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Some of my favorite VC posts are ones that say what the VC posts that say what the VC thinks about how it all works. And – importantly – how it impacts the entrepreneur, his choices, and the dynamics between the entrepreneur and the VC.
Fred Wilson does this regularly. For example, see his post today on Valuation vs. Ownership.
My partner Jason Mendelson does the same. See his recent post The “VC Bargain”. Of course, Jason and I aspired to do the ultimate version of this in our book Venture Deals: Be Smarter Than Your Lawyer and Venture Capitalist.
You don’t have to agree with them. That’s what the comments are for. But they each say what is on their mind, why, how they think about it, and what the implications are for them.
If you want another example, take a look at my partner Seth’s post from last year titled I’m getting sick of the bullshit. And then reflect on the post from the anonymous entrepreneur that I highlighted yesterday titled My Startup has 30 Days to Live.
This shit is really hard and really complicated. It’s easy to have a surface view of it, to romanticize it, or to fall in love with the idea of it. Don’t. Do it because you love it. And find partners who want to go on the journey with you.
Last night Amy and I watched the movie Something Ventured: Risk, Reward, and the Original Venture Capitalists. This was my reward (I got to choose) since she watched both football games yesterday (and today). We have a 15 minute and 30 minute rule on any movie – after 15 minutes the chooser asks “still into this movie?” If the answer is no, we stop. This question gets asked by the chooser again after 30 minutes. If the answer is yes, we go for the duration, even if someone falls asleep. For example, after 15 minutes the other day, Amy said “still in” on my choice of The Hebrew Hammer. After 30 minutes, we were both “no’s” and that was the end of that.
I figured Amy would veto Something Ventured after 15 minutes. I’d heard from a number of VC friends that it was really good, but the idea of watching a documentary on the history of the creation of the venture capital industry doesn’t sound like an awesome Saturday night movie choice. But after about ten minutes, Amy said, “Wow – this is great!”
As I’m deep into writing book three of the Startup Revolution series (titled Startup Boards: Reinventing the Board of Directors to Better Support the Entrepreneur) I’ve been thinking a lot lately about what makes a great board of directors, and what characteristics of different VCs contribute to this. It ended up being super helpful to see direct interviews with a number of legendary VCs, including Arthur Rock, Tom Perkins, Don Valentine, Dick Kramlich, Reid Dennis, Bill Draper, Pitch Johnson, Bill Bowes, Bill Edwards, and Jim Gaither. They covered a wide range of experiences, but were all there at the beginning of the VC industry and shaped many of the fundamental structures of venture capitalists, VC firms, how they interact with entrepreneurs, how the companies (and investments) are structured, and how boards work.
The entrepreneurs who were in the documentary were equally awesome. They included Gordon Moore (co-founder of Intel), Jimmy Treybig (founder of Tandem), Nolan Bushnell (founder of Atari), Dr. Herbert Boyer (co-founder of Genentech), Mike Markkula (president/CEO/chairman of Apple for many years), Sandy Lerner (co-founder of Cisco), John Morgridge (early CEO of Cisco), and Robert Campbell (founder of Forethought). The interplay between VC and entrepreneur as the story of the founding and funding of their companies was told was very powerful.
After 30 minutes, when asked if she was still in, Amy emphatically said “yeah – definitely.” While I thought I knew all of the history, I learned a few things I’d never heard before, but more importantly I got the nuance of the stories directly from the participants. And all of it was rolling around in the back of my head this afternoon as I spent three solid hours on Startup Boards.
If you are a VC, or aspire to be a VC, do yourself a favor and watch Something Ventured right now. And, if you are an entrepreneur who is interested in how the VC industry got started, I think you’ll also find this fascinating. The film ended with all of the VCs echoing the powerful reminder that without the entrepreneurs, there would be no VCs. It made me happy that it ended on that note.
When I saw this graph I was hooked. If you are a Twitter user and you don’t use Followerwonk, go try it now – I’ll be here when you return.
Yesterday, SEOmoz announced that it had acquired Followerwonk. The acquisition closed about six weeks ago and the Followerwonk product has been fully integrated into SEOmoz. And the Followerwonk team is now fully part of the SEOmoz team. And it’s awesome.
Rand Fishkin (SEOmoz’s CEO) blogs openly about how the deal happened. It’s instructive for anyone in a startup – either one that is acquiring someone else or being acquired.
If you know me, or have worked with me, you’ll recognize this as a common part of my startup playbook. I think it’s incredibly powerful to accelerate the growth of a company via targeted acquisitions. Fred Wilson once referred to this as a “venture rollup” which, while many are allergic to the word “rollup”, is probably as good a label as any for this. Another recent example from my world just to see what I mean is Rally Software’s acquisition of Agile Advantage.
Doing this well is hard. I’ve been fortunate to work with several amazing CEOs who I’ve learned a lot about how to do this with, including Matt Blumberg (Return Path), Tim Miller (Rally), Mark Pincus (Zynga), and JB Holston (NewsGator). And I learned the basis of everything I know about acquisitions from Len Fassler and Jerry Poch, who acquired my first company. Each has used the strategy skillfully and effectively.
I think Rand, who is using this strategy as part of continuing to build out SEOmoz, is going to be a master at it. If you read his post carefully, you’ll see that he has immense respect for the people behind Followerwork. His behavior pre-deal is consistent with his values and signals his behavior post deal. The entire company embraced Followerwonk and made them part of the SEOmoz gang immediately. He, and the entire team extended trust up front, unambiguously, and without hesitation or reservation.
Peter, Marc, and Galen – welcome to the team!
We have investments in a lot of companies that are growing very quickly. They end up on the calling (now emailing) lists for a bunch of VC firms who have an outbound deal flow program. These emails ofter appear immediately after a large financing is announced.
Recently, I’ve been forwarded a few of these emails from CEOs of companies I’m an investor in with the question “how do I deal with this?” I realized I was giving the same advice each time so I figured it was time for a blog post on the issue.
The first email that you get looks something like this.
Hope all is well. I want to reach out to introduce myself and reintroduce my firm as you may remember trading emails with one of my colleagues a few years back. I also wanted to pass along congratulations on the round you and the team raised. It is obviously a testament to the continued progress and success you and the team have made since our last check-in.
Given you raised capital recently, I don’t imagine there are any funding needs in the immediate future, but I wanted to reach out to put our firm back on your radar screen. We seek to invest $somebignumberM+ with a huge focus on internet and therefore wanted to reintroduce us as a relevant party for the future.
If you’re up for it I would love the opportunity to briefly introduce our firm, our strategy and portfolio, and discuss ways we might be helpful in the future. I look forward to catching up.
As a CEO, the real value to you right now is what someone like this can do for you. In addition, they are offering to introduce themselves to you in order to earn your trust and interest when you do a next financing. So taking a meeting where you (a) get a deep overview of them, (b) learn about their portfolio, and (c) ask them for specific help with specific companies in their portfolio is how you make this worthwhile while building the relationship.
My advice is to do the following
- Go through their portfolio – make sure there are companies you want intros to.
- Have a meeting – don’t go out of your way for it, but do it when convenient. Don’t do it on the phone – do it when you are with them or they are in your town.
- Do NOT have this meeting about your company. It’s an intro of the VC firm to you.
- Do NOT feel compelled to go through your business other than at a very high level.
- Ask specifically what the VC firm could do to be helpful as you grow.
- Ask specifically for introductions that you identified within their portfolio.
- Give them assignments – see if they follow through.
It’s always hard as an entrepreneur not to pitch your company. But resist in this particular case – use this kind of a meeting to learn as much as you can – about the VC firm, and what they know about the market you are playing in, and how they can help you right now. If you give them assignments and they don’t follow through you learn a lot. But if they do follow through, it tells you even more and can be helpful to your business.
Rajat Bhargava and I have been working together since 1994. We’ve been involved in creating seven companies together (the most recent ones are MobileDay and Yesware) and, while most have been successful, we’ve had a huge number of positive and negative experiences along the way. We’ve mostly had a lot of fun and, when we haven’t, we always made sure we figured out what went wrong.
Minda Zetlin just put up an interview with us on the Inc. Magazine site titled 4 Signs You Should Say ‘No’ to a VC which I thought was excellent. She explores the entrepreneur – VC relationship and suggests four warning signs for an entrepreneur when interacting with a VC.
- The VC isn’t fascinated with your product
- He (or she)’s just not that into you
- You can’t be completely honest
- The VC doesn’t treat you like an equal
The paragraph on “you can’t be completely honest” is a seminal moment in my relationship with Raj. It also was a key point in my work career where, upon reflection, I completely and totally grokked the importance of being honest in the moment, clear about my reasoning, and willing to change my perspective based on new information, rather than feeling stuck in simply delivering a message. The section from the article follows:
“The important thing is to be completely transparent,” Bhargava says. “It’s very, very difficult to be transparent about your business, but it goes a long way toward building that relationship. ‘Here’s what I’m going through; here’s what I’m struggling with; here’s what I need help with.’ You have to know if that will spook the investor or if they’ll want to dig in and help you.”
That ability to be honest was a great asset in Feld and Bhargava’s relationship when they worked together on Interliant, the only one of their ventures that did not survive. After some politicking by a different executive, Feld removed a part of the company’s operations from Bhargava’s oversight. Bhargava took a few days to calm down, but then he explained forthrightly how disappointed he was and why he believed Feld had made the wrong decision. “Being open and directly confronting the issues, you get through it,” Bhargava says now. “I felt hurt, but I think our relationship is that much stronger.”
As for Feld, he recalls returning to his hotel after discussing the matter over dinner and feeling physically ill. “I knew I had completely screwed up,” he says.
I count Raj as one of my closest friends and trust him with my life. He’s had an enormous influence on how I behave as an investor and how I interact with entrepreneurs. Raj – thanks man – I look forward to many more years working together.