Saturday, September 19, 2009

"The Referendum": Great Essay On Mid-Life Angst

I thought this New York Times article from Tim Kreider was one of the best (funniest, insightful) things I've read this week. Kreider discusses a phenomenon that strikes many of us as we get along in years: The tendency to evaluate the lives of our friends to ponder paths not taken. Some money quotes:

* * *

Young adulthood is an anomalous time in people’s lives; they’re as unlike themselves as they’re ever going to be, experimenting with substances and sex, ideology and religion, trying on different identities before their personalities immutably set. Some people flirt briefly with being freethinking bohemians before becoming their parents. Friends who seemed pretty much indistinguishable from you in your 20s make different choices about family or career, and after a decade or two these initial differences yield such radically divergent trajectories that when you get together again you can only regard each other’s lives with bemused incomprehension.

* * *

I recently had dinner with some old friends, a couple with two small children, and when I told them about my typical Saturday in New York City — doing the Times crossword, stopping off at a local flea market, maybe biking across the Brooklyn Bridge — they looked at me like I was describing my battles with the fierce and elusive Squid-Men among the moons of Neptune. The obscene wealth of free time at my command must’ve seemed unimaginably exotic to them, since their next thousand Saturdays are already booked.

* * *

Most of my married friends now have children, the rewards of which appear to be exclusively intangible and, like the mysteries of some gnostic sect, incommunicable to outsiders. In fact it seems from the outside as if these people have joined a dubious cult: they claim to be much happier and more fulfilled than ever before, even though they live in conditions of appalling filth and degradation, deprived of the most basic freedoms and dignity, and owe unquestioning obedience to a capricious and demented master.

I have never even idly thought for a single passing second that it might make my life nicer to have a small, rude, incontinent person follow me around screaming and making me buy them stuff for the rest of my life. [Note to friends with children: I am referring to other people’s children, not to yours.]

* * *

Watching our peers’ lives is the closest we can come to a glimpse of the parallel universes in which we didn’t ruin that relationship years ago, or got that job we applied for, or got on that plane after all. It’s tempting to read other people’s lives as cautionary fables or repudiations of our own.

* * *

I am blessed (or in to some, cursed) with accomplished, interesting, successful friends. It's very tempting to wonder what life would be like as a famous VC, an international guru and speaker, or Hollywood bigwig. But in the end, I am comfortable living my own life, and obeying my own capricious and demented masters.

Friday, September 18, 2009

21 Million Reasons For Mint To Sell

When I heard about Mint's sale to Intuit for $170 million, I never imagined that it would be controversial. I posted my congratulations to the friends who made money in the deal, and moved on.

It's been a busy week, and I haven't been keeping up with Twitter and RSS, so imagine my surprise to discover that 37signals founder Jason Fried had written an angry post entitled, "The next generation bends over," in which he described the sale as symptomatic of a "VC-induced cancer affecting the industry."

I'm sympathetic to some of Fried's arguments, and in a conversation with my buddy Ramit, we talked about the curious timing of the sale, given Mint's strong growth, and its recent VC round. But I concur with other investors who argued that it's unlikely that the Mint investors were responsible for the sale.

In fact, the difference between VC and founder economics practically ensures that the Mint sale was driven by the founders.

VCs take a porfolio approach to managing risk; individual company is largely irrelevant because of diversification effects. In fact, one of my portfolio companies was once rejected by Sequoia because, "You'll almost certainly build a nice $100 million business. But we'd rather have a riskier investment that either flames out or becomes a $1 billion business." Thus the key metric is expected value.

In contrast, as an entrepreneur, you're stuck with a one-company portfolio. The only way to manage your risk is focus on the risk-adjusted return.

In addition, the utility curve for money is non-linear. That first million dollars makes much more difference in your life than your one hundredth million.

To put it another way, Mint sold for $170 million. The company had raised around $32 million, and probably got participating preferred with a 1X liquidation preference. So the VCs probably got paid their $32 million first, leaving $128 million to be divided up according to the cap table.

Given that Mint had done five rounds of financing, it's likely that the investors owned 2/3rds of the company (take 20% of the company 5 times (0.8 to the 5th power), and you end up with a little over 66%). So the founders and employees had 42 million to divvy up.

If CEO Aaron Patzer owned 50% of that total, that's a cool $21 million.

Now I don't know about you, but I think $21 million is a lot of money. If Mint continued to execute well, got lucky, and ended up selling for $1 billion, Aaron would end up making around $160 million. That is a lot more than $21 million, but how many of us would turn down $21 million in the hand for the potential of $160 million in the bush?

One of my friends turned down a $300 million cash acquisition offer during the first boom. His company filed for bankruptcy 18 months later.

I have a family, with two small children. I have no doubt that were I in Aaron's position, I would take the money, and worry about changing the world with my next startup.

I agree with Jason Fried that Mint had a chance to be something amazing, but I'm afraid my family matters more to me than any vague sense of responsibility to a "new generation of entrepreneurs."

Disclaimer: I have zero inside information on the Mint sale.

Tuesday, September 15, 2009

Attend The Medici Experience San Jose on 9/24

My old friend Frans Johansson, the author of The Medici Effect, is working with the city of San Jose to bring his innovation workshop to the Bay Area next week.

The Medici Effect refers to the amazing innovations of the Italian Renaissance, sparked by the mingling of disparate cultures and experiences.

I went to Frans' last Medici event, the Medici Summit in 2008, and it was easily the best conference I've ever attended (and I've attended a lot). Fun activities, thought-provoking speakers, and brilliant folks from around the world.

To cap it all off, I've got a promo code that lets you get in for the $99 student rate instead of the $195 general admissions price.

If innovation and creativity matter to you and your work, you'd be crazy not to go. If you miss it, the next Medici Experience won't be until 2010, and you'll have to fly to Trinidad for that one!

Register online at the Medici Experience web site, and use the promo code "SJMEPROMO".

P.S. Frans is one of the most energetic speakers you'll ever get a chance to see. If you don't believe me, check out this video:

Frans Johansson electrifies audiences from The Medici Group on Vimeo.

In one day create a new product/service or find ways to operate more efficiently at The Medici Experience San Jose. Be a part of rebuilding the economic community of San Jose by networking across sectors and creating a new network of colleagues committed to the viability of California.

Attend: The Medici Experience in San Jose, CA
Date: September 24, 2009
200 E. Santa Clara Street, Wing 118-120
San José, CA 95113
9:00am - 5:00pm

The Medici Experience brings you together with people from diverse backgrounds but with one common purpose—to propel you and your organization forward through inspiration and ingenuity. During this intense, day-long workshop, world-renowned innovation expert Frans Johansson will guide you by using existing resources, assets, skills, and relationships to create groundbreaking ideas and to help you make those ideas happen!

This is an interactive live performance in a high-energy environment where you will be pushed to the edge of your creative capabilities, while connecting with people from different industries and companies in an intense explosion of new ideas. By day’s end, the Medici Experience will send you on your way with new tools and strategies for innovation and have you ready to face any challenge. More important, you will leave with specific ideas and the right outlook and plan to pursue them.

Register online at the Medici Experience web site, and use the promo code "SJMEPROMO".

If Startup Success Is All About Luck, Why Aren't You Starting More Companies?

Another TC50, another set of startups, and just like clockwork, the haters will come out and troll the comment boards.

"It's all luck," they'll rant. "Founders are just lottery ticket winners."

What a load of crap.

First of all, there's nothing wrong with being lucky. I'd rather be lucky than good. As I'm fond of saying, "No one ever says, 'Hey, there goes Chris the broke unhappy guy. Boy is he lucky.'"

Second, if you think founders get disproportionate rewards, why not work the system and start your own company?

But most importantly, if success really is all about luck, why aren't you starting more companies?

Logically speaking, either startup success is about skill, or it's about luck.

If it's about skill, you should start as many companies as you can, so you can learn from the process and increase your chances of success.

If it's about luck, you should start as many companies as you can, so by dumb luck alone, you'll increase your chances of success.

Either way, stop wasting your energy grumbling about luck, connections, or any of the other excuses people use, and channel all your effort into starting your next company.

Monday, September 14, 2009

There Is No Right Answer--And Smart VCs Know It

A hearty congratulations to Rob Hayes and the First Round team, Jeff Clavier, and Mark Goines--three friends, three great investors, who got a great result from their investment in Mint (acquired today by Intuit for $170 million).

Lost in the hoopla around the announcement was this very telling quote from Rob about the Mint team, which I want to highlight:

Hayes said CEO Aaron Patzer spent a year researching the company before approaching investors and thoroughly understood the space. Hayes also liked the fact that Patzer wasn’t afraid to say “I don’t know” when he didn’t have an answer. “He would say, ‘there are five ways that this could play out,’” Hayes said.

I can't emphasize this enough. I often work with inexperienced entrepreneurs who seem to believe that there's a right answer, and that they've figured it all out.

When these entrepreneurs encounter a skeptic, be it a VC or a business partner, their reaction is to dig in their heels and prove that they're right and the skeptic is wrong.

This is a terrible strategy. It's unlikely you'll change their mind, and they'll simply write you off as a rookie. (This is not to say that you don't correct investors when they are clearly wrong; you need to stand up for yourself. But acknowledge that in life, unlike problem sets, the answers are debatable)

The proper reaction is that of Mint CEO Aaron Patzer. When you say, "I don't know" and "Here are a couple of ways this could play out," you're establishing three important things:

1) You are aware of the limitations of your knowledge
2) But because you know your stuff, you have already thought through the possibilities
3) And you are confident enough in your judgment to expose your thinking to the investor

This is the kind of entrepreneur I want to invest in--knowledgeable, thorough, transparent.