AGILEVC My idle thoughts on tech startups

May 6, 2015

walkaboutSome VCs describe themselves as “thematic” or “thesis-driven” investors.  These folks typically hone in on an industry sector or type of company, immerse themselves in the subject, meet as many similar companies as possible, and then invest in some.

Other VCs can be described as “opportunistic” which sounds like they have no particular strategy or rely on random chance, which isn’t really the case.  The reality is that there’s countless really smart founders out there thinking about a particular market opportunity 110% of their time.  So “opportunistically” being open minded about all the great teams of co-founders and broad range great market opportunities makes some sense.

There are great VCs of both stripes and in practice most fall somewhere along a continuum where purely opportunistic and purely thematic are at opposite ends.  I certainly am somewhere in the middle.  There are times when I’m focused more intently on a thesis but I always have my antenna up for great founders working in areas that I haven’t been thinking about as much.

I’ve been exploring a new theme recently… I’ll talk more about it publicly as my thinking evolves further. But I was trying to relate what this exploration has been like to someone this morning.  The best way I could describe it was as a “walkabout”.  This market opportunity isn’t entirely new to me, but it’s not a core area of expertise either.  So I’ve been educating myself about this market as much as possible, I’ve been meeting as many smart folks as I can in this space, and I’ve been trying to systematically map out where there’s room for disruption and where there isn’t.

So the best description was that I’ve embarked on a “walkabout” in this market space.  The end result might be nothing, it might be that I lead investments in one or more new startups in this area, and there’s even a chance we might look to incubate a company to go tackle this.  My journey is already underway and I’m excited…

February 19, 2015

Konekt

Konekt

Today Konekt announced their $1.3M seed round.  We were pleased to lead this round along with a great group of other co-investors.  And I’m excited to collaborate with co-founders Ben Forgan and Patrick Wilbur as they build their IoT connectivity platform.

Konekt is creating a turnkey platform for makers of internet connected devices to integrate cellular connectivity.  While some devices in the IoT world will utilize short-range connectivity options like WiFi or Bluetooth tethering, a great many will need the flexibility and ease of deployment that connecting directly to cellular data networks can provide.  This need is doubly true when you consider dramatic growth of both the number of devices and breadth of applications for IoT.

As it turns out, whether your building and deploying 100 devices or 100,000, getting your device to connect via wireless data networks isn’t so simple.  You first have to figure out which hardware module to integrate into your device to get a cellular radio in it.  Then you have to strike a deal with a wireless carrier or MVNO to provide service.  Finally you typically use antiquated protocols to try to provision each device and actually get the data back from it in an intelligent fashion.  It’s all doable… just hard, full of friction, and particularly challenging for small and medium sized device makers.

Konekt takes care of the full “stack” for you from the hardware modules to connectivity with major carriers to a simple to use REST API to manage all your devices and pipe the data back into your core application(s).  It was possible 5+ years ago to integrate payments into your software app… it was just a pain in the ass to connect to a gateway, get approved for a credit card merchant account, figure out PCI compliance, etc.  Then Stripe built a big business eliminating much of that friction.  We believe Konekt has the potential to similarly take friction out of IoT connectivity, in cellular data today and potentially other emerging data networks of the future.

The IoT space has been of interest to us for some time.  We’ve invested in some companies making an internet connected device, but I had been looking in particular for what we call “picks and shovels” businesses riding on the platform wave of IoT.  Just as Levi Strauss realized he could build a great business as the enabler of gold prospectors, we want to be investing both in companies creating devices and those enabling other IoT companies.  So we were pleased to meet Ben and Patrick last fall and are very excited about the future of Konekt.

February 10, 2015

As the holiday season is behind us and 2015 is firmly underway, we wanted to take a moment to both announce and celebrate the collection of top entrepreneurs who have agreed to return as our Entrepreneur Advisors. These individuals have all graciously agreed​ to continue their prior commitments to NextView-backed startups and entrepreneurs.

We’re excited and feel incredibly lucky to have them back on board:

  • Niraj Shah & Steve Conine – Co-founders of Wayfair
  • David Cancel – Co-founder/CEO of Driftt (Co-founder/CEO of Performable at the time he first joined our group of advisors, after which he became HubSpot’s Chief Product Officer following and acquisition of Performable.)
  • Mike Baker – Co-Founder/CEO of DataXu
  • Brian Shin – Founder/CEO of Visible Measures
  • Stephano Kim – SVP & Chief Data Strategist of Turner (President of [x+1] at the time he first joined our group of advisors)

 

​The Purpose of Entrepreneur Advisors​

We frequently tell entrepreneurs that advisors who are just names on a page are kind of a waste of time. We believe the same is true for us here at NextView, which is why we think it’s important to take a second and explain what NextView’s own “Entrepreneur Advisors” do.

When Rob, David, and I started NextView nearly five years ago we thought it was important to enlist a small group of talented entrepreneurs as we built and helped our portfolio over time. These were all folks we’d known for a number of years, and people we respected deeply. Their expertise is focused across the range of software ​and​ internet sectors that we focus on here at NextView​ –​ from SaaS to e-commerce, ad-tech to mobile.

At their core all of ​the folks ​listed above ​are builders​ — the​y​ have all founded and run exceptional software and internet companies, in some cases multiple times. But we also believe in the ​”​keiretsu​”​ principle here at NextView. In parallel with their entrepreneur advisor role​s​ with us, many of these individuals are also active angel investors themselves independent of NextView​,​ or​ else they​ have relationships with other companies or investment groups. ​Thus, we can all work in concert within the broader startup ecosystem.

So if they’re not just names on a page, how are these entrepreneur advisors involved with us at NextView and our portfolio companies? Practically speaking they help us in three ways:

  1. New Investment Opportunities – These advisors sometimes introduce us to new entrepreneurs and new companies we might invest in​.​
  2. Insight During Our Due Diligence – We frequently touch base with these people when we are looking at a potential new investment where the advisor has unique insight. In some cases​,​ the advisors’ companies form business relationships with startups NextView is ​vetting​.
  3. Advice Post​-​Investment – All of these individuals are busy people with limited bandwidth, but they​’re generous enough to periodically ​provid​e​​ advice and mentorship to founders in the NextView portfolio.

We’re pleased that as NextView has grown, all of these original entrepreneur advisors have extended their relationship with us.

But ​… ​we plan to expand this group slightly with a handful of other high quality folks​ which we’re equally as excited to introduce publicly​. So keep an eye out in the coming weeks and months when we’ll talk more about these additions.​

January 21, 2015

keep-calm-cause-we-killing-it-Note: This post also published at NextView’s blog for seed stage companies The View From Seed.

The startup ecosystem is often full of hyperbole, which is perfectly understandable when you think about it.  A population of founders, employees, investors, advisors, and others all aligned in trying to build large disruptive businesses is naturally prone to lofty, even over-the-top language.

But the reality of tech entrepreneurship is that not everyone is “killing it,” and certainly not all of the time.

Not every startup is going to “crush” their original milestones and financial projections.

Not every round of funding is closed at a “monster” valuation.

And even acquisitions painted as successes may look very different below the (typically confidential) surface.

This has very real consequences that founders should consider — both for their relationships with investors and for the success of their current and future ventures (and therefore the many people likely tied to these ventures).

The Power of Perception 

I saw this firsthand with my own experience as an early PayPal employee.  PayPal ultimately became a very successful company.  We went public in 2002 and eBay bought the company later that year for over $1.5 billion. Today, PayPal is poised to become a very large standalone company again.

But during the year 2000, we went through three different CEOs, fraud nearly killed the company, our revenue was negligible and unproven, and at our worst point, the company was burning well over $10 million a month — A MONTH!

As a VC investor, I’ve seen numerous other companies face challenges too — both in businesses that were ultimately successful and those that ultimately failed.

Our industry is so enmeshed in TechCrunch headlines, the Twitterverse, and offline chatter at networking events that it’s easy to believe that everyone else is killing it.  This is the vernacular of today’s startup ecosystem, for better or worse.

But here’s the very troubling byproduct of this: I’ve met plenty of entrepreneurs who, surrounded by this hype, find it hard to manage when their own startup hits challenges, which are inevitable in any startup (even successful ones like PayPal). If you perceive everyone to be “killing it,” then it’s nearly impossible to speak up as the “only” person that isn’t.

How can we put things into context?  And when and how should founders communicate challenges with their employees, investors, or other stakeholders?

Since this hyperbolic culture can and does prevent founders from seeking help — despite all founders needing it at some point or another — these questions are actually worth answering today.

It seems simple, but the first step is being honest with yourself as a founder, and being honest with your co-founders.  Don’t shrug off poor sales or user growth, a dysfunctional team, a wave of bad PR, or other challenges confronting the business.  If you’re in denial, it’s hard to overcome any challenge.

Then, it’s time to speak up and work past your challenges.

Communicating with Your Team

While there’s no precise formula for when and how to share challenges with your employees, given how varied each situation can be, I’d recommend the following guidelines to do so:

1. Do No Harm

Unfortunately, some startup CEOs convey perpetual crisis mode to their team.  Every small issue is portrayed as a firestorm, real or not, and the steady stream of scary news can easily distract employees from both their day to day execution and the company’s long term goals.  Know the difference between being honest with your team versus sowing unnecessary panic.

2. Frame the Solution and Involve Your Team

In addition to being candid about the challenges facing the company, talk with your employees about what the possible solutions may be and how they’re likely to be involved.

3. Don’t Blindside Them

As a startup exec or employee, one of the toughest things to experience is for your CEO to share bad news in a way that blindsides you.  Folks can feel taken by surprise when they suddenly hear about things that they never expected or (more commonly) that a CEO let fester for a long time in secret.  Odds are good that at least some folks on your team already know or suspect when challenges hit the company, so hiding stuff is usually counterproductive.

Communicating with Investors

Some of the same principles apply when sharing difficulties with investors, but the nature of the relationship is obviously different.

A few guidelines that might help when communicating challenges to your board and investors:

1. Be Direct

I find both the challenge at hand and the long term relationship work best when CEOs communicate challenges directly and promptly with their investors.  Most good VCs will seek to help and advise where possible, and founders who put off sharing bad news or beat around the bush only frustrate others and reduce the amount of time they can work together towards a positive solution.

2. Communicate Challenges 1-on-1

Difficulties are easier to communicate privately with your board members or key investors.  The topic may be revisited later in group settings like a board meeting, but breaking bad news should almost always be done 1-on-1 where possible.  This helps mitigate the risk of groupthink or “pile-on-the-CEO” discussion … which benefits no one.

3. Be Decisive About the Way Forward

If you have thoughtful investors in your company, hopefully they’ll provide useful feedback about how to deal with a difficult situation.  And it’s okay if you as the CEO don’t have all the answers when confronting a challenge.  But you have to be prepared to map out the options of how to move the company forward, and it behooves you to have a strong recommendation and rationale for your plan.

It’s Never Easy — It’s Even Harder When Avoiding It

Facing difficulties and sharing bad news is never fun.  But the reality is that not every startup is killing it, and even the ones that seem to be growing quickly aren’t actually succeeding all of the time in everything they do.

Successes may define us to others more than failures, but great entrepreneurs distinguish themselves by how they handle those situations when the chips are down.

December 4, 2014

Punch & PieI like to say that “there are only co-founders” — it’s extraordinarily rare for a successful business to have just a sole founder. But not all co-founders are equal in terms of title, ownership, responsibilities, and so forth.  As a result, one of the trickier things co-founders tackle is determining the equity split amongst the founding group of individuals.

There’s no magic to this, and there’s no hard and fast rule.  Across both the startups I’ve personally been involved in (PayPal and LinkedIn) and the startups in which I’ve been an investor, I’ve seen a broad range of co-founder equity splits.

Sometimes co-founders put off the equity split question for some time.  This is often the case where there was a close personal relationship between some or all of the co-founders, as former co-workers, friends, or college roommates.  If we’re all friends, we can just be comfortable with the notion that we’ll “figure it out later,” right?  But delaying or avoiding the conversation often results in it being more awkward than it needs to be.  Once you’re working on a project in earnest, even if it’s still at the nights-and-weekends phase, co-founders should go ahead and discuss this topic.

Additionally, you should put whatever agreement you reach to paper, even if you have not yet incorporated or had your legal counsel draw up the founder stock paperwork.  For example you can type out a simple letter saying something like “We the founders of XYZ agree to the following schedule of founders equity ownership – John Doe 20%, Jane Doe 40%, Mike Doe 40%” and then have each co-founder sign, with each co-founder keeping a copy.  You can then work with your law firm to formally draw up founder common stock paperwork either then or subsequently.

It’s also worth keeping in mind that regardless of how the founders’ common stock is divided, there will be future issuance of stock that will dilute the founders over the lifecycle of the company.  You don’t really need to worry about how much common stock will be set aside for an employee option pool or how much preferred stock might be issued from raising future VC rounds in order to determine an equitable founder stock division.  But all the co-founders should keep in mind if they own X% today, their share will likely be smaller (though still usually quite substantial) down the road.

The most successful approaches to splitting founders equity typically involve establishing a framework that all the co-founders buy into at the outset.  This needn’t be some terribly complex formula that tries to do a cost accounting of everyone’s contribution to the decimal point.  But they frequently capture some of the following dimensions:

1) Experience / Seniority / Role – Every founding team is different in terms of whether co-founders are peers or near peers or if there are broad disparities in terms of seniority and experience.  Founding splits typically acknowledge that more senior folks or folks in C-level positions will have a larger founders’ equity percentage than more junior or staff-level co-founders.

2) Capital Investment & Sweat Equity – Sometimes some of the co-founders provide personal startup capital (hard cash) at a company’s inception, and often they will receive a larger portion of founders’ common equity as a result, rather than structuring their capital as a separate investment via preferred equity or convertible note.  In other cases, some co-founders might forgo salary early on (if their personal circumstances permit) to earn an additional share of “sweat” equity.  Both of these are typically reflected in the founder equity split.

For example, when we started LinkedIn at the end of 2002, each member of the founding team essentially had a couple chunks of founders’ common stock.  One chunk was based on the experience level and role of the co-founder.  Next, those that were forgoing some or all salary prior to Series A got an additional chunk for that.  And lastly, a chunk of our CEO Reid Hoffman’s equity was attributed to the fact that he provided the initial ~$750K in seed capital for the company.

3) Prior & Ongoing Involvement – A co-founder’s equity should also be reflective of their on-going involvement in the company.  For example, it’s not uncommon for there to be a couple co-founders at the inception of a company.  But sometimes, for a variety of reasons, one or more of the co-founders won’t be involved on a full-time basis going forward.  Those co-founders that are there for the long haul and working full-time should have a larger chunk of equity (typically multiple times that of co-founders not working full-time on the venture).  Co-founder equity should have vesting periods (or lapsing repurchase rights) so if a co-founder departs substantially earlier than others, their stake in the business is accordingly smaller.

4) Ideation / IP – Sometimes a portion of founders’ equity splits are attributed to “who came up with the idea” or to actual IP that’s brought into the business at inception.  For most software and internet startups, the hard IP coming in is usually isn’t an issued patent, which is obviously different for biotech or other kinds of startups. Sometimes, however, there’s an existing code base that one co-founder brings.  In general, successful startups are based on execution and not an idea, so I personally attribute a pretty small portion of the co-founder equity split to this factor, though entrepreneurs sometimes use it in their frameworks.

Once you have the framework, it’s simply a matter of having the conversation and reaching an agreement.  Yes, sometimes these conversations take a few sessions, and at times the conversations can be contentious.  But this is one of the very few times in a startup’s life where the co-founders are playing a zero-sum game.  And ultimately, no matter what split you work out, building a successful business and growing the pie of the whole company’s value is what will really matter for all the co-founders.

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  • I'm a former Silicon Valley entrepreneur turned East Coast VC. I co-founded NextView Ventures, a seed-stage VC firm based in Boston, in 2010. Read More »

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  • Lee Hower
     - 2 days ago
    If it's a bubble, why does it feel so damn hard? By my partner @robgo http://t.co/6vTEPi4r59
  • Rob Go
     - 3 days ago
    Quick post: If This Is A Bubble, Why Does It Feel So Damn Hard? http://t.co/wQmTRRTSQC
  • Rob Go
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    @gregbettinelli what planet are you on?
  • Rob Go
     - 3 days ago
    My friends have gotten really into Line. Now we are just communicating like teenage girls

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