Thursday, August 27, 2015

The Odds Are Always Against Startups

Y Combinator CEO Sam Altman just released a fascinating set of statistics about the firm.

The numbers are pretty stunning; Y Combinator's 940 companies are now worth more than $65 billion.  That's an astonishing mean value of $69 million...and recall, that Y Combinator buys into those startups at a sub-$1 million valuation.  Now that's a great business!

But while Y Combinator itself is a great business, I want to point out that embedded in those stats are the fact that the odds are always against startups.

I'm fond of telling audiences that only 10% of venture-backed startups succeed, by which I mean achieving an exit of $100 million or more.

Y Combinator estimates that 40 of its 940 companies are now worth more than $100 million.  That's 4.3%.

Even if we double this number to account for the fact that many Y Combinator companies are too young to have reached their final stage of growth, we still only get 8.6%.

Meanwhile, YC has produced 8 "unicorns," which implies a ratio of 8 / 940, or 0.9%.

In other words, even if you get into the world's greatest, most successful accelerator (Y Combinator), your chances of building a unicorn are only 1-2%.

This is one of the paradoxes of startups: Collectively, startups are a fantastic business that contribute greatly to society.  Individually, the odds against any individual startup and entrepreneur are incredibly long.

Friday, August 21, 2015

Ambition vs. Meaningful Goals

Leo Widrich at Buffer recently wrote about how he has been reflecting on the dangers of ambition:
"[Ambition] gets in the way of doing the great work of our lives, of living out what we’re already naturally gravitating towards. It also blinds my awareness especially of accepting things how they truly are—instead of making them fit my ambitions. It’s like trying to straighten something out forcefully that isn’t meant to be straight, which instead wants to follow its natural course."
The key related point I'd like to make is that we need to be very clear about our implicit definition of "ambition."  I think it's telling that Leo never bothered to define ambition; we consider it so fundamental and common that it needs no definition.

Google's quick definition of ambition seems to reflect the unsaid words in our heads: "desire and determination to achieve success."

Yet this simply kicks the can down the road--what do we mean by "success"?  Again, Google does a good job of reflecting the common belief: "the attainment of popularity or profit."

Put it all together, and I think you get an accurate definition of how people use the word ambition:

"Ambition is the desire and determination to attain popularity or profit."

The problem with ambition is that it combines a good thing (desire and determination) with a bad thing (allowing others to define what is important).

When you focus on what others define as important--popularity and profit--you abdicate responsibility for your own life.  and even if your ambition is rewarded, and you achieve popularity and profit, it doesn't bring any intrinsic meaning to your life.  It just means you're good at playing someone else's game.

Don't settle for being ambitious.  Instead, develop the desire and determination to achieve personally meaningful goals.  That's how you do the great work of your life.

Friday, July 31, 2015

The Ultimate Startup Success Plan (based on 10 years of data)

First Round Capital, the first and foremost of the "micro" VC funds, recently released a retrospective set of lessons learned based on 10 years of investing data.  It's an incredible trove of data, some of which I love, some of which makes me feel uneasy.  But since I always believe in working with the world as it is, rather than pretending it's something it's not, I've decided to synthesize First Round's lessons into the ultimate startup success plan:

1. Get a female co-founder.
"Companies with a female founder performed 63% better than our investments with all-male founding teams."

2. Get started young.
"Founding teams with an average age under 25 (when we invested) perform nearly 30% above average."

I don't like supporting the ageism of Silicon Valley, but the data is the data.  It may make sense to seek out younger co-founders so you have a mix on your team.

3. Go to an elite college.
"Companies with at least one founder who attended an Ivy League school, Stanford, MIT, or Caltech performed 220% better."

Again, I don't necessarily like the data, but this is the single largest effect First Round found.  Find a co-founder who went to the right schools.

4. Work at a brand name company.
"Teams with at least one founder coming out of Amazon, Apple, Facebook, Google, Microsoft or Twitter, performed 160% better than other companies."

5. Keep starting companies.
"Our investments in repeat founders didn't perform significantly better than our investments in first-timers — mainly because successful repeat founders’ initial valuations tended to be over 50% higher."

The investors' loss is your gain if you're a serial entrepreneur!

6. Find a co-founder.
"Teams with more than one founder outperformed solo founders by a whopping "

Presumably the winning strategy is to recruit a female co-founder who went to an elite college and worked at a brand name company!

7. Whether you need a technical co-founder depends on whether yo163%u're an enterprise or consumer company.
"Enterprise companies with at least one technical co-founder perform 230% better; consumer companies with at least one technical co-founder perform 31% worse."

I'm actually quite skeptical here; Apple, Google, and Facebook all had technical co-founders, as did recent successes like WhatsApp.  But again, the data are the data.

8. Move to Silicon Valley.
First Round's data found that their non-Bay Area/NYC companies slightly outperformed.  But this outperformance is based on investment returns; Bay Area/NYC companies are so much more expensive that their high valuations drag down returns.  As an entrepreneur, you're better off in Silicon Valley.

9. Referrals aren't the only way in to a VC firm.
Another example of data not meaning what you think it means.  First Round found that referrals underperformed direct contacts from entrepreneurs and finding investments via press coverage and events.

I would argue that since VCs ignore most direct appeals from unknown entrepreneurs (I know I do!), a company has to be particularly good to punch through the noise.  Similarly, a company that was accepted into an accelerator, or is being written about in the press, is significantly more likely to have traction.  And since hype tends to bring higher valuations, the data suggests that the hype was justified, since despite paying higher valuations, First Round still made more on this type of investment.

10. There's no reason to move to San Francisco.
First Round's data showed that over the past 5 years, 75% of their investments were started in San Francisco.  This doesn't mean it's a good idea to move there.  Indeed, First Round didn't report that SF-based investments did any better (which I'm sure they would have reported if it were true).  Furthermore, I strongly suspect that more than 75% of companies are being started in the City these days, which suggests that your odds of being selected by someone like First Round are actually better if you're outside SF!

When I combine all these lessons together, I can now paint a picture of the perfect startup:

A 25-year-old female co-founder with a technical degree from an elite college, and who worked for Apple or Google is partnering with another young co-founder to start her second company, an enterprise software venture that is accepted into YCombinator and moves to Mountain View.

If you match this description, please contact me right away!

Sunday, July 19, 2015

The Only 4 Reasons Investors Say "Yes"

Alex Schiff is a great guy and the creator of one of my favorite products, Fetchnotes.  I met him when he was raising money for Fetchnotes (in the end, I decided not to invest because while I loved the simplicity of the product, I concluded that there weren't enough self-organizing people like me to represent a big enough market...sadly, I was right, and I've seldom been sorrier to be proven correct).

Alex recently wrote a terrific "lessons learned" post about his experience with Fetchnotes, which demonstrates that he is also a talented writer (before he dropped out of school, he was a journalism major).  The whole post is well worth reading, especially for first-time entrepreneurs, but I want to highlight one paragraph in particular which I think does a great job of summarizing why investors say yes:
"There are only four ways an investor says yes: 1) you have massive traction, 2) you have social proof from other trusted investors/accelerators/mentors, 3) they have a personal passion for the problem/industry/product, 4) they have a personal relationship with the founder. If one of those doesn’t apply, you might get someone to take a really deep dive, but in the end there will be some stupid, idiosyncratic reason they say no at the last minute."
I frequently talk with entrepreneurs who are smart, talented, and capable, but who are trying to raise money too early.  Alex's list is a great checklist for anyone thinking about raising money.

1) Do you have massive traction?

As I've written before, nothing matters more than traction.  I often joke that if we made contact with an alien civilization that practiced baby cannibalism, and one of its members started the next Uber, investors would find a way to rationalize investing.  "Who am I to judge another person's culture?  After all, we're talking about alien babies, not human babies.  And C'hixelgleep is really killing it when it comes to making the numbers!"

It's only if you don't have traction that you have to fall back on the others.

2) Do you have the imprimatur of trusted investors/accelerators/mentors?

As much as I decry the groupthink of investors, brand-name accelerators are a powerful sign of quality.  I've had one company get offered a spot in YC, and turn it down after failing to negotiate down the equity component of the standard YC deal.  I urged the founder not to screw around, and told him that *I* were to start a company, I'd apply to YC even though I already have a vast network of friends and contacts throughout the Valley.

One interesting point is that trusted mentors can also be your gateway to receiving investment.  One of the reasons that entrepreneurs still reach out to me (other than desperation, of course!) is that I have a pretty good hit rate when I introduce a company to investors.  The fallacy lies in believing that I or other mentors have any real power to push a particular company, independent of its merits.

First, I only endorse or recommend companies that I believe in.  My reputation is not for sale or rent.

Second, the only reason that investors continue to take my introductions is the fact that they know that the prior point is true.  The instant I tried to game the system, I'd lose my credibility.

Third, investors always make their own decisions anyways.  All I can do is provide access; you have the close the deal on your own merits.

3) Does the investor have a personal passion for the product/industry/market?

Personal passion is helpful, but unlike traction, it's not definitive.  Remember, I loved Fetchnotes (and still use it every day).  That didn't convince me to invest in the company.  Most investors can distinguish between product quality and business prospects.  A great product is necessary, but not sufficient.

4) Do you have a personal relationship with the investor?

The obvious thing here is to raise money from friends and family.  But unless you're fortunate enough to come from a long line of Drapers, or went to Stanford with Peter Thiel, this won't help you much when it comes to raising an institutional round.

(Side note: There's a reason why friends and family are usually the first money in.  That investment is an irrational bet on you.  And if you're unwilling to take their money, that's also a strong indicator of how much you believe (or don't believe) in what you're doing.)

It's almost impossible to build a personal relationship while courting an investor (though it is possible; one intrepid entrepreneur got my money by showing up at every event that I spoke at, just to give me updates on his business--fortunately for him, his business was going well).  Instead, build relationships before you need to raise money; it's a lot easier to get a meeting with a VC who is a personal friend than it is via sending cold emails.

Bear in mind, however, that when an investor is considering an investment, they are wearing their "investor" hat, not their "friend" hat.  I invested in one entrepreneur who was shocked when he was unable to raise a Series A round for his startup.  He couldn't believe it, because he had a wealth of personal friendships with VCs, and they happily signed up to speak or sponsor previous events and gatherings he had organized.  The facts of life are that, in the words of Cyndi Lauper, money changes everything.

As I wrote earlier, I encourage you to check out Alex's entire piece, which should be required reading for any first-time entrepreneur!

Tuesday, May 12, 2015

Don't Feel Guilty, Feel Committed

I like to say that I don't feel guilty about things.

For example, I don't bother replying to Christmas cards.  Every year, I receive boxes of cards.  I never send a single one.  And I never feel a single pang of guilt.

Yet even though I don't feel guilt, I'm not a sociopath.  I try to help people, and I feel terrible if I let someone down.



Here's how I draw the distinction:

There's a big difference between guilt and commitment.

Commitment means doing what you promise you'll do.  I'm very committed.  If I say I'll do something, I'll do it.  And if I can't do it, I'll feel terrible.

Guilt means letting someone else make promises for you.  I don't believe in guilt because I don't believe that I have any moral obligation to keep commitments that I didn't make.

Remember those darn Christmas cards?  I didn't ask to receive them.  So I reject society's illogical belief that I need to reciprocate.  That doesn't make me a bad person, just an independent one.

Sunday, May 03, 2015

The Problem With Populism

As I read an editorial, Americans Need Jobs, Not Populism, by Jack Markell, the Democratic governor of Delaware, I was struck by the following thought about populism--left and right:

The problem with populism is that it puts the focus on feeling good, rather than getting what you want.

Whether you're a Tea Partyer, or you're still mourning the Occupy Movement, participating in populist movement is all about feeling good.  It feels good to fill and surround yourself with righteous indignation.  But what it doesn't do is have a real impact.

Making change usually doesn't feel good.  It usually feels frustrating and boring.  You're constantly swimming upstream, while the rest of the world floats downstream, sitting in a inner tube and sipping on a cocktail.  It's a lot more fun to join a mob so you can shout slogans and high-five the true believers.

Making change is unselfish work.  Populism is selfish fun.

Saturday, May 02, 2015

A Modest Proposal for Saving San Francisco's Bohemian Neighborhoods

I read with some interest this longform piece on how the desire of the wealthy to live in cities is effectively exiling the bohemians who made those communities attractive to gentrifiers:

The essence of the argument is this:
"American bohemians are in a state of slow-motion flight, perpetually facing the threat of exile at the hands of wealthier people attracted by the products of their lifestyle. It clearly erodes the vibrancy and character of the country’s greatest metropolises. And it begs deeper consideration of how we allocate the finite and long-undervalued resource of dense urban space."
While I am firmly and resolutely square, and only venture to San Francisco for weddings, funerals, and business meetings, I can't help but prescribe a solution to the bohemian crisis.  My solution is all the more delicious because it relies on the power of capitalism!

1) Treat bohemian neighborhoods like shopping malls or theme parks.

We can't change the fundamental economic dynamic of wild bohemias, so we need to resort to farming.

In my home town of Santa Monica, the city was only able to revitalize its downtown when developers constructed the Third Street Promenade, a carefully-designed faux-downtown with a tightly controlled and curated set of shops and residences.

Even the Walt Disney corporation has gotten into the act, with "Downtown Disney" at Walt Disney World--a facsimile of city life that is wildly popular with "guests" who have paid a pretty penny to travel from their own cities to a giant theme park in the middle of the Everglades.

Why not apply the same principles to real downtowns?  Heck, this is exactly how Times Square works in New York.

Here's how you could do this:

2) Focus on building mini-neighborhoods.

Building a fake bohemia requires strong central control, either by a real estate developer, or a community association.  The central authority would exert control over and entire block, allowing it to carefully curate both businesses and residents.

Thus, the bohemia-builder would grant below market rents to art galleries and bodegas, then charge through the roof for someone who wanted to bring in a Whole Foods or microbrewery.

Artists would apply for a term as an Artist-in-Residence.  Each AIR would receive subsidized or even free housing for a pre-set term (I'm thinking 4 years), which could be renewed by the central authority.  The AIRs would also provide input on which new artists to bring in as AIRs.

You might set aside 25-33% of the space for subsidized tenants (businesses and residents) that would provide the needed "character," then make up the lost revenues by charging yuppies even more to live in a vibrant bohemia that was also safe and clean.

3) Build a bohemian brand.

One goal might be to build the WeWork of bohemian neighborhoods--a reliable brand that stood for a fun, high-quality customer experience.  Sure, such corporatism might repel bohemians, but the dirty little secret is that most artists would be willing to tolerate a bit of capitalism if it allowed them to continue living in their beloved San Francisco.  They might even enjoy living in well-maintained, crime-free neighborhoods that included art galleries and hipster diners.

To some extent, this entire essay is a bit tongue-in-cheek, but the more I think about it, the more lucrative the idea seems.  I wonder who I'd pitch to fund AirBohemia?

In Memory of Dave Goldberg

1. I met Dave when I was raising money for Ustream back in 2007.  At that point, the founders had just launched the site, and it was growing like mad.  But without a clear revenue model for live streaming, we were operating the company on a shoestring.  The founders weren't taking any salary, and the technical operations (hosting and software) were being run off my personal credit card, and I was getting *very* anxious to raise money from other investors.

At the time, we lived in a pre-Angel List world, and it was hard to find people who were willing to risk their money on a raw startup that was competing head to head with what was then one of the most hyped startups in the world (  We met Dave when he was an EIR at Benchmark.  Fortunately for the founders and me, Dave saw something he liked.

Not only did he write the single largest angel check we took in, he also brought in enough of his friends to give us breathing room.  He was also generous with his time and contacts.  The rest, as they say, is history.

2. I wish I had spent more time with Dave.  Sadly, I didn't stay in touch as well as I should have.  I told myself that I didn't want to bother him, given his responsibilities as CEO of Survey Monkey and as a dad.  This was true, but I also assumed that I had plenty of time to catch with him in the hazy "future," perhaps after our kids were older.  I also thought I might reach out to him since we were probably both going to be in Boston for the Harvard Business School reunion (since I'm Class of 2000 and Sheryl is Class of 1995, our reunions always coincide).  Alas, the future is never guaranteed.

3. I mentioned on Twitter that one of the things I admired most about Dave was his ability to balance being a husband and father with his work.  Indeed, I envied him; I had long since concluded that I lacked the superhuman capacity to take on a CEO role and manage the rest of my complicated life.  Dave made it work, and under challenging circumstances that included being married to one of the world's most powerful (and busy) women.

Given this tragedy, I think we should admire Dave all the more.  With his high-powered career, it would have been very socially acceptable for Dave to spend less time with his family, with the assumption that he'd always have more time with them in the future.  I can't imagine the pain that Sheryl and their children feel right now, but I'm sure that they are grateful that the way he chose to live his life left them with an overflowing bank of love and happy memories.

None of us can guarantee that we'll be around; I'm not that old, and I've already lost far too many friends.  You have to balance past, present, and future.

4. As I get older, I think more and more about leaving a legacy.  In Silicon Valley, that usually means focusing on the products or companies we've built.  I think that's an incomplete picture.  Products and companies (and for that matter, books) are important, but they represent one extreme of one's legacy.  As usual, I believe that you should take a "barbell" approach.  The parts of your legacy you should care about are the extremes--the legacy you leave for those closest to you, and the legacy you leave for the world.  Even though the well-deserved tributes that people will write about Dave will focus on his public legacy, it is the rich private legacy he left for those he loved, and who loved him, which I believe he would care about more.

Friday, April 17, 2015

How To Hack The Learning Process

Step 1: Read books.

For all that we mock the traditional publishing industry, any book that makes it through that process has gone through many quality filters.  If you further limit yourself to books that have withstood the test of time, reading books is the best way to inject concentrated, high-quality knowledge into your brain.

Step 2: Write up your notes each time you finish a book.

Consolidate your knowledge by writing your own summary afterwards.  1) This action "fixes" the knowledge in your brain.  2) You can always refer back to your summary afterwards to refresh your knowledge, and since you wrote it, it will be uniquely accessible to you.

You can find a lot of the books I've read here:
The Book Outlines Wiki

For example, I recently read a book on coaching, counseling, and mentoring to help me in my own executive coaching practice; taking notes will help me retain and apply what I learned:
Coaching Counseling and Mentoring

Wednesday, April 15, 2015

Compassion is not a zero-sum game

I always remember one English seminar I took while I was at Stanford.  We were discussing Rebecca Harding Davis' travails, and one of my more militant classmates flatly stated, "Look, she was white, and she had money.  I don't want to hear about her problems."  (You probably won't be surprised to learn that my militant classmate was also a wealthy white woman).

I find this lack of compassion appalling.  The thinking seems to be that we need to compete on our miseries, and that ultimately, we must all defer to a starving genocide victim somewhere in Sub-Saharan Africa.  I don't believe that compassion is a zero-sum game.

Having problems, even first-world problems, is emotionally draining.  Having difficult choices, even if all the options are enviable, is still difficult.