Bothsides of the Table


Product Hunt. It seems out of nowhere it has become the go to website for startup companies to launch their new products or businesses.

It reminds me a lot of how TechCrunch felt in 2006. It was the place that every startup knew they HAD TO be in order to attract initial users and also gain the attention of venture capitalists. A strong showing on TechCrunch created initial product demand and if you could sustain that it led to buzz overall in the tech community. Companies like Twitter were really cultivated by the TechCrunch enthusiast crowd long before celebs, comedians and politicians were on Twitter.

And if you need the parallel look no further than Meerkat whose success was highly correlated with its popularity in the Product Hunt community and it leveraged the tech industry buzz around the product into more meaningful usage by people like Jimmy Fallon or U2.

So I set out to understand this phenomenon a bit more deeply. I started by launching a portfolio company’s product on Product Hunt. Ferris did normal press and also launched on Product Hunt and the latter drove significantly more downloads than press did. I think in part because the community of super-passionate early adopters is spending time on Product Hunt whereas websites like TechCrunch or Business Insider have gone more mainstream.

Another highly important factor in the success of Product Hunt is the community itself. Much like websites including Reddit, HackerNews or even Twitter, websites that form strong communities become as much about the interactions on the website as they do about the actual content of the product itself. Your participation in the community defines you and long-term relationships are built.

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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.

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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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