having a unique grasp of the social trends that the Internet would usher in. Call Josh the frog in boiling water – he saw what we now see long before we knew about it. With that vision comes a story of somebody also disturbed and troubled.

After making his riches he decided to wire up a building that would be housed by a large number of people who were to be filmed 24/7 in every part of the house (including bed, shower and even toilet … from the inside. Yuck!). This preceded Big Brother, Justin.TV, YouTube or social networks. Josh had the view that we would all live in public and document our lives. He went from that group facility to having a 24/7 public relationship with his girlfriend by wiring up his house. He went from there to recluse.

But I won’t ruin it all for you. If you have the stomach and want to tap into the important trends happening in our boiling water check out this film. Oh, and by the way, the film has lots of appearances by Jason Calacanis, Fred Wilson and Shawn Gold (none in any compromising situations – just as commentary on Josh).

And for my final bit of frog-slowly-boiling technology change – I watched it with my wife in bed on our iPad. Wow. Nobody can tell me that the iPad isn’t subtly transformative.

Photo credit to Angi Nelson on Flickr.

*** end of post personal side note if you’re interested:

I first met Josh Harris in 1990. He actually was the founding president of my fraternity at UCSD. He flew in from New York and, as I was the president of the fraternity then, I met him up at the airport and drove around with him for the day. He was such an odd and fascinating guy that the memory of my day always stuck with me even though I had no idea what his future held. I never knew what happened to Josh until I saw the film recently. The day I met him Josh had rented a convertible Mercedes, smoked a cigar incessantly and was this flashy “big city” guy.

This was strange for a 21 year old who grew up in a smallish town and had never really hung around flashy types. He seemed so intent on showing me (and our fraternity members) how successful he had become but we were all oblivious to it all. I remember then seeing his name in the Wall Street Journal the next year and that in itself was such a big deal (I knew a guy quoted in the Wall Street Journal! Wow!). Anyway, funny about life that you come across characters that enter into your life for a brief moment and they go on their way without your ever really knowing what becomes of them. This film was fascinating in its own right – but seeing Josh again was really a trip for me.

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I Buy Dead Magazines (the art of the intro …)

by Mark Suster on August 15, 2010

The life of an entrepreneur is filled with 20 second opportunities. Some get converted into 5 minute opportunities or into a lifetime. Most are squandered.

It starts in a crowded room at a conference or networking event. You bump into the person you’ve always wanted to chat with or your perfect business development partner who can “make” you. What are you going to say in the moment?

I can tell you from years of experience that most people waste that moment. You have to count on somebody interrupting you within 60 seconds so if you’re impactful you ought to at least be remembered. I’ve written about the “elevator” pitch before. If you haven’t read that post I suggest you do since it’s such an important topic. I also did a very short video on the topic. [if you're in a rush or ADHD you can skip to end of this post for the "to do" list]

One person who doesn’t waste this opportunity is Sam Jones of Formation Media. I’ve met Sam several times and each time I’ve been at an event with him I’ve heard his opening line, “My name is Sam Jones. I buy dead magazines.” He gets a stare every time. You can’t help but lean forward and want to hear what the next line is. He’s a master. He waits for a brief moment and lets the suspense build. He knows your next line in advance, “Excuse me? You do what?”

“I buy dead magazines. I run a company called Formation Media. We think that the magazine industry is going through incredible change but that the Internet website experience doesn’t yet fulfill our magazine needs. People read magazines for a reason and it’s a combination of focused content and beautiful images. We set up Formation Media to bring that experience to the Internet. My partner was in product management at Demand Media. We know that their model works for a certain type of content but we believe we can build higher value sites where we can sell premium advertising and target niche audiences. We deliver much higher CPMs”

He didn’t launch into a 3-5 minute diatribe as so many people do. He gave me the chance to absorb the message. He paused. And smiled. So many times when I get off stage after speaking at a conference and people rush up to speak to me they go on-and-on and after the first 2 minutes I start zoning out and thinking “I really should talk to the 20 people behind you – just to be polite.” The intro is meant to be quick and impactful. It isn’t mean to build your lifelong relationship with the person – it is to plant the first seed. Don’t overstep that. Know that relationships are a multi-meeting, multi-year earned connection. Over reaching in your first encounter could blow your future opportunities.

Think of it like meeting anybody at a random non-work cocktail party. People obviously ask what you do – mostly to be polite and also it’s the easiest form of small talk. Don’t confuse “what do you do” with “tell me your life story.” Plant the seed. Wait. If they dig deeper they wanted to. If they didn’t then you can try to bond in other ways.

With Sam we could have then switched to talking about the Lakers and he would have achieved his objective. I could have been pulled away but his mark was already made. I was at a crowded event, Launchpad LA, at the SLS Hotel and had drunk several beers and as the host had a ton of people waiting to chat. But I was hooked with his opener. It’s hard to imagine that somebody pitching a content business business in LA really could have captured my attention – there are so many of them.

“Really? I thought the world was moving to more automated content creation and content factories. What kind of content? How will you differentiate?” We were off to the races and talking about how he had bought the CarAudio Magazine out of death and how he started by already having a subscriber base and fans. This post isn’t about Formation Media so I won’t drill down. But Sam is a first-class act and boy does he know how to nail an intro.

So 2 things reminded me of that story and got me thinking about writing this post:

I was on a panel this week talking to a crowd of a couple of hundred aspiring entrepreneurs. Sam stood up to ask a question. He took the mic, “Hi. My name is Sam Jones. I run Formation Media. We buy dead magazines. My questions is …”
I hosted another Launchpad LA event this week. It was a dinner. All 10 startups that are part of Launchpad LA got the chance to stand up for 2 minutes. The first minute was a 60 second description of your business. The second 60 seconds was a change to ask a bunch of high-powered industry people & VC’s for “one ask” and they were all holding papers where they would write you a message if they could help you. Before the event I told everybody, “this is your moment of truth. Don’t blow it. Prepare. Know your pitch and make your ask count.” 3 or 4 were good – most were underwhelming. Great companies all, but if you’d never met them and judged them on these 2 minutes you might never know it.

Brad Feld was sitting at my table. He told me that he agreed how important the intro was. At TechStars apparently they spend the first couple of weeks making every startup practice this again and again. Once they have buy-off from David Cohen, Brad and others they have their 60-second pitch. They have a ritual that every time a new visitor comes to Boulder they walk them around to meet each startup and each one has to give their exact same practiced 60-second pitch. He said it’s really impactful both to help the founders clarify their vision and to more effectively communicate it to others. If you can’t communicate what you do in simple terms it’s likely that you do have a vision issue. You might lack clarity in your own mind about what you do or why you’re unique.

So my list for you is:

Develop your 60-second pitch. Even if you’re a more accomplished company. Don’t wing it. Practice it and repeat it so many times it gets boring. Your wife, husband, girlfriend, sister or co-workers should be sick of hearing it. It needs to “land” when you say it. It needs to be memorable. “I buy dead magazines.”
Master the art of the pause – I’ve known this for 20+ years. I was fortunate enough when I was 20 to attend Toastmasters for 2 years and they taught me so much about vocal variety, energy, pacing, well written copy, hand gestures, etc. Brad reinforced this at our dinner. He said, “often when somebody pitches they just keep going. I’m trying to process what they’ve told me but they’re already on to the next line so my brain is split between listening to them and processing what they’ve told me. As entrepreneurs you need to learn to pause and let the listener reflect.”
Learn to pitch with energy – Anytime you’re given the opportunity to deliver your opening line do it with energy. Enthusiasm is contagious. If you’re monotone or lethargic I promise it will diminish what you’re saying. If you’re not naturally enthusiastic when you speak you MUST practice and gear yourself up at least for this moment. If you’re not enthusiastic about your business then how the hell do you expect me to be?
Be ready for the elevator pitch – This is different than your opening line. This is the next 3 paragraphs of your story. You haven’t earned the right to say it unless your listener gives you cues that he/she is wanting to go there. Please know that the next level down does not entitle you to speak solidly for 5 minutes. You will bore the person for sure.
And for fuck sake be ready for the “ask” – If you get far enough in your conversation that you’re pretty convinced that you’ve earned the interest of your other party and if you know that there is something that they can do to help then ask. This isn’t every encounter – often you don’t have the right for the ask. Unfortunately I can’t teach somebody when to know – it’s like art – you can just tell. But if it’s there then ask for something small, easily accomplished and very precise.
1. Acceptable: Would you mind if next time I’m in Boulder I emailed you to see if you had 30 minutes for a coffee? I know that you’re running this major content division – would you mind if I asked for an intro to a junior member of your business development team to start a dialog? I know you’re a VC and we’re not ready for a large round – do you know any angels that might be interested in our space?
2. Not Acceptable: Can you please check out my website and let me know your thoughts (yes, I get asked this ALL THE TIME at conferences). If I’m interested in your product I naturally will check it out. Can you introduce me to the head of corporate development at Google? (I just met you, does it seem sensible that you have earned my trust enough to bug somebody super busy on your behalf?)

Don’t put it off. Don’t think that your pitch is already good enough. Get feedback from tough critics. Everybody thinks they’re good at pitching their business. Anybody whose career involves being pitched knows how far from the truth that really is.

*** Appendix:
Practice what I preach. I have my standard line. Many have heard it too often. It goes like this, “My name is Mark Suster. I’m a partner at the largest VC fund in Southern California. But before this I built and sold two software companies. The last one was to Salesforce.com where I was VP Product Management.” Pause.

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Bring Me Solutions, Not Problems (I know you think you know this, but …)

by Mark Suster on August 14, 2010

I recently wrote a post on how to ask for help or favors from people. This is a related post that will not only help you get the results you want more effectively but will also help earn the respect of your senior people (whether management or your board).

I know you think you know this already. Everybody says that. It surprising how few people actually follow through this this advice. So here goes …

As much as I like to occasionally make fun of having been a consultant early in my career (although I built computer systems rather than just PowerPoint slides), I realize upon reflection that I did learn a lot of great management practices from working in such a large and well-structured organization as Accenture.

One of the most practical pieces of early career advice I got was “don’t bring me problems, bring me solutions.” The message was clear. I hired you because you’re smart. As your senior manager I’m happy to help you any time you need. But I have my own shit to deal with – believe me. You think you have problems? Imagine having 10 people reporting to you all bringing you problems as well as our client and my senior partners. I’m up to my eyeballs in problems. I don’t have the time or inclination to figure out your problems for you.

So what does it mean to bring solutions? Well Brad Feld, who recently visited us in LA, quoted Mark Pincus in saying, “be the CEO of your own job.” So to bring solutions you need to be the CEO of your own job. Diagnose what is wrong before running it up the flag pole. Your layout should be concise, have actions (exactly what you think needs to happen) and have options.

When you bring the solution / problem to others it should be couched like this:

Problem (2-3 sentences: “we have a morale problem in the company. if we don’t solve it I fear we might lose some of our best tech talent as 5 of our 8 developers are currently underpaid and have been with us for 2+ years. this will set us back dramatically”)
Diagnosis of why you believe the problem exists (“we have been working long hours for 6 months and in the company for 3 years. our staff are not yet seeing customer success or they’d be feeling better. we are paying less than market. with the pickup in tech hiring we’re seeing a lot of our developers getting calls from other startups.”
Suggest Solution of what you think the right answer is including time, cost to implement and other asks (such as executive level support for change) (“we don’t have the cash reserves to increase pay. i’d like to allocate an additional 25% of options to each developer above their initial allocation plus i’d like to reserve $5,000 to have a stress relief weekend event where we could blow off some steam.”)
Options (3-4 in total) (Option 2: “we could obviously do nothing and try to get board members in to talk with developers and try to keep their spirits high. that would certainly help also. but I fear at this point a more substantive offer is necessary.” Option 3: “we could promise pay increases on next fund raising round and not focus on equity. but that fund raising will be seen as uncertain in people’s minds since we haven’t yet scored success with customers. this idea might work but my gut says it will be seen as ‘gladly paying them tomorrow for a hamburger today‘).

Here’s why:

you do need to state what the problem is up front (but make it clear that you have ideas on how to solve it) before asking people to approve something. If you can’t convince somebody more senior that it’s a real problem then they’re obviously not going to be bought into the solution. Try to be specific on the problem. Don’t make it too wide. It needs to be actionable. Having quantification in the problem definition always helps.
you need to tell somebody your preferred answer. don’t make them guess. everybody hates when you are presenting options and we know that you really have a bias toward an answer but you make us tease it out of you. the ceo of his/her own job would say “this is what I think should happen. are you ok with my proceeding?”
have real, not fake, back-up options. otherwise you’re not really asking for our assistance, you’re just asking for a “yes” to our only solution. that’s no fun either.

You always have a boss, whether you’re a mid-level manager, SVP or CEO. Heck, even VC’s have bosses (our investors). The higher up the ladder you are the less time you tend to have and the more shit you’re probably dealing with. Senior people love when team members help define problems that need fixing. But they love, love, love when team members bring them solutions. In fact, senior managers surround themselves with solutions people so you might just find your career accelerating.

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My Chat with Dan Primack of PEHub

by Mark Suster on August 12, 2010

In the technology world there are a few websites that most startups track to keep up with the latest financings, acquisitions, product announcements and gossip: BusinessInsider, TechCrunch, Mashable, GigaOm, etc. In the VC & Private Equity world there’s a small number, too, with one of the most respected being PEHub. That’s thanks to Dan Primack, founding editor.

I always wanted to have Dan on This Week in VC with Dan Primack (to see video click link) because he’s blunt, honest, opinionated and well informed. He’s been a tireless champion for causes that he believes in (reform of VC carry taxation being one of them). He’s a financial journalist and is damn good at his job.

So it was fun to get his perspective on topics that are sometimes too toxic for VCs to talk about publicly. We had a great hour-long chat about the industry and the deals of the week. For those that want the “cliffs notes” version – here’s what we covered (but if you have an hour to watch I don’t think you’ll regret it – Dan is informed and compelling).

We led off with a discussion about Slide being acquired by Google, which was breaking news in the time slot where we filmed this episode. Specifically we talked about Slide having gotten a $550 million valuation before being sold to Google for $182 million. Dan makes a point that you shouldn’t be telling everyone about your valuation as Slide did. He said it’s best to talk about valuation only when you sell (if at all). Minutes 4 – 8

Question: Some people are saying traditional VC is dead. What is going on?
Dan: “Let’s not forget that 50% of VC is still going to traditional VC like healthcare and hardware and this still requires the same amount of VC as it once did. There is an industry changing shift going on in the internet and mobile-based IT space for sure. But this gets all the space on prominent blogs because it’s what bloggers like to cover.” It’s self selecting. Dan believed that consumer internet entrepreneurs have a choice now: traditional VC vs. super seed investors. Minutes 8 – 10

Deals are getting done with a lot less capital which is creating a healthy debate in the industry. People like Fred Wilson who say let all the small companies fund and bloom, create more jobs, etc. But there are also going to be those companies that require capex and growth equity (Zynga, Facebook, etc).

I believe that the different stages need to right-size, but you will always need the various stage investors. Dan also agrees with this. You are seeing a lot more entrepreneurs OK with selling their companies to Google or Facebook and not waiting for billions. A large part of this is due to Sarbanes Oxley which has made running a public company so much more difficult. Not as many entrepreneurs are aspiring to do it any more. This is causing consternation with VCs who lament that entrepreneurs are “selling out too cheaply.” Minutes 23 – 26

Is there a bubble going on in seed investing?
Dan: Maybe in the future, but not now. Seed stage industry was left for dead over the last decade as VC investors moved later and later as they became risk-averse. This created a big gap for people to come in. A recent study said seed stage valuations have been quite static recently. Valuations have to be inflated to see a bubble. This could happen if every VC fund continues to launch a seed fund. Minutes 11-13

I actually think there is a small bubble going on in seed/angel rounds. Prices are creeping up and angels are feeling bullish. It is a lot harder than most people realize. Losses will come a few years from now and take steam out of the market. Minutes 28 – 31

The proliferation of seed funded companies will cause problems in the ecosystem in the future. Too many people have been burned in past and if angels get burned that will kill a lot of needed early investors. Angel investors need to be smart and not just follow-along. (ie. Retail investors were burned in IPOs in 2000, Consumers getting burned by services disappearing) Minutes 31-35

Is there a gap in Series B funding? (10-12mm fund raise at $25mm valuations)
Not many investors that specialize in series-B round. You are asking investors to take a little less risk than Series A and paying a lot more in dollars and valuation. DAG Ventures (follows 5 specific funds) and Scale ventures are two that do specialize in B’d There are more but there are certainly less than there used to be. We both felt there was a bit of a gap for B round funding. Minutes 36- 38

Deals. Minutes 41-56
o Yousendit raises $15mm Series D.
o ShopKick
o Kiip
o Hot Potato
o Tuenti

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How to Ask for Help, Favors and Intros

by Mark Suster on August 10, 2010

An entrepreneur recently sent me an @ reply message on Twitter asking for some help with a decision coming up in his business. I get these frequently via Twitter, Facebook or email.

I don’t mind. I can’t always get to them. Basically a request like this is stacking on top of my already large to-do list. But I do like to try and make time for some and I’ll admit I’m a bit random about it. I do it when I’m in the mood, am avoiding something else or have a bit of free time. I wish I could do more.

I provided my email address and he sent me a 688 word email (i.e. loooong) with a very broad question. I felt I had committed so I read and responded to the email.

It brought up a broader point for me, though. In today’s era we’re all asked for help, favors or introductions all of the time. Most of us want to help. But many well intentioned entrepreneurs are sloppy about how they ask so I’d like to give you some guidelines to help.

1. SHORT: Whether you know the person or not – if you’re asking for help, a favor or an intro – keep your email VERY short. Not just out of respect for the recipient but also to increase the chances they will actually respond. If it’s short, easy-to-understand what is being asked of me and a reasonably quick thing to respond to I’m much more likely to do it now to get it off my plate and to be helpful.

2. FOCUSED: I know you want to ask how much they think you should charge for your product, whether your features should be opt-in or opt-out or want to debate the pro’s / con’s of the freemium model vs. the 30-day free trial – but all of these are long “asks” and really are better coming from your mentors, advisors, investors or team members. Ask me something very narrow that I can answer without typing a whole blog post length response.

If I AM an investor, mentor, friend or advisor I accept the email being longer. Still, the shorter and more focused the more likely you’ll get a quick response from me or anybody.

3. USE AN APPENDIX: In the best case scenario you send just a really short email. If you’re worried that they won’t have enough context then ask the question / favor in a very short email, draw big underscores under the bottom of the normal email and then below that put “appendix: more info JUST IN CASE you wanted more context” or something similar. Reading this should not be required to answer the question

4. MAKE IT FORWARDABLE: Lots of times the requests these days are for an intro to somebody. I’m sure you get these, too. Structure your email such that you ask for the intro very briefly and then tell them that you’ve pasted a 3 paragraph description of the company below your email to them in case it would help with the intro. It makes it so much easier to send an intro to somebody if I have the context written for me that I can just forward.

When you write your email to the person assume it will be forwarded “as is” so ask for an intro in a way that you wouldn’t mind somebody else reading.

If I need to come up with text describing what you do, cut-and-paste text, create a link to your website, etc. this is all more work for me. I still do it ALL THE TIME – I’m just sayin’ – if you make the forwarders life easier you’re much more likely to get the action you want.

5. ATTACH A DECK: Bonus points if you attach a short PowerPoint deck describing your business that can be attached. DON’T send me a frigging link to your document on DropBox or a request that the recipient visit your website to watch a video. Links are fine but make them option. Yes, I love DropBox, Box.net, DocStoc, SlideShare and similar services. But your goal in an intro email is to make it super easy to for the recipient. Save cloud services for every other kind of email. I know some people will tell you I’m just being old fashioned. They’re wrong – trust me.

6. HANDLING PRIVATE COMMENTARY: Ok, I’m going to get really granular now but this is important. If you’re asking somebody you know (let’s say, me) for an intro to somebody for a purpose (let’s say to raise money from an angel I know) and if you want to tell me something private like, “I think I’d like to meet with so-and-so. I met this person at the Open Angel Forum last week but I’m worried that he may have invested in a competitor – should I be concerned?” Send me a second email that I can forward.

What? But you hate email!?! True. But if you want me to provide the intro I need to be able to forward the email and not have to worry about cutting out all of your commentary. In the first email say, “I’m going to send you a separate email with a description of my company and a deck so that if you feel comfortable introducing me you can do so more easily.”

I’m 10x more likely to do the intro quickly if you make my life easy (obviously assuming that I think it’s a good intro for the recipient in the first place).

7. THE DOUBLE OPT-IN: And unless I know the recipient and you both really well and I’m sure they’d want a direct intro – please don’t be surprised if I email them first to be sure they really want the intro. I hate to burden people and obligate them to a favor for me if it’s not really something they’re interested in. More work for me – sure. But with your handy ready-to-go, forwardable email it’s a snap.

Fred Wilson nailed this in his “double opt in” blog post. It’s a short post and well worth your reading if you haven’t already. I also covered the “double opt in” and added my “I’m moving you to BCC” advice that is a huge time saver.

Summary: Those the make it easier for others to help them will receive more help. Period.

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Twitter’s “Who to Follow” – Bad English, Great Functionality

by Mark Suster on August 8, 2010

Around a month ago I heard people talking about Twitter’s bucket test (definition) of their new personalized suggested user list and this past week I actually got to experience it myself. The results for me have been excellent and in this post I’ll explain why this is critical to Twitter’s continued adoption.

Twitter has implemented its recommended users on your Twitter.com home page as the “who to follow” (see graphic above) and you have a list of two recommended people to follow. Not to be a stickler for English – especially on this blog where I often race through my posts with very little editing and therefore make many mistakes – but the list should actually say “whom to follow” as you’ll see in this guide to proper grammar.

“Who” is always used for the subject of a sentence and “whom” is meant to be used as an object. You can always tell by inserting “he” or “him” in place of the word “who” or “whom” and the result will be obvious. In “who to follow” it is clear that Twitter is directing “you” (the subject) to follow a user “him” (the object). So I *think* it should actually be “whom to follow.” Who knows?

But who cares? I am very pleased with the results. I’ve written about this topic before. Twitter has has a huge advantage over Facebook in certain types of communication and relationships due to the asymmetric following model. I can follow dozens of people who don’t know me and get the advantage of all of the links that they provide me as well as feeling like I get to know them a bit better as humans rather than historically only hearing from them them behind press releases.

I follow people like Steve Case, Bill Gates and Marc Cuban – none of whom I know. In a “symmetric” following model they’d have to choose between following me back or not accepting my request. In Twitter we can have a one-way relationship.

Interestingly, on Twitter even though somebody may follow me whom I don’t follow back, that person can still communicate with me by using the @ sign so Twitter has become this wonderfully open communication platform and when not abused can create a quick conversation with somebody normally not in your personal network. I don’t always have the time to respond to every @ message but I read every one and I try to respond to many.

But the biggest problem of Twitter to date has been getting the right people to follow you (which is why I wrote about the topic in the link just provided). Here’s the problem in a nutshell: in Twitter you may be following somebody whom you know well and he’s not following you back and doesn’t even know it. When you have 50-100 followers it’s pretty easy to audit whom you’re following but when you have 10,000 it’s impossible.

Every week or so I monitor all of the new people who are following me and I follow back people who are: friends, interesting or people with whom I occasionally have a dialog and provide great links (e.g. Atul Arora whom I’ve never met but is one of the best linkers out there).

But I’m sure there are some friends whom I’m not following and should be. And more obviously to me is that there are a whole host of people whom I know well and aren’t following me. (some I’m sure because they choose not to! )

One strategy I talked about in the post linked above on how to get people like this to follow you is to try and unfollow them and then re-follow them in hopes that they will notice you when they are alerted of their new followers. That works sometimes but is kind of lame so I rarely do it. I also find it even more lame to have to say to somebody “I noticed you’re not following me on Twitter” – it makes you feel so narcissistic.

But now there’s the perfect way to get the right people following you! The Twitter algorithm as of today seems to base your recommended followers based on who is followed the most by other people whom you follow. (see graphic at right, which you find when you click on “view all” from home page on Twitter.com) Therefore your friends are much more likely to all be following similar people and therefore appear in each other’s recommended list and that’s exactly the point!

So how do I know it’s working? In the past week I’ve noticed 7 or 8 new followers with whom I’m friends and who have large follower lists. These are people whom I would expect to normally be following me since we speak frequently but I’ve always guessed that they didn’t realize they weren’t following me because they had large follower bases.

It can’t be coincidence that all of a sudden so many with large follower bases and who are close enough friends all suddenly started following me in the same week.

And similarly I’ve started following a bunch of new people. Many of these are people whom I know and some are just recommended and followed by my friends – a chance for me to get to know some new people. And if we’re all following more of the “right” people and discovering new people then Twitter engagement will continue to grow.

I love Twitter. Once people get over the “I don’t care what you ate for lunch” hang up – it really is changing the nature of communications.

The algorithm is alive and well. And working. Brilliantly. Shame about the English. Whom should you be following?

** Note: any spelling or grammar errors in this post were purely intentional and designed to be sure you were actually paying attention.

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Why Gay Marriage Needs to Legitimized (and why it’s time that straight people speak up)

by Mark Suster on August 6, 2010

I don’t generally blog about politics. It’s not my thing. I’m a socially liberal, fiscally conservative, non-party libertarian at heart. Most issues are really nuanced. I accept that on many issues there is no “right” answer and rational people can disagree.

Proposition 8 was passed in California by a margin of 52-48. It defines marriage as being between a man and a woman. The intent of the law is to prohibit gay people from being married. This week it was overturned by a federal judge. The future of the issue is unclear with some people suggesting that the case will be tried in the Supreme Court. Many people believe that this would be bad for gay rights because once codified at the Supreme Court level it will be hard to over turn (and many people believe that it would be upheld by a 5-4 majority). There are currently only 5 states in the US (plus the District of Columbia) that allow gay marriage. So we’ll see where this goes politically. But that’s not what I want to discuss.

Why would I speak up on such a politically charged issue as gay marriage?

In my judgment Proposition 8 is not nuanced and deserves to have people from the business community speak out. Intelligent and decent people can disagree on topics and I hope if you disagree with my point of view here we can go on being friends. If you agree with my views I hope that you’ll find your own ways of becoming more vocal about it. That is why I’m speaking up. I want to join the chorus of people that provide “air cover” for others to speak out. A very close friend of mine thought I shouldn’t speak up. ”It’s too politically charged. This isn’t a personal blog, it’s a business blog.”

Actually, it’s a personal blog where I talk about business topics. I don’t speak on behalf of my firm here at all. I speak about topics for which I am passionate. This is one. I can’t sit on my hands.

I want to discuss gay rights, not politics. I’m heterosexual. I’m married with kids. My family has rights that are defined by our union that include tax laws, the status of our citizenship / residency, inheritance, hospital visitation, healthcare benefits, end-of-life decisions, the right to serve in our military, etc. I believe that any consensual adult relationship deserves these same protections and we in society have the responsibility to help de-stigmatize the minority of people in this country who have same-sex relationships.

It’s time to end discrimination against a large minority of our population estimated to be between 5-10% of all adults in the US or between 9-20 million people. Wow, that’s a lot of people to not have the exact same rights as you and me. Yet unless the majority of people speak up and help give this large minority a voice then they will continue to endure discrimination.

I realize that not everybody believes this. Back in late 2008 just after proposition 8 was passed in California I attended a small dinner with friends – 6 guys. At dinner I expressed that I was dismayed that Proposition 8 passed and couldn’t understand how sensible people could argue that homosexual people shouldn’t have equal rights. One of the dinner attendees started arguing back. He was happy that Proposition 8 had passed. An argument pursued and dinner was, well, un-fun. So I know that you’re not all with me

But here’s the thing:

Gay people have loving, monogamous relationships like heterosexuals do. Obviously.

There is no argument that can convince me that allowing gay people to marry would in any way threaten a heterosexual’s marriage. How could it? I’m mean really. (by the way, even without gay marriage between 40-50% of marriages end in divorce. In fact, some research suggests that Facebook increases the divorce rate. If proved, should we ban Facebook? It seems a more causal threat to marriage than allowing gay people to marry.

I later had the gay marriage debate with a very sensible, professional, educated and well-regarded member of the LA tech community. He agreed that gay people deserved the same legal rights but that they shouldn’t be able to be married. He said let them have “civil unions.” So I accept that not everybody even within my own community are with me. But in my judgment if we are going to give gay people rights it ought to be full rights. This includes the right to have all legal rights entitled to heterosexual couples. It also includes the rights to be legitimized in the eyes of everybody in the country – not to be treated as a second-class citizen. Either you believe they’re entitled rights or you don’t. And if you’re in for legal rights then we ought to accept that they deserve fully legitimacy.

The gentleman at the original dinner argued that gay marriage was bad for children because by legitimizing things you would lead to an increased rate of homosexuality amongst kids. It’s hard to argue with people who feel this way. When he said this I just knew we’d reached an impasse in our discussion.

A few generations ago brave people spoke up for the civil rights of black people in America. White people and black people marched together and 50+ years later we have an African American president.

A generation ago people like Harvey Milk encouraged gay people to be more open so that they could speak up for their own rights.

It’s 2010. It’s time for the rest of us to speak up. It’s time to let other people around us feel more confortable openly speaking about gay rights and helping to delegitimize the stigmas that still exist. It’s time to allow gay people to openly serve in our military with the same exact rights as heterosexual people.

It’s time allow gay people to be married legally in California. It’s time that we allowed them to marry legally in the United States. Who’s with me?

** Please remember that this is the personal blog of Mark Suster and is not a blog for my firm.

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Beware of Premature Merge Elation

by Mark Suster on August 3, 2010

There is a telltale sign of an inexperienced startup entrepreneur. They get premature merge elation. You know, they get so excited about doing deals all the time instead of doing the hard work of figuring out their businesses. I understand this. I was a premature merge elater once. Here’s what I learned:

1. As a startup you shouldn’t focus on buying other companies until you’ve figured out your own business
A close friend of mine in LA who is 3 years into his startup called me about 2.5 years ago and told me, “I just got offered the chance to buy this company because the founder doesn’t want to continue. It has awesome features that my main competitor doesn’t have. I can save tons of development time and I think I can buy it for all equity. How much dilution should I take for it?” My friend’s company was pre-revenue.

Me: “Zero dilution. Pass. Focus on your customers and don’t obsess about deals or keeping up with your competitors releases.”

I’m doing due diligence on a company of another entrepreneur in LA whose company was apparently doing very well. He had bought two companies and was eyeing a third. He had an ad-supported business doing about 1.5 million uniques. 500k had come through the last acquisition. He has raised (and spent) a ton o’ VC money.

My recommendation to our lead partner looking at the deal, “Pass. He’s talented. I’d like to work with him some day. That day’s not now. He hasn’t figured out his core business and he’s spending all of his time looking at ‘deals’ – that’s always a bad sign. He’ll learn the hard way and when we work with him he’ll be more focused.”

Two CEO’s come into my office (this sounds like the start of a joke). They want to merge with other and want to know if I’d fund the combined entity.

Me: Gag.

I lived through the era of companies doing premature mergers. It meant that the management teams hadn’t figured out a product / market fit for their own businesses. It’s far easier (and sexier) to spend your time working on deals – the chase, the negotiation, the secret dinners, the combination of assets, the PRESS STORY! – than it is to tweak features, A/B test products, crank out the next release, improve marketing copy, fly across the country to get a biz dev deal done or just pound the streets selling product.

That’s why immature teams spend so much time on mergers. Been there, done that, made the mistake. Please don’t relearn my lesson. Focus on improving your core business first. If you can’t just get it to work then one day you can focus on selling your assets. A merger is not the panacea.

2. There is no such thing a “merger of equals”
For some reason the industry of bankers who try to buy or sell businesses work in what is called the “M&A (mergers & acquisitions) Industry.” I’ve never understood this. There’s really no such thing as a merger – only acquisitions. I know, I know … technically they can be structured as mergers. But 90+% of all deals involve one company taking over the other.

Yes, they have grandiose statements to make them sound like mergers. Sometimes this involves co-CEO’s. Often senior people from one company are given senior titles at the other. They always have big lovey-dovey press releases. They often involve big hugs on stage. But to be clear the overwhelming majority of deals involve one company driving the cultural integration, establishment of uniform processes, hiring / firing decisions, etc.

This is a good thing. When there is a merger without a dominant buyer you have indecision and malaise.

3. Merging two weak companies is, well, weak
Another common scenario with inexperienced teams is when two struggling companies come together to create a stronger team.

We had a joke about this when I lived in England. We said it was like two people who couldn’t swim across the English Channel (21 miles) putting their arms around each other and trying to swim across together.

The only thing worse than your early-stage company buying another early stage company is you trying to pull off a merger of equals. Trust me – if you haven’t figured out your sh*t – neither have they.

4. Don’t trade your cat for somebody else’s dog
I was recently at the Greycroft Summit in East Hampton. During the weekend Alan Patricoff, the famed investor & founder of Greycroft said, “don’t trade your cat for somebody else’s dog” when talking about merging early stage companies.

I think we had slightly different definitions of this saying but since he coined the term I have to credit him. We both meant mostly the same thing. My version is, “you have a company with private stock. Somebody else is trying to convince you to sell to them in exchange for all stock. Assume they are not a hugely successful and growing company like Twitter, Facebook or Zynga. They’re a bit like you but slightly bigger and better funded. Don’t trade your company (cat) for their stock (dog).”

Why? Look, the chances of your making money out of your own startup are small. Most likely you’ll fail – most companies do. If you’re in the minority that succeed it’s possible that even when you sell you’ve raised too much money and taken too much dilution and your exit price isn’t high enough to warrant a big return for yourself.

BUT … it’s your company. You’re in control. Want to sell early? Your choice (obviously if you get investor consent). Want to double down and GO BIG? Your choice. Want to cut prices and go for market share? Choice, choice, choice.

The moment you sell, somebody else controls the exit timing, exit price, capital raising, etc. And your [click to continue…]

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Understanding a VC’s Seed Funding Policy is Critical

by Mark Suster on August 1, 2010

There has been much discussion about VCs doing seed funding in the past year. I’ve written about it myself (Is VC Seed Funding Dead?) and (Is There Really a Signaling Problem with VC Seed Funding?).

Short summary of my posts:
1. There is a structural reason that VCs are investing at early stages,
2. Many (Union Square Ventures, Foundry Group, True Ventures, GRP Partners, Mike Hirshland at Polaris Ventures) do it the right way – we treat it as a normal investment and we don’t have a “options” strategy with our investment. I’ve done 4 seed investments in the past year and they are 100% referenceable.
3. Many firms do it in a way that can be more detrimental to entrepreneurs. They either do too many seed investments (for which they can spend no quality time with any) or they treat it as an option (“if you succeed come back and see us and we’ll match any term sheet you get”) – they view it as a sort of “right of first refusal.”
4. The signaling affect is overrated. Everything you do is a signal. Investors will look at which angels you chose, whether old bosses invested, whether you were an EIR somewhere and did they invest, etc. Future investors will also look at whether your angels “re-upped” if you hit a bump in the road. VCs are just one of many signals future investors at which future investors will look. If you don’t understand the concept of “signaling” please read the blog post I wrote on Understanding VC signaling.
5. There are positive benefits to the right VCs being involved early – especially if your company or the economy hits bumps in the road.
6. So the biggest issue for entrepreneurs IMO is not “to VC or not to VC” but rather “what chemistry do I have with my funding sources, how aligned to I feel we are on how to build a company, how much do they understand my specific opportunity and importantly what can I find out about them from referencing previous people with whom they’ve worked and do they have a well defined seed program strategy.

I think the issue was mostly framed initially by Chris Dixon in his article The Problem with Taking Seed Money from Big VCs. VentureHacks laid out the debate in a truly awesome interview & PowerPoint slides if you really want an in-depth understanding of the issue.

From the debate on VentureHacks, our offline chats and from our blog posts, I think that Chris Dixon and I are pretty much 98% aligned on the topic. It’s just that he’s a “super seed” investor in a firm, Founder Collective, that I really respect (and with whom I’ve done two deals and hope to do a third) and I’m a partner in a venture capital firm, GRP Partners. So we’re bound to frame the issue in slightly different terms. After all, when you’re a hammer everything looks like a nail.

Knowing What the Seed Funding Policy of your VC is

Nivi sent out a Tweet yesterday suggesting that you should consider taking seed funding from VC’s but only if they have clearly laid out their seed funding policy. I’ve been very public about my seed strategy but when I saw Nivi’s Tweet I realized that it is not laid out simply in one consolidated space. So here it is:

We carved out a total of $7.5 million of our $200 million fund for seed funding. We have a limited amount of deals we will do. I treat each of these as a “normal” investment. The fact that I invest less just means the company is earlier stage and needed/wanted less or without a product/market fit we weren’t yet prepared to invest more heavily.
The $7.5 million in split into $5 million of “primary” investment and $2.5 million is “follow on” seed investment. More on this later.
I bucket each of these investments into three categories that drive my behavior around the next fund raising round – taking away any guessing about “signaling effects.” My A,B,C categories are below:
I will stick me neck out for any seed deal I do regardless of how early or how much it struggles. If I’m in I’m “all in.” I have noticed that some investors distance themselves from companies that struggle. One thing I respected the most about my partner Yves is that in my darkest days at my first company he stood by me. I will never forget that.

A Deals: Deals that immediately and obviously successful. This can be on a subjective or objective basis but it’s basically a deal that we are strongly persuaded by the team, the product and/or the traction that they are heading in a direction that warrants more investment. In these cases we proactively offer to lead their next round of financing.

How this works:

I try to set a price that feels like a fair balance between GRP and the company. We’ll probably end up paying more than we’d want to because we want to take the investment off the market and the entrepreneur will likely feel they should get a higher price if they shopped it broadly on the open market. This is the nature of compromise.
If we can come to an agreement we will either lead the round ourselves or partner with other investors. Like Brad Feld I’m syndication agnostic but I have a slight preference toward working with others. The investor strategy is really determined by the management team.
If we come to an agreement and fund the HUGE benefit to entrepreneurs is that they don’t have to trek up and down Sand Hill Road looking for money. The obvious positive is that there is a lot less time spent raising money and more time spent on building the business at a critical stage in the company’s development. The second less obvious benefit is this – the VC world is REALLY small and incestuous. Like it or not – news travels fast when you’re raising money. Not having to see 15-20 potential investors and share all of your plans can be a huge benefit if you don’t need to.
If we can’t agree on price I tell entrepreneurs that they can raise money and say “GRP will speak for half of the round.” Done – the only signal is positive. Obviously this “half the round” offer has limits. If we invested at a $5 million post-money valuation and you find somebody to invest at $120 million pre-money then I reserve the right to say “no” to taking more than my prorata. But in all reasonable circumstances were in.
If we invest the follow-on money comes from our non-seed fund (e.g. the $190 million).

We already have one example, which is Ad.ly. We loved the team (they hired a very experienced CEO (the founder’s recommendation to do so – not mine) and a great technology team, we loved the product category of in-stream advertising which I believe will continue to be a major trend and we were impressed with the quality of the product they were developing. So we led the first big institutional round and partnered with Greycroft Partners and Matt Coffin (founder of LowerMyBills).

I would expect 2-3 deals out of 10 to hit the A status.

C Deals: Deals where the team makes little to no progress – C deals are also pretty easy. No investor (angel, seed or somebody writing a $10 million check) will guarantee that they will make the next investment in your company. If the management team fails to deliver against even a modest set of expectations, doesn’t ship product, has internal conflict, demonstrates a lack of maturity or any other number of subjective judgment teams that your initial investment decision was wrong then the investor will not fund the next round.

Note that if you can convince outsiders to invest you are by default not a “C Deal” because almost any VC will at least do their prorata if you can find outside investors. But if you had a seed program that guaranteed the next round of investment it would be even more liberal than an A Round investment and there’s no reason for that. Anybody who “guarantees” your next round (other than by legal commitment) is not being truthful to you.

Having talked with our investors (known as LPs) I know that they feel that if we have a seed program we need to be willing to have C Deals – meaning that they want to be sure that we’re not committing to millions of investment in a company just because we seed funded them. That would run the risk of the “sunk cost fallacy that we all learned in basic economics (or if you didn’t make sure to read Fred Wilson’s primer on the topic

So let me assume 1-2 out of every 10 become C deals. Luckily I haven’t had one of these yet.

B Deals: Deals that are progressing but not obvious successes yet – So the real question for a VC who crafts a seed fund is what to do about those pesky “B Deals” because they probably will be the largest bucket of your investments. The reality is that despite all expectations going into a project, most companies take longer to get off the ground than the management team or investors would like. The product ships a bit more slowly, hiring takes a bit longer than anticipated, product/market fit isn’t achieved with the first product release, etc. Not everybody is an instant FourSquare or Quora and not every management team has credibility to get the next round of investment done before having proof of adoption.

So my biggest problem with VCs who do seed funding is when they strand or starve their B Deals. My strategy is to go to the B management teams and offer to do another seed round – perhaps even as large as the initial round. In an ideal world I wrote a $500k check and we got an additional $250-$500k from other investors. So we might collectively be talking about the company having an extra $1 million to get to a proof point.

Most likely this check comes in the form of “convertible debt” that is not priced but is converted into a future financing at a discount to the next round valuation. This is the most common form of “inside round” structure but it’s also possible you’d price it.

But this check is different than the first. It is delivered with the statement, “This MIGHT be your last round from us – so please act accordingly. If you hugely believe that you still have a $100 million idea then let’s go for it but please be prudent with how fast you spend your capital. If you’re less convinced that this is a huge opportunity now that you’ve been working on it for 18 months then perhaps you should find a “safe home” (read: sell your company) for your assets and we can all move on to our next opportunity.

Or perhaps you want to make your company “ramen profitable” so that you can run it a bit longer without needing capital and see whether you can build it to scale.

Or you find outside investors that become passionate about your project and we’d obviously be very supportive and do our prorata (at minimum) going forward to support you.

But please go into the next year to 18 months knowing that if there is no substantive progress we are unlikely to do a third seed investment.”

My hope is that 2-3 out of 5 would find the magic given an extra seed round and an extended period of time to work things out. The others would need to either sell, slim costs, find new lead investors or wind things down.

So when you’re talking with VCs about seed funding, I agree with Nivi. Ask their strategy. GRP Partners has set aside $5 million to do seed funding and has reserved 50% on top of this to to “follow on” investments for B Deals. We support our teams and feel this is a vital part of VC seed funding and that seed funding is a vital part of our broader investment strategy.

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