Rethinking My Startup Investment Strategy

Crains just published a piece on my new venture Southbox and how we’re experimenting with the early-stage investing and incubation model. An excerpt:

When you are an investor in tech startups, to a degree, you operate in a particular way, which is what I had been doing over the past three years. I was putting money into companies that were all at the early stages, where they were trying to get their first customers, build their product and make it sure it worked, and all that other fun stuff that happens when you are trying to start something from nothing.

The observation that I made towards the end of last year happened when I was working with a much larger fund that had probably 300 companies in its portfolio. As I was looking at all the companies that didn’t make it, I noticed that they all seemed to fail for the same reasons. They didn’t have the ability to share resources beyond capital, and were sort of left on their own to find their first customers, hire their first software developers — all of those early stage problems.

If you’re a VC, and are effectively funding all of these companies to solve for all the same problems, it’s way cheaper for you to allow the companies to share resources and collaborate. 

Read the full story at Crains

Six Posts to Read Before Reaching Out to a VC

I get a lot of emails from young, upcoming founders who want advice, help, funding or many other things. If that’s you, or you’re about to reach out to me or some other investor please take the time to read the following articles first:

  1. Jason Calacanis does a great job of telling people what it takes to get funding with his post “When You Should You Reach out to Investors?”
  2. Fred Wilson does a great job of explaining how to build a minimal pitch deck and why that’s often preferred in his post “Six Slides”
  3. Steve Bowman offers an interesting counter-point to Fred about doing a longer, more elaborate, pitch deck.
  4. Guy Kawasaki is somewhere in the middle on the subject.
  5. DJ Patil writes about what it takes to succeed in his post “Failure is Our Only Option”
  6. This post over at Less Wrong tells you to just “Shut Up and Do The Impossible”

The first four of these are pretty quick reads, the last two are longer reads. Still they are worth it. So read them. If you can’t invest a few minutes of reading into your company, you’re either wildly successful already or you’re doing something wrong.

The last one I’ll add is one from myself for entrepreneurs who feel they are at a disadvantage because they are a minority.

Guess what? You are and no one gives a shit.

Being a great entrepreneur means tearing down the hurdles that others put in your way, no matter that they are. Here are my even more candid thoughts on the matter: “The (Bad) Advice You’ll get as a Minority Startup Founder”

Updated 6.8.2017: Changed ‘Five Posts’ to ‘Six’ and added Guy Kawasaki’s

Grinding

Yesterday I had the pleasure of giving a talk at Startup Grind Philly.
Startup Grind is a nationwide speaker series that invites some of the
best investors, entrepreneurs, and innovators to a fireside chat style
session – basically a mixture of interview, Q&A, and presentation

In the session I spoke about my journey, from my initial foray into making comics, then into the music industry, then film, then tech.

But mainly I gave advice to upcoming entrepreneurs that I’ve learned over the years. Here is the TL;DR version….

  • Don’t let other people define success for you. Build something that works and that you’re proud of and own that as your success.
  • Build a strong company first, worry about investors later. You can torpedo a solid business neglecting operations and sales to raise capital.
  • Investors are fickle anyways. You can have customers, revenue, and a great product and still not be able to raise capital. Investors should be nice-to-haves, not need-to-haves.
  • Do one thing well first. A lot of startups fail by trying to ‘boil the ocean’ with features and serving all possible markets. Nail one first, grow into the rest.
  • The worst thing in the world, which I learned the hard way, is to have a wide set of features for a wide set of customers. Either narrow the product offering, or narrow the customers you’re targeting, or both.
  • Diversity in tech is about “who’s in the room”. Whoever is in the room, controls who else gets in the room. It’s that simple. We have to focus on nurturing more minority and female investors who are good investors first, minority investors second. By changing who’s in the room you eliminate some of unconscious biases that exist.
  • The best way to become fearless is to fail epically at least once. If you can bounce back, you learn that failure is usually worse in your mind than it is in reality. If you can’t bounce back, you’ve still learned a valuable lesson about what NOT to do again.

Thanks to everyone who attended!

A Conversation with Peter Thiel and Local Philly Tech Leaders 9/22

On 9/22 myself and four other panelists will support investor Peter Thiel in support of his new book Zero to One. This will mark the first time I have the opportunity to introduce the local Philadelphia community to my new angel fund Third Cohort Capital.  

Peter Thiel is the Co-Founder of PayPal and the first outside investor in Facebook. His keynote will be followed by a panel discussion led by Technical.ly Editor-in-Chief Zack Seward featuring myself as a panelist alongside local investors Ellen Weber (RobinHood Ventures), Richard Vague (Gabriel Systems), and Mark Samuels (SEI). We’ll be discussing the advantages and challenges of the Philadelphia startup ecosystem.

Learn more about Thiel, his new book and his contrarian strategy in this month’s Fortune cover story: http://bit.ly/abcThielFortune

You can read more about Third Cohort in this recent article from the folks at Technical.ly

Monday, September 22, 2014 | 8AM to 10AM

Franklin Institute | 222 North 20th Street, Philadelphia, PA 19103

Ticket: $45

VIP Ticket: $150

Register Now: http://bit.ly/ZeroToOnePHL

All attendees will receive a complimentary copy of Thiel’s new book. VIP guests will have preferred seating and access to a post-event meet + greet with the author, Mr. Thiel.

The (Bad) Advice You’ll get as a Minority Startup Founder

I’ve been in the tech startup ecosystem for around 8-years now and in that time I’ve sat through countless startup bootcamps and fireside sessions where successful entrepreneurs offer their sage advice to young,  novice entrepreneurs about how to get started, how to raise money, and how to succeed in tech. I always felt a little out of place that none of that advice applied to me or my experience.

There are many reasons for this I suppose. As a Black-American I represent less than 2% of the types of tech founders who get backed by VCs. I represent even less, of the norm of the founders who go on to exit.  Also, I didn’t go to an Ivy League school. In fact I didn’t even go a to a ‘real’ college. I went to an art school. I never finished. I never formally studied tech. I taught myself how to code on an IBM PS2 in rural Georgia in a single-parent household. I never considered a career in tech until I took the leap and just did it. I also, never took venture capital. Instead I bootstrapped myself through several business (Appfrica, MetaLayer, D8A) until I became an angel investor myself.

All the while, I was getting advice from startup accelerators and experienced entrepreneurs and couldn’t help but get the impression that my path was some how wrong or less than. It’s not that the advice they gave was completely wrong, it just needed contextualizing. My experiences were different, and often my goals were different than what I was told they were supposed to be. As a result, my story never quite matched that of the other people who were building companies beside me. Hopefully other founders out there, minority or not, will read this and know that it’s okay to follow a slightly different path. As I say on my Twitter page:

Here are some examples of some of the common advice you’ll get as a founder:

1

What they’ll tell you:  “If you need startup capital, do a friends and family round. Those closest to you will take a risk on you before anyone else will.”

What  you’ll say to yourself: “I’ve already tried that a dozen times. None of my friends and none of my family understand what I’m trying to do, much less have the money to invest, or the liquidity to invest and wait several years for a return.”

What I tell people now is that, yes, if you haven’t asked already you’ve got nothing to lose by going deep into your network to see if anyone has the capital to invest in your product or idea. So do it.

But don’t be discouraged if you come up empty handed. Your friends and family might not be able to give you capital but they can give you something: introductions to colleagues, a couch to sleep on if you can’t make rent, co-sign on a loan or rent application etc. If you know they don’t have the money, tweak the ask to be something they are able to comfortably give to support you.  Your friends and/or family do want to support you, but their own extenuating circumstances may prevent it from being cash.  Be flexible, let them help you.

2

What they’ll tell you:  “The best way to raise capital is to have rich friends.”

What  you’ll say to yourself: “Thanks for that advice. Unfortunately, everyone I know still ride the bus to work….and no, not the damn Google bus.”

This is also true. If you’ve got some rich friends who believe in you, problem solved.

However, in my experience even the wealthy friends, advisors, and mentors who I do know rarely invest in me. They’ve invested in other peers from different backgrounds and other ventures of different types but never mine. The only thing I can assume is that the things I work on aren’t as interesting, my pitch isn’t right, or my timing is bad. Whatever the case, there’s always a reason why I’m not not the best investment option for them.  You may feel the same, or you may have no rich friends (not surprisingly a common problem).

So double down on yourself and your ability to sell. Don’t rely on other people’s money if you don’t have to. I would argue, that there’s virtually no business idea under the sun you can’t get some traction on even if you lack capital.

What it will force you to do is get really good at ‘the lean startup’ model so popular these days. No product? Make the best web page that you can possibly make explaining what your product is going to do, with videos, a newsletter, a blog etc. Ramp up your company’s social media presence to try to build some credibility in the space. Form partnerships with potential customers or other companies who can help you get traction. There is an endless list of things that can be done to help you get more market validation, which you’ll need to have conversations with investors. I found, and what you may find, is that in doing all this you’ll find a quicker path to revenue than investment.

3

What they’ll tell you:  “There’s three types of companies. Lifestyle businesses, services business and product business. The only one investors are interested in at an early stage is the product business.”

What you’ll say to yourself: “What’s the difference? I just want to be able to pay myself every month.”

The implication in the above statement is that the only way to succeed is to raise capital from a VC who can guide you on the path to wealth and fame.

First, honestly if you want to be able to pay yourself every month — without any risk to the alternative — go get a job. By definition as an entrepreneur you’re taking a risk no one else has taken before, to validate a way of approaching the market no one has ever pursued before, to (hopefully) earn the types of returns others can only dream of.

Get used to failure and high-risk scenarios. Those are your two new best friends.

Second, success looks like different things to different people. Where I come from, being able to pay yourself doing your own thing is a huge accomplishment. In fact, it’s unprecedented. So a lifestyle business or a service business certainly meet the criteria of success for most people I grew up with. They key here is to know what your definition of success is and pursue that. Knowing what success is the key to knowing how to achieve it.

If you want to want to open a shop repairing computers, do graphic design and app development, or offer some other type of service. Do it. It will pay the bills. It will pay the rent. You’ll drive a nice car. But those aren’t typically the type of investment opportunities VCs are looking for, so don’t waste your time talking to them about such startups.

The reason VCs avoid these kinds of businesses is because they take much longer to grow, there’s usually no guaranteed recurring revenue, and to scale they need to hire more people at every level of growth. All of that accounts for thin margins usually due to high overhead. Subsequently when it comes time to exit, the multiples are much lower. It doesn’t mean those aren’t viable, lucrative businesses. It just means they aren’t what most VCs are after.

Those are services companies. Many of these are also lifestyle businesses, which simply means people do them to maintain a certain standard of living.

If you can build a business where you pay yourself $60,000 a year and have few employees would you be okay with that? $80,000? $120,000?  That’s all great – pay yourself and be happy. You didn’t ‘lose’ in the game of life because you built a company that can take care of yourself, your family, and your other responsibilities while paying yourself nicely and being your own boss. You won.

You may not be in the 1% of wealthy people, but you’re likely in the 10% of businesses that don’t fail within the first few years of launch. Shoot for that 1%. The 1% of businesses that survive more than three or four years, that have employees, and that are more or less your dream job. You won, you just won a different battle than the one the Angel Investors, VCs, and Startup Accelerators encourage you to fight.

4

What they’ll tell you:  “That’s bullshit! High-tech! Recurring revenue! GROWTH!!”

What you’ll say to yourself: “Okay, I’m in.”

If you are building a company that is meant to be high-growth, tech-first with low margins, recurring revenue and you want to fund it equity or debt then yes, now you’re on the same page as all the investors and accelerators.  Still, there is more than one way to ‘win’.

One is to do everything text book startup-style. Build a great product, get some traction, do an angel round, a seed round, Series A, Series B and so on until you Exit and retire on a yacht.

What no one tells you at the beginning is that there are so many variations to this ‘path’ its ridiculous. For instance:

You could become a ‘zombie’ company. Which means you get your first few rounds of institutional capital but then you are never able to find an exit. You’ve still got great revenue and great staff but all your investors money is still tied up in your business because maybe you’re still to small to sell or go public. Again, it depends on where you come from. Some people would kill for this as an opportunity. For others, it’s literally their worst nightmare.

– You could do an angel round and never get to Series A. What they call the ’Series A crunch’.

– You could ‘acqui-hire’ away yourself and your team. Essentially, selling the company on the cheap for guaranteed jobs at a bigger company.

For some people, each of these is a type of success, for others it’s not. Don’t mistake other’s people’s definition of success for your own. Know what works for you and fuck what a millionaire investor tells you because he’s playing a different game. To him success looks different. He’s spread his money around lots of high risk companies on the off chance one of them does IPO or exits with a huge multiple to make him even richer. He’s waiting for that and if you aren’t doing that, then yes, you are in fact wasting his time. But unless you take his money you’re not defined by his definition of success.

Ultimately, you don’t have to take anyone’s money. You can bootstrap. Some people will view that as a slow painful way to build a company. Again, for some people slow and painful is all we know. So that’s not actually a setback…it’s the default. Again, know your definition of success.

Bootstrapping will definitely cost you things, like the rate at which your company grows and being able to hang in certain circles. Other VC-backed startups will scoff at you as if your company doesn’t matter. You might not be on the conference circuit. You might struggle to get intros to high profile customers etc.

However, bootstrapping will afford you very different opportunities. You have the benefit of building the company you want to build your way. You can pay yourself whatever you can afford. You can grow however you want and you can always (if you still want to) take on VC money later.

This is basically what GitHub did. They built the company they wanted, their way, by bootstrapping and took on VC when they chose to it. They knew what their definition of success looked like and they crushed it.

5

What they’ll tell you:  “There’s a unique culture in Silicon Valley. Get into it. You should spend more time socializing with other founders and learning from them.”

What you’ll say to yourself: “You mean…assimilate?”

There’s a great post entitled “The next thing Silicon Valley needs to disrupt is its own culture” that I encourage you to read. It goes into this much more eloquently than I have time for here. 

Assimilating into a culture isn’t necessarily a bad thing.  Sometimes it’s necessary.  However, don’t forget that your diversity and perspective is an asset. It’s an opportunity to see and do things in the tech space in ways few others may have considered. That might lead to new insights about customer segments, or just bringing something new to the table. People don’t know what they don’t know. By definition being the minority of a group means you’ve brought a number of things to the table that weren’t there before.

I fucking hate ping-pong. There, I said it.

That’s the kiss of death for the 40% of startups whose offices have fuse ball tables, arcade games, and ping-pong tables in each corner of their space. I’ll likely never be hired by any of those companies, or acquired by them. I’m just out because for them, ping-pong is a cultural value.

However, I’m still a founder. I still love tech and entrepreneurship as much as these guys. I’m still trying to create value out of nothing like them. I’m still going to do it. Culture doesn’t have to define us. It’s a tool to use to bond with different people, but it’s not the only way to bond.

So without compromising your own uniqueness, by all means associate with everyone in the tech ecosystem. But know that people rejecting you because of ‘cultural fit’ has very little to do with you and everything to do with them and their insecurity about something that has nothing to do with you.

It’s no different than being the last guy or girl to get picked for sports on the field or the person who never got invited to all the cool parties in high school. It may make you an outlier. For a while…but eventually there’s quite a few people who share the same reason for rejection and all of a sudden there’s a new culture that you’re a part of and someone else isn’t.  Funny how that works.

Beyond all this, what everyone will respect (if they don’t respect your culture) is success. Succeed your way. Let people respect that. Forget culture. You are a culture of one.

6

What they’ll tell you:  “Tech is a meritocracy. Stop worrying about being discriminated against.”

What you’ll say to yourself: “Are you serious.”

Yes. They are serious. This is because no matter what occurs in the world of tech it can be rationalized. Smart people are really good at convincing themselves they aren’t doing the same things less smart people do.

‘It’s not inequality. We just work harder and create more value than everyone else so we’re rewarded for it.’

‘It’s not sexism. Women just don’t like tech as much as guys do. They get discouraged too easily. They aren’t as focused.’

And so on.

The reality is, in Silicon Valley and the broader tech ecosystem that emulates it there are mostly good people, a few with a loose moral compass, and a few down right bad people (what compass?). It’s no different than any other random grouping of people in life. Some people are going to be dicks. Those people will discriminate.

You can’t worry about this. I’ll repeat it, stop worrying about being discriminated against in tech. No one can do anything about someone not liking, not trusting, or fearing you. Even if you forced them to hire everyone they have bias against. The fact of the matter is you’d still be discriminated against….only secretly. 

What you can do is focus. You need to do that any way as an entrepreneur. You can build a company that’s undeniably cool, undeniably valuable, and undeniably important. No one can take that from you even if they never invest in you, put you on a stage, or on the cover a magazine.  You will have still have done it and before long others will want to do what you did instead of what the other guys did.  

You’ll still win. You’ll just do it your way. 

“Women are likely to bring diversity to a male founding team, and that’s not what founding teams need.” – Penelope Trunk on diversity

In a post entitled “Think about workplace diversity in terms of experience”, I mostly agree with Penelope that there are many different flavors of diversity (as it were).  But in this recent article for TechCrunch she seems to argue against her own logic, making the case that diversity of idea/opinion in a startup is a bad thing (I do understand her point, that co-founders should be on the same page) to making the case that women should stop worrying about inclusion in the tech industry at all.

Where to begin. First, coupling ‘diversity of ideas’ with ‘diversity of sex’ is a mistake. Do women now think so differently than men that they need to be stripped of the right to vote, too? Lest, they derail democracy with all their hormones and need for family time? Nonsense.

The problem with the line of reasoning on display here is simple: If everyone in the industry began to think like this, the next time a female entrepreneur walked into the room to for funding, regardless of the quality of her idea or pitch, a VC might think, “I need to find a man to run this company, because this woman will sink it by having babies.” Or perhaps her customers, also using the same logic, would think to themselves, “I can’t trust a company run by a woman, they don’t even want to be doing this kind of work!" 

There are a lot of people in the tech industry who don’t think diversity is a problem because either they can’t see, or can’t relate to, the fact that for every anecdotal observation of minority groups ‘not wanting to enter the space’ there are at least a handful from those groups who feel as if they are actively being kept out of the space.

History shows us that, at least occasionally, those who feel intentionally disenfranchised will be correct. That isn’t everyone’s experience, but is the experience if some. Someone with authority might decide these groups simply don’t belong and can wield their power to keep them from entering a field they actually *want* to be in.

My question is what happens when a brazen careerist women, like Penelope, is prevented from entering the industry they are pursing simply because it becomes accepted that diversity is a bad thing that needs to be avoided? When does it go from ‘diversity isn’t so great’ to ‘homogeny is preferred’?

Every Day Apps – Web Products I Use Daily

…because they add a lot of value to my own personal life or work. 

1. Vizibility

So brilliant!  It allows you to manually curate your top ten search results on Google, then Vizibility buys an adwords campaign for whatever name or word you’ve created the list for. Now, their list will show up for anyone searching your name, company, or product.

I use it for my company metaLayer, but also as an individual it allows me to know who’s searching me, as well as where they live at a city level (reverse IP lookup).  After I give a presentation or go to a conference, it’s almost inevitable that the results of people searching from that location spike.

2. Buffer

If you have the tendency to overshare on Twitter, Buffer has an app for that.  By spreading out your bookmarked links or messages throughout the day or week, Buffer forces you to pace yourself.  It also helps to make it appear like you are tweeting away at work while you’re actually on vacation sipping mojitos on the beach in Cabo. 

3. Grammarly


SaaS grammatical checking and suggestions to improve your writing and sentence structuring.  It’s an awesome web service, but over-priced at $19 a month, in my opinion.  I paid for it for a while but found the cost disproportionate to the benefit. Still, I think the product is very much needed.

4. Flipboard


Your favorite Feedreader’s favorite Feedreader. Flipboard for the iPad just gets better and better. It’s also beginning to feel more organic to use. I wish they’d ship an iPhone solution already.

5. Simplenote/JustNotes

   

Why these two products are made by two different companies is beyond me.  They work seamlessly together. JustNotes is a desktop app for Mac that solves the problem of speed and simplicity for saving notes.  SimpleNote is a web app that allows users to store files, lists, ideas and notes to the cloud.

On my Mac I used to use the native TextEdit like a ninja. That’s usually the perfect solution until the day the program you’re using or your comuter crashes and all those ‘Untitled 1’ files mysteriously vanish into the ether.  

JustNote offers the speed and simplicity, while Simplenote stores it all in the cloud.

6. LittleSnapper

A desktop app for OSX that allows users to edit photos, capture screenshots, upload to the cloud and other things.  I used to use Cloud App but I like being able to edit and crop photos and screenshots before they are kicked over to the cloud.

7. Foodspotting

I never thought I’d be someone who took pictures of their food to upload them to the internet but as it turns out, I’m a total unabashed food geek.

8. Quora

A question and answer website where the quality of answers makes it more like Wikipedia than a YouTube comment thread (here’s looking at you Yahoo! Answers).

9. DropBox

Backup your important files to the cloud and across devices.

10. Spotify


It’s so easy and convenient it makes file sharing feel like a chore.  No download, no uploads, just start listening to music. Many competing apps have a catalog problem, but Spotify solves that problem by integrating with iTunes.

AirBnb Response to Victim: Not Cool

I’m not sure that I’ll ever use @airbnb again after a recent incident where a woman’s home was ransacked by another user of the service.  I’m not bothered that the event occurred (imho, that was almost inevitable) but the company’s apparent response to this woman’s plight has been questionable.

It’s this response that is what’s driving me away from wanting to use their service in the future.  To recap, the victims story:

  • A woman rents out her home using AirBnb.
  • The person renting the home allegedly ransacks and loots it.
  • She returns to her home and finds the mess.
  • She writes a blog post explaining what happened.

Here’s where it gets rather questionable:

  • AirBnb gets in touch initially but remains silent for a month (when the press begins to run with the story).
  • The victim alleges she was told to change or update her story so as to not disrupt AirBnb’s current valuation/funding rounds (which estimate the company worth to be around $1 billion dollars).
  • The victim alleges that she was told that AirBnb staff may have been aware of incidents in the past concerning the person who rented her home. Yet, wasn’t made aware of this in advance.
  • The victim has yet to confirm that the company has offered her any sort compensation. (The company says they have.)

Here is the problem I have with all of this:  What do I pay AirBnb for when I’m renting out my home? Am I only paying them to help broker financial transactions with random strangers (apparently). Or am I paying them for peace of mind when renting to random strangers? I actually thought they were in the business of the latter.

The story seems to indicate AirBnb be would rather be in the business of making transactions and introducing those who aim to rent out their property to people who want to pay.  Great, that’s a fine business to be in.

However, as a customer, I want to pay for more than that.  I want to pay for:

  • Access to a vetted community of buyers and renters.
  • Optional upgrades for security/cleaning/insurance should I desire it.
  • A company that’s up front with users about what’s occurring in their community.

Anything less than that and I’ll just go to Craigslist or Couchsurfing.com