Bothsides of the Table

This morning it was announced that Matt Murphy had left his role as a partner Kleiner Perkins to join as a partner in Menlo Ventures.

As much of the coverage in the press this morning acknowledges it’s rare for a partner to leave from one firm to another. It’s even more rare for VCs to talk publicly about other VCs, so I thought it would be fun to break rank and tell you about Matt.

I’ve worked very closely with Matt over the past four years as we share an investment in a company in Los Angeles called NextPlus and we sat on a board together for years.  In this capacity I can tell any entrepreneurs raising early-stage capital that I would have Matt on my short list if I were raising. He’s had a ton of recent successes in enterprise software investments but also has a history in doing consumer deals. In fact, last time I grabbed a beer with Matt he mentioned that he had four active investments now worth over a billion in valuation.

What did I learn in working with Matt?

1. He’s committed. NextPlus is in LA. I watched him jump on a plane regularly to be down at all of our board meetings and while I know that sounds like an obvious commitment from a VC, I’ve watched other scenarios where NorCal VCs find reasons to always dial in via Google Hangouts or ask non-Silicon Valley investments to travel to Menlo Park or San Francisco for meetings.

2. He’s with you in good times & bad.  Gogii [the original company name] was an early leader in the free text messaging space and we had tens of millions of downloads of our product. Those were the good days.

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Over the years I’ve written extensively about the downsides of convertible notes for startups such as here, here and here. The truth is that I’ve been warning about convertible notes since 2010 it was first declared that “convertible notes have won.”

Today I want to talk about how a VC thinks about equity pricing on your round and particularly if you’re coming off of a convertible note. I am reminded of this problem every time my firm does a financing where a note went before us but more specifically I was reminded by this great post by Brad Feld to talk about the pre-money vs.

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What does it mean to be a leader?

It’s relatively easier to answer that question when you’re a founder & CEO and have total control over hiring & firing. If your company is successful and valuable people generally do what you ask. It can sometimes create confusion about whether or not you’re truly a great leader or whether people feel they must just follow your orders. A truer measure is when you must persuade purely through logic, performance, respect, effort, guidance and empathy.

I learned this in college. I often tell people I learned more about how to become an entrepreneur by being president of my fraternity than any college course I ever took or any paid job I ever had. As president I had to convince a bunch of college-age students to pay dues, turn up at weekly meetings, manage budgets, doing community service and avoid the kind of behavior that might make your organization defunct. Ordering people around was an impossibility and meetings consisted of back-benchers second-guessing every hard choice I had to make.

I learned about leadership again in my first job out of school. I was hired by Andersen Consulting in 1991 during the midst of a recession.

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I’m so tired of seeing young entrepreneurs get screwed by their angel investors on convertible notes and I know I can’t convince you not to do it so I’d like to offer one simple bit of advice to help you avoid getting screwed (at least on one part of your note).

When you do a convertible note with a cap that converts into the next round of funding one of the unintended consequences is that if you’re successful and raise at a larger price than your cap the early angels often get “multiple liquidation preferences” on their dollars in.

Here’s how it works:

Angel gives you $500,000 at a $5 million cap (thus they will own at least 9% of your company if it converts at a price higher than the cap). If you raise at a lower price they will own more than 9%. [This is called a “full ratchet,” which is also historically a term that VCs would be crucified for trying to get away with but I’ll avoid talking about that in this post.

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Planning a threaded Tweetstorm? Here’s the rules: 1/Tweet 2/Reply to 1st Tweet but remove your @name 3/Reply to 2nd Tweet not 1st 4/Repeat

— Mark Suster (@msuster) May 29, 2015

I learned the hard way by doing a Tweetstorm below but linked every subsequent Tweet back to the original Tweet to create the thread. I faced the wrath of the community. It turns out that it works fine how I did it with the web version of Twitter but not with mobile.

1/ Twitter started off positioned as a micro-blogging platform but in the end became more of an RSS reader

— Mark Suster (@msuster) May 29, 2015


2/ @pmarca popularized the “Tweetstorm” which ironically brought the real concept of microblogging to Twitter many years after its inception

— Mark Suster (@msuster) May 29, 2015

3/ What I love about Tweetstorms is that you get engagement on each 140 chars.

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